Feb 29, 2012

GM will buy 7% of Peugeot, collaborate on vehicles, parts

By Fred Meier, USA TODAY Updated 30m ago

General Motors will purchase 7% of French automaker PSA Peugeot Citroen as part of an alliance aimed to save money on product development and supplier costs as the two struggle to profit in the troubled European market.

GM lost $747 million in Europe in 2011, the 12th annual loss, bringing the cumulative loss in the region by its European Opel unit to $12.4 billion.

Earlier in Drive On: Analysts say GM-Peugeot alliance won't fix GM losses in Europe

The companies said the alliance will achieve cost savings through shared use of and development of European-focused vehicle platforms and components and through a purchasing joint venture that would have greater price leverage over suppliers. They noted that together they spend about $125 billion on parts. They also said other areas of cooperation may follow, including logistics and transportation.

They estimate that the alliance will save them about $1 billion a year each in about five years. But they said that since the savings will come primarily through new vehicle programs, they will have little savings in the first two years.

They said the alliance initially will focus on small and midsize cars, crossovers and MPVs and will consider jointly developing a new common platform for low emission vehicles. The first vehicle on a common platform is expected to roll out by 2016, they said. But they will continue to market the vehicles under their own brands and compete with each other.

The alliance will be supervised by a committee with an equal number of senior executives from each.

"This partnership brings tremendous opportunity for our two companies," said Dan Akerson, GM CEO said in a statement. "The alliance synergies in addition to our independent plans, position GM for long-term sustainable profitability in Europe."

As part of the deal Peugeot also will raise about 1 billion euros ( $1.33 billion) in additional capital through a preferred rights offering for its current shareholders. The offering will be underwritten by a syndicate of banks and by, GM noted in its release, will include an investment from the Peugeot family.

That's a key buy-in, since the family still controls more than 46% of the company's voting rights. GM's 7% will make it the second largest shareholder and will be worth about $300 million at Peugeot's current market cap.

A statement from Philippe Varin, chairman of the managing board of PSA Peugeot Citroën said, "This alliance is a tremendously exciting moment for both groups and this partnership is rich in its development potential. With the strong support of our historical shareholder (the Peugeot family) and the arrival of a new and prestigious shareholder, the whole group is mobilized to reap the full benefit."

As part of the agreement, which includes no specific provision regarding the governance of PSA Peugeot Citroën, GM plans to acquire a 7% equity stake in PSA making it the second largest shareholder behind the Peugeot family group.

In a joint statement, the companies said: "Under the terms of the agreement, GM and PSA Peugeot Citroën will share selected platforms, modules and components, on a worldwide basis, in order to achieve cost savings, gain efficiencies, leverage volumes and advanced technologies, and reduce emissions."

The alliance does not address one of the key issues for both companies in Europe -- too much production capacity and overhead for their sales volumes, which have been declining. Their release specifically notes that the alliance does not affect each of their independent efforts to restructure their businesses in Europe.

They also noted that to get done the deal will require approval by regulatory bodies and union councils in Europe.

GM will buy 7% of Peugeot, collaborate on vehicles, parts