PSA In Deep Merde, Bailout By French Government - Or GM?

Bertel Schmitt
by Bertel Schmitt

Tomorrow, GM’s sick French partner PSA Peugeot Citroen will publish quarterly sales. They are expected to be très dégoûtant, and will set off a chain reaction: The credit rating agencies will put PSA’s already alarming rating down a notch further to near-dead status. Its captive financing arm BPF, a bank in its own right, will go down with the mothership. The bank’s rating is not allowed to stay more than two notches above the parent. This will drag the bank into junk bond territory, and borrowing costs will explode. The French government is here to help – for a price.

According to Reuters, French industry minister Arnaud Montebourg demands that PSA puts government and worker representatives to its board, scales back job cuts and keeps plants open. Then, the government would consider bailing out the bank.

Montebourg also made ominous hints that he would “weigh the consequences” of Peugeot’s alliance with General Motors, which he never liked,

The government help will raise more than eyebrows in Brussels. While government aid to banks is allowed under EU rules, company bailouts are not. By connecting aid to PSA’s bank with conditions for the automaking arm, the French government would cross the line in Brussels. Brussels has a wary eye on the interventionist French anyway.

This will get ugly. For PSA and GM. If the French government gets too demanding, there would remain only one consequence:

PSA’s bailout by GM. (After November 6, please …)

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  • Marcelo de Vasconcellos Marcelo de Vasconcellos on Oct 23, 2012

    EU can't push the French too hard. The EU is at a critical juncture and European peoples could turn on them if they perceive it as the culprit for their predicament. Seems like some political finesse is in order and the French are going to push the limits to see how much they can get away with.

  • El scotto El scotto on Oct 23, 2012

    It seems Montebourg is living in some alternative universe where the Euro is strong and France can dump cash into any French industry it likes.

  • Polar Bear Polar Bear on Oct 23, 2012

    American tax money (via GM) to bail out a French car maker? Please let it happen. Imagine what the talking heads on Fox News will say.

  • Pch101 Pch101 on Oct 23, 2012

    If it were me, I would create a new entity. The new entity would own Peugeot the automaker and Opel the automaker. The Peugeot bank would be maintained as a separate entity. The shares of the new Peugeot-Opel could be distributed to GM, the current PSA shareholders, and whoever else needs to own them. GM's admission fee to the party would be to throw some cash at the new entity, just enough to get it started. This would cost GM less than it would to directly close down plants. This would also free GM to continue to push Chevrolet into the market, and maintain its plan to sell cheap Korean cars via that division. The spin out of the bank would allow it to function and grow its business elsewhere without it being dragged down by the car company. If the new car company fails, then it drags the Germans into it. Since GM would not be on the hook at that point for fixing the Opel piece of the problem, that would provide more leverage for a government-funded bailout. If the French and Germans are both motivated to throw money at it, then they'll find a way to make that bailout happen. A unified Peugeot-Opel with some legal distance between itself and GM would turn a French problem into a European problem.