GM Makes Bad Bet With PSA, May Have To Write Down Investment

Bertel Schmitt
by Bertel Schmitt
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.

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3 of 44 comments
  • BrianL BrianL on Aug 04, 2012

    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.

  • Blowfish Blowfish on Aug 04, 2012

    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.

    • Asdf Asdf on Aug 05, 2012

      "I dont think thats true! My friend’s Peugeot 504..." The Peugeot 504 is an ancient car, launched back in 1968 (!). That's 44 years ago.

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  • Art Vandelay Pour one out for the Motors Liquidation Corporation
  • Bill Wade Norm, while true I'll leave you with this. My 2023 RAM is running Android 8 released in 2017.My wife's navigation on her GM truck is a 2021 release, I believe the latest. Android Auto seems to update very week or two. Now, which would you rather have? Anybody with a car a couple of years old NEVER sees any updates. Heck, if your TV is a few years old it's dead on updates. At least cell phones are rapidly updated. If your old phone won't update, buy another $200 phone. If your GM vehicle doesn't update do what, buy another $50,000 GM vehicle?
  • Lou_BC Once again, Mustang is the last pony car standing. Camaro RIP, Challenger RIP.