By on August 4, 2012

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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44 Comments on “GM Makes Bad Bet With PSA, May Have To Write Down Investment...”

  • avatar

    I detect a glitch in the matrix. This is deja vu… all over again!

  • avatar

    GM didn’t buy PSA shares in order to make money on PSA stock. The share purchase was just a mechanism for gaining access to PSA’s R&D.

    The value of the stock is largely irrelevant. The more relevant question is whether the PSA deal helps GM to save or to make money.

    I am generally skeptical of M&A, and the old GM’s track record with acquisitions was pretty awful. However, in this case, if GM gets just one or two platforms out of it, then I would think that the deal would have paid for itself.

    • 0 avatar

      You accuse GM of putting irrelevant drivel in a 10-Q filing? Hoho …

      • 0 avatar

        I realize that GM isn’t everyone’s favorite automaker, but let’s use our finance minds for a moment, shall we?

        If PSA needed to net $400 million in order to seal some sort of deal with GM, then it would obviously be better for PSA’s tax position to take the money in the form of equity, instead of as income. In other words, if PSA had to take a tax hit on the money that it received from GM, then the deal would have probably cost GM a lot more than it did, and it would have been prudent for both parties for it to be funded in the form of equity.

        Of course, GM has to disclose it in its financial statement, but the right context is required for understanding this actually means.

        Since you’re following this story, here are the real questions for you to address: What exactly is GM getting for its $400 million, and is what GM is getting actually worth $400 million?

        The Old GM obviously didn’t get much out of the $4 billion that it spent on FIAT. But the PSA deal cost a fraction of that.

      • 0 avatar

        I’m with Pch on this. The reason for the investment is access to technology and potential manufacturing efficiencies. Those are not affected by PSA’s stock price — only if PSA actually goes under (unlikely) or pulls a Marchionne and cuts all investment.

        But financial reporting rules require GM to value the investment based on the stock market valuation, not on the access to technology or efficiencies.

        Apples and oranges.

      • 0 avatar

        That’s all fine and dandy reasoning until they have to take the charge and there is a $250 million hit to the quarterly results …

        That remark in the 10-Q is no idle chatter.

        Wall Street does not worry too much about the effect of platforms 5 years from now. If there is a possible charge that could lower the EPS, the stock price will reflect that …

      • 0 avatar

        I agree, a charge may show up on the 10-Q and GM’s stock price may take a hit.

        From a long-term strategic point of view it may still be a good investment. But for the stock market, three months is a long time.

      • 0 avatar

        “That’s all fine and dandy reasoning until they have to take the charge and there is a $250 million hit to the quarterly results”

        If GM had spent that same $400 million on its own R&D, then under US GAAP, every dollar of that spending would reduce net income.

        Net-net, it makes no difference at all.

      • 0 avatar

        Regardless of how one feels about GM, a write-down will affect all those ‘profits’ that GM is being hailed for making in North America, as will the ad strategy of investing in a British soccer club.

        Maybe someone from GM’s top-level management could enlighten us on what they were thinking and indoctrinate us into believing this is a good thing?

        It must have made sense to them. Then again, if it ain’t your money you’re operating on, don’t worry, be happy! The taxpayers have your back, now and forever more….. Amen.

        Will we ever see the $27B that GM still owes us paid back? Yeah, only time will tell.

        But how ’bout them Silverado, Malibu, Cruze and Volt sales, eh? That’s the bread-and-butter line of money-makers for GM. Blistering sales! Mostly blisters, fewer sales.

      • 0 avatar

        @HDC, with regard to “It must have made sense to them. Then again, if it ain’t your money you’re operating on, don’t worry, be happy,” with any publicly traded company, the money the management is working is not their own, it’s the shareholders’.

    • 0 avatar
      sunridge place


      Why bother trying to have a factual discussion with you? Everytime I’ve tried, you just fall back on:

      ‘well, that’s just my opinion and you have a right to ignore my opinion’…right after you make a fact-based statement


      ‘that’s not the way I see it at the Gas-n-Sip where I live’

      • 0 avatar

        sunridge place, nothing personal here.

        Sometimes your comments are worthy of a response, sometimes not. This is not a popularity contest, nor do I wish to influence anyone’s opinion on anything.

        I don’t speak for anyone but myself on the rare occasions I choose to comment on a thread that is near and dear to my interests, and I don’t have a need to digitally swap spit with anyone, nor am I into mental masturbation.

        Again, nothing personal here. I don’t carry on conversations with lots of people, not just you. Don’t feel slighted. If I choose not to respond to your comments or engage in a discussion, it does not reflect badly on you or anyone else.

  • avatar

    Daniel Craig, the only James Bond who looks like he’s a member of the Russian Mob.

  • avatar

    I recall Jeremy Clarkson, describing the Pagani Zonda as “the best of the best of the best”.

    Now, I do understand why people hate GM: cause they are the worst, of the worst of the worst.
    – they ruined, RUINED Saab by 12 years of most retarded management practices
    – they went bankrupt selling gas guzzlers
    – they make their sole remotely good cars exclusively in Korea
    – they allowed lethal agreements with workers at Opel, immobilizing the company
    – they allowed Opel to become the car to buy if you don’t afford a VW
    – being a motoring GIANT, they probably do only three cars that are event slightly desirable (Vette, Volt and ATS, although some would argue on the last two)
    – they stuff their channels like stuffed animals
    – and now, they buy in at the worst possible time, right in front of a huge price drop because of Euro zone crisis

    I ♥ Obama Motors! Long live!

  • avatar

    Well, if I were GM, I’d have swung the money for Peugeot to get the best diesel technology out there. 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.

    Not everyone lives in hide-bound North America running almost exclusively gas engines in light vehicles. In fact, the opposite is true.

    • 0 avatar

      > They have steadily beaten Mercedes and VW to the punch with
      > advancements over the decades.

      I even found this bit amusing.

      Who did what first does not matter. Who did it right does.

      Unfortunately for the Frenchies, the stupid market seems to consider German diesels, especially the ones from Audi/VW and BMW, especially the 3 litre ones, to be ligh years ahead.

      GM already tried to put someone else’s diesel tech into their cars. Engines were JTD, origin: Italian. It didn’t realy bring them forward that much.

  • avatar

    Sorry but none of you get it.
    GM bought into PSA as a bribe to cover the losses
    that befell PSA for supporting the sanctions against Iran.
    This was more of a agreement between the US and France and PSA/GM playing the part of implementing it.

    If France/PSA didnt go along with the sanctions, they would have been a colossal failure. Not that they have any success even now, because the rest of the world doesnt play along…

    • 0 avatar


      So it was an external decision put upon GM and PSA.
      Of course they tried to make the best of it, and contemplated to share platforms for the next C5 and Insignia.

      But that all is falling thru, coz it seems GM decided to drop Opel anyways.

      oh well…

      • 0 avatar

        You sell the readers short. I believe most of us got it. It’s just uncouth to dissect it your way on a (neutral) Canadian board.

        On an American board? Yeah. There are other more poignant choice comments re GM and its ‘investment’ strategy, JVs and partnerships.

    • 0 avatar

      continued #2:

      see, PSA is pissed coz they got a one time money infusion for giving up a steady business deal with Iran in the order of $200+ million per annum. So they are loosing as the attack and subsequent take over of Iran is postponed.

      GM is loosing coz PSA’s stock is falling, but dont worry, the US gave GM guarantees to cover the losses as Mr Ben will print $$$.
      But thats not the real problem. The problem is the GM hubris that they will succeed in replacing Opel with Daewoos. They wont. So when Opel goes, Europe is lost for GM.

  • avatar

    Given that Wall St. is always asking for “guidance” I can’t believe that GM doesn’t have *someone* who can plan financial matters more than 5 months in advance. If this was 2 years on from the initial investment it would make sense, shit happens, but in only 5 months?!!!!

  • avatar

    “Maybe someone from GM’s top-level management could enlighten us on what they were thinking and indoctrinate us into believing this is a good thing?”

    Don’t hold your breath! Besides do you really believe that the phrase, ‘GM’s top-level management’ and the word ‘thinking’ belong in the same sentence? There is a children’s party game called ‘pin the tail on the donkey’. The process used to decide how GM wastes the taxpayers money is very similer to this game. You just substitute a world map with all the car companies marked on their home turf in place of the picture of the donkey. The aim is the same, you go after the donkey’s ass. GM succeeded yet again in making a donkey’s ass out of themselves! First with SAAB, then with Fiat and now PSA. Who’s next?

    • 0 avatar

      It’s pretty easy to see that nobody around here has every run their own business. Guerilla marketing 101 is very alive and well in the auto industry, even at the dealership level. But especially in the ivory towers of Toyota City, Detroit and Stuttgart.
      What amazes me most about SEC filings of a public company, is that they are pretty much publishing a blue print of their plans for all the world to see. First off, you don’t want to advertise your blunders (which is exactly what happens when projections don’t pan out); secondly, you can bet the first copies of these filings picked up are by your competitors.
      My major competitor went to great lengths to get a copy of my F/S from the local bank. Huge, criminal lengths.
      One would hope that GM’s press releases don’t include ALL the future plans.
      Right now chess pieces are being moved around a big board – and we are all just pawns. GM won big time on Daewoo, not so much on Fiat. Again, being #1 has its pluses and minuses. One of the minuses is seeing that cash in the bank and believing it must be spent (actually, during the ugly ‘merger-mania’ of the ’80s, the cash did have to be spent!)
      GM lost a lot of ground in the first decade of this Century. Playing catch-up to Japan Inc’s playcard is not going to be easy. Or cheap.
      And if the hate-GM-at-any-cost types out there don’t know that GM and Ford have always been ‘available’ to Washington’s wishes, then you are more naive than your postings.

  • avatar

    Of course GM had to give PSA 423million. Where else are they supposed to get the money to buy Ford in three years?

  • avatar

    Look at the bright side: It is still cheaper than the $ 2 billion it cost GM to rid itself of Fiat.

  • avatar
    el scotto

    No, no, no GM is really buying into to Peugeot to attain world wide mastery of the rental car fleets. Hundreds of thousands of barely competent rental cars. I am one of those “Murricans who can drive a stick, it gives you many more rental choices in Europe. Also, my GF came to visit me in the UK and was amazed that my rental car didn’t sound like a diesel. I told her the Europeans had diesels figured out.

    • 0 avatar

      Cute. Funny, even. If you bothered to dig deep, you’ll find that multi-nationals with long histories actually do have value in ways that cannot be seen. Patents and systems, for one. As with Fiat, perhaps GM sees patents and technologies that it can acquire through an alliance cheaper than re-inventing the wheel. That is smart business sense.
      The car business is very incestuous, especially since Detroit’s contractions over the past 30 years left a lot of bright, educated engineers, designers, systems analysts, etc with no job in Michigan. This has benefited Japan Inc in huge ways – another unhappy reality for a giant in decline, like Detroit has been: you lose many of your brightest and best, and they go to your competition with not only your ideas, but your know-how!
      We may not know the end game, but if Opel’s unions are giving trouble, if Eurabia is going through another paradigm shift, then GM could be making some long term moves here.
      After all, weren’t there those who scoffed at GM buying Daewoo a decade ago? And now who is the #1 (in fact ONLY one) ‘foreign’ carmaker in Korea?

  • avatar

    “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?”

    If you’re a Ford shareholder, greatest plan in the world, combine Europes 2nd and 5th largest dying automakers so that the death can occur that much faster.

    When it comes to normal (non-luxury) automakers in Europe, you have VW, which is like GM circa 1950′-70’s in the US (in terms of market share) and Ford (which despite recent losses, they are sticking to thier plan of not trading price for market share) that are the only two realitivily healthy (Ford, VW is running ironmans right now), that’s why I think Ford should close a factory at a price that none of the others can match without cutting costs from other significantly important areas (R&D, vehicle development, factory modernization, etc).

    • 0 avatar

      Is Ford in a much better position than GM? They are making comparable profits (on less revenue, so that is better) bu they have a smaller presence in emerging markets (China, India, South America) and have no real luxury brand and Lincoln will cost a lot to fix (or kill).

      • 0 avatar

        Yes they are, GM just rinsed itself of $30-$40 billion in liabilities during bankruptcy and still face future unfunded pension burdens that will force them back into cutting costs (like product development, R&D, etc) to meet while ford just announced that they were going to begin funding thier pension obligations with free cash flow and investment grade bonds vs. 70% equities, praying and pretend rates of returns, which is how you end up with unfunded pension liabilities (without filing for bankruptcy and erasing billions of liabilities), that should tell you everything you need to know regarding the two firms relative positions.

    • 0 avatar

      It all depends on whether you buy into the whole ‘globalism’ concept. If the concept pans out, and regional superpowers equalize becoming more like ‘partners,’ and if the West’s (so far successful) agenda of making our enemies dependent on us, more like us, and then they will want to be like us – if all of this pans out. Great. Fantastic. Japan will magically open its markets. Maybe Mazda, Peugeot, Nissan and a couple others will go under, and the global auto market will stabilize. Everyone will hold hands and sing camp fire songs.
      Toyota, VW and GM are the only 3 companies that are truly global. GM has long ties in the middle East, and cachet. GM is strong in 3 of the most important 5 markets. If Europe truly unravels (and it could yet – Germany as a bank is not THAT rich), then GM will be hurt a lot less than VW or Fiat. (They’re already losing money there.) If China closes its doors, that will hurt GM and VW. If Brazil is over-run with Chinese knock-offs, that will hurt GM, VW and Fiat. India – forget India. That country can never get off the ground due to its own inertia. If India didn’t have the safety valve of the Commonwealth, it would have degenerated into Civil War or anarchy a long time ago.
      That leaves the U.S and Japan. Japan’s market is meaningless to anyone other than the Japanese 5. The wild card is the U.S. If Americans remain loyal to GM and Ford, if the Japanese juggernaut is unmasked and stopped in its tracks, then yes, Ford and GM will do okay.
      If, however, the usual suspects keep rooting for anyone other than the home team – well, the polar ice caps melting and flooding most of the world’s largest population centers would be a blessing.

  • avatar

    Be honest, who hasn’t been tempted to invest in French technology? Hello? Anyone home?

  • avatar

    007 picture boring topic. What are TTAC implying?

    .. who else thinks Daniel Craig looks too long in the tooth to play Bond? I caught the Olympics spoof with Queen & Bond looked well, Ross Perot like.

    Paul McCartney needs to retire. He’s wrinkled and wasn’t particularly good. The Olympics is about young people.

  • avatar

    Oh horror! GM made another dumb decision! It is still less than 500 million Solindra debacle. US tax payer is trained wasting hard earned money right and left. So nobody cares anymore. Same politicians who dumped billions of taxpayers money into union coffers will get elected again regardless. Go GM!

    In defense of GM. At least it is not their own money and most of American companies make dumber decisions most of the time with their own money. How about Ford buying LR and Jaguar for ridiculously high price and then selling it at the bottom of market evaluation right before new models they invested untold amount of money in start making difference. Or tech companies making dumb decisions (HP? Netflix? Kodak? Cisco? and so on) and additionally losing millions by outsourcing tech jobs to India (knowing perfectly well that money will be wasted and they will get back crappy product but who cares it makes stockholders happy!).

    • 0 avatar

      I agree plenty of companies, including GM, make dumb decisions. But it is their “own” money. The bailout was done a few years ago (for right or wrong). Now the company spends money (R&D, advertising, joint ventures etc) it generates from current revenues. Are you suggesting the US Treasury is giving GM an “allowance” each year of money to spend like a child?

      • 0 avatar

        US tax payers own all the profits made by GM because it is owned by US government. GM is supposed to pay back our money. Instead they they throw it to the wind. So White House picks winners and losers. and the only criteria is to keep alive Unions because they are biggest contributors to election funds. Yeah I got it – GM makes profits at our expense.

  • avatar

    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.

  • avatar

    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.

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