FT: GM-PSA Tie-up On The Ropes Due To Irreconcilable Differences
A while ago, I chatted with an industry executive who had “done time” (his words) at GM. I asked him how that was, and he said: “There is always that talk about the current Big Deal that will bring the company back to its former glory. When that Big Deal fizzles, it’s on to the next Big Deal.” A formerly Big Deal is fizzling in Europe.
As we reported yesterday, General Motors and PSA have put the brakes on a broader alliance. Allegedly after PSA accepted financial assistance from the French government, as Reuters says, which broke the story. GM’s stock price immediately changed course southwards, because the consequences can be enormous..
You have a right to be curious why GM, itself no stranger to government assistance, suddenly can’t stand it when an alliance partner receives a much smaller alm from a sympathetic government. As so often, the ostensible reasons mask the true ones. Not to our surprise, Financial Times Deutschland heard from its informants that the couple has irreconcilable differences, and GM is begging for a reason to get out. Says the FTD:
“The French are disappointed about the alliance with GM: PSA hopes for financial assistance for their expansion into growth markets such as China. All GM is looking for is a partner to help them with the rehab of GM’s problem child Opel. The alliance is at the end of its rope.”
Isn’t it always like that: The girl dreams of a log lasting future, of travel to far away lands. All the boy wants is to deposit his wad and run.
What have the French been drinking anyway if they thought GM would help them break into China et al, where a scrappy Volkswagen most likely already unseated GM as China’s largest automaker (pending Volkswagen data)? GM’s again ostensible reason to deny Saab its licenses were to avoid competition in China. As for what GM has been smoking if they thought PSA would volunteer to be used as a hazardous waste site for Opel– we have asked this repeatedly.
Another reason: France’s new socialist government has been openly opposed to PSA’s diddling with Les Américains, and money talks. Not that France’s new industry minister Arnaud Montebourg is totally against alliances, mais non, but they must be with the proper people:
“Peugeot needs to build alliances. But we need to … measure their consequences for our country and obtain Peugeot’s commitment to preserve all its French sites.”
And wouldn’t you know, a day after the story breaks, PSA is said to be in talks with India’s Tata Motors about an alliance, Reuters reports. Now this one would be a better fit. Growth markets beckon for PSA, Europe beckons for Tata, everybody happy.
The Big Deal du jour was for PSA and Opel to move in together in a joint-venture type setting. A joint study found by la Tribune envisaged the automotive arm of PSA and GM form a new entity. GM would contribute Opel, along with $5 billion, and GM’s best wishes for a happy future. That would have been a Very Big Deal for GM. Adam Jonas, an analyst at Morgan Stanley, figures $13 billion would be more like the proper dowry to off-load sick Opel. Hear the fizzling sound?
PSA has been bailed out by the French government with a $24 billion rescue package, ostensibly to shore-up Peugeot-Citroen’s bank. Giving it directly to PSA would have violated EU rules. The Germans promptly cried foul and may sue. If Brussels says no, then Paris can (as it had done before) throw up its arms, say “we have tried” and the romantic couple can be at it again.
Spokesfolk at PSA and GM say it’s business as usual, and that an unbroken alliance will focus on “logistics, purchasing and product development.” Of course they would say that. However, if you lose between $1.5 and $1.8 billion in Europe, you won’t make it up with group purchases of wiper blades. As far as PSA is concerned, it has received nothing but grief from the deal with GM. BMW dumped them after BMW found a new lover in Toyota. Much more painful: PSA had to sacrifice a juicy parts and components deal with Iran, after a U.S. pressure group created a stink. Doubly painful: Having no American beau, Renault’s business with Iran thrives.
Messy, messy, messy.
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The $24B is a bit misleading; there is $15B in new financing from banks, supported by a $9B government loan guarantee. No actual government cash injectiom, just the guarantee -- but it does come with the handcuffs nevertheless.
GM wants to be able to dump Opel if necessary. Opel is so difficult to unload that even paying someone to take it may not be enough. The Peugeot family doesn't want to file bankruptcy, in order to protect their family fortune. GM was attractive when it was offering cash, but becomes less attractive when there is cash that can come from other sources. It's the conflict between family ownership and business reality that is the problem here. PSA could benefit from a downsizing/ restructuring, yet the cost of that is too high to the family, given what that would do to them personally. Anyone who believes that Tata is going to save PSA from itself is in dreamland. PSA is always a day late and a euro short, and the decline of French trade barriers exposes and increases those weaknesses.