GM Makes Bad Bet With PSA, May Have To Write Down Investment
When GM bought seven percent of the moribund PSA Peugeot Citroen five months ago, the happy couple praised monstrous synergies and annual cost savings of $2 billion a year coming from the – ahem – tie-up. Hope springs eternal, but currently, the value of this dubious investment is deflating faster than a popped balloon. Even GM is realizing it and tells the Treasury that it may have to write down that investment if things don’t get better soon.
The ever so vigilant Reuters actually went to the trouble of reading the complete 10-Q GM filed with the SEC in connection with GM’s recent quarterly report. In that filing, GM says:
“We believe that the recent economic uncertainty is weighing heavily on the valuation of PSA. Should market conditions not recover in the near-term, we may conclude the impairment is other-than-temporary, resulting in an impairment charge.”
Currently, GM thinks/hopes that “the impairment is temporary” and wants to sit it out until the PSA stock turns around.
Your tax dollars at work: Price of Peugeot share since GM’s investment
Would GM adjust the investent to fair market value and take the charge now, it would translate into yet another loss of $243 million. Helpful Reuters does the math:
“GM paid 320 million euros, or $423 million, for its stake, according to a March regulatory filing. Based on Peugeot’s current market value, a 7 percent share of the company is worth 146 million euros ($180.16 million).”
If it’s such a great investment, why not go whole hog? PSA can be had cheaply. The market cap of PSA Peugeot Citroen is a lousy two billion euro. Great price for Europe’s second largest automaker, no?
Guess not.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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This is much ado about nothing. GM invested in PSA, like many companies doing partnerships. When these investments go down, the asset value can change. This can happen anytime auto companies have a partnership like this. Also, if the value goes up, you get to count it as profit. I really don't see this being a big deal, especially if it giving them access to technology that GM needs.
Peugeot takes a back seat to nobody when it comes to diesels. They have steadily beaten Mercedes and VW to the punch with advancements over the decades. I dont think thats true! My friend's Peugeot 504 suffered from head gasket issues. Only way to really cure it was addinga copper wire to the head gasket himself so it seals the head much better. It cured all his boiling issues. And he is German decent product from Fatherland. he only took some basic diesel mechanic course, no engineering degree to speak of. wonder how come he came up with such a brilliant idea while the whole peugeot eng team neglected it? I think peugeot had diesels as long as merc or even claimed earlier than merc too.