By on October 16, 2012

Ratings firm Fitch released a memo Tuesday outlining some possible problems relating to the proposed GM-PSA merger.

The gist of Fitch’s findings are similar to what’s been identified at TTAC; a joint-venture or merger between the two (merger, of course, in the Daimler-Chrysler sense of the word) won’t solve some of the underlying problems that are endemic to the European auto market, namely overcapacity, price wars, the evisceration of mainstream brands by low-cost nameplates and “political and social resistance to

Fitch also noted that “lengthy anti-competition reviews could be triggered” (I guess the EU needs a break from basking in the glory of their Nobel Prize)

a lack of improvement in profitability and cash generation in 2013 and 2014 leading to further significant negative free cash flow in 2014 could increase the similarity with Ford’s and GM’s cash burn in 2005-2008. This could trigger further downgrades to the ‘B’ rating category.


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5 Comments on “Fitch Throws A Wrench In GM/PSA Merger Plans...”

  • avatar

    When drowning try to catch a millstone. It’s called “synergy” and almost certainly will work. If not, you have tried your best and nobody can blame you.

  • avatar

    The point isn’t to solve the woes of the European auto market, or even the woes of Opel. The point is to change Opel’s status from “part of GM” to “something GM has a minority stake in” without giving up ultimate control of GM’s intellectual property. From that perspective, the JV idea is actually a pretty elegant solution, if they (and by “they” I mean Akerson and Girsky) can pull it off.

    • 0 avatar

      I’ve been wondering about that possibility myself. If the merger yields fruit, GM eats the fruit. If the merger sinks, which is more likely, GM can let bankruptcy deal with the unions while they’ve split the design and IP parts of Opel off to a new entity.

      • 0 avatar

        While I think GM’s current management would love to save Opel, I think they’re (far) more concerned with stopping the bleeding from a GM corporate perspective ASAP. One way to do that is to cut Opel loose — sell it, close it, dump it into bankruptcy, whatever — but they can’t cut Opel loose completely because then they’ll lose control of the IP, and we saw with Saab that GM isn’t willing to go there. Folding it into a JV in which GM is a minority partner allows GM to treat Opel as an equity stake rather than part of the business from an accounting perspective. That gets Opel’s losses off of GM’s balance sheet right away, while making it at least look to the European public (and European governments) like they’re making a real effort to save the thing.

        Akerson gets a lot of grief in these parts (and in other places, including from me) because it sometimes (okay, often) seems like he’s in over his head as an automotive CEO. But he’s a very smart guy, and a very experienced business executive, and this kind of thing is something that he and Girsky are especially good at. It’s going to be very interesting to watch it all unfold.

  • avatar

    is a bit like tieing two stones together to pray it’ll float!

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