General Motors (GM) and PSA Peugeot Citroen have announced Wednesday an alliance through which the U.S. carmaker will buy 7% stake in French automotive manufacturer and will participate in a rights issue of its 1 billion euros to achieve annual savings of 2 billion dollars. The alliance will include joint procurement and development of vehicles in an attempt to revitalize European operations, it said a joint statement, according to Reuters.
The partnership provides the restructuring of GM and Peugeot, by closing factories and job cuts, said a source close to the situation. The two companies are still working on details of the alliance, which will not be disclosed for several weeks or even months due to political sensitivity in France, said the source. “The savings generated by this alliance, in addition to GM’s independent plans, are positioning the group for sustainable profitability in Europe”, said general manager of American car manufacturer, Dan Akerson. The alliance will focus on small and medium-class cars and crossover models.
The companies said that the savings resulting from the agreement will be limited during the first two years, but in five years will reach 2 billion dollars per year. The agreement between Peugeot and GM, companies that suffer lower sales in Europe and overproduction, was received with skepticism by analysts. “PSA needs GM, but GM doesn’t need PSA. I don’t realize how this agreement will help GM in Europe”, said Matthew Stover, an analyst at Guggenheim Securities company in New York.
Both automakers have excess production in Europe of about 25%, Stover said, adding that the plan may “create complex problems at a time when GM is in a delicate moment of restructuring”. Like Peugeot, GM’s European division, Opel, Europe tries to stem losses caused by reduced sales and intense price competition. GM’s European operations generated losses last year of $747 million, while the Peugeot car division recorded in the second quarter a loss of €497 million. Last year Peugeot’s net profit fell by 48% to €588 million.
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