As the European auto market is on track for its annual sales to decline for the fifth year in a row, General Motors Co. said that it may be forced to write down its investment. Last March, GM acquired a 7% stake in PSA Peugeot Citroen. In a filing with the U.S. Securities and Exchange Commission, GM said that the amount at which GM is carrying the investment in Paris-based Peugeot surpassed its fair value as of June 30.
Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich., said that GM believes that it made a “bad decision” and that it wasn’t a good investment. GM has said that it is planning to hold the investment until the value recovers.
As part of the solution, GM has partnered with Peugeot in order to stem losses related to GM’s losses of up to $16.8 billion in Europe since 1999. According to a filing posted last March, GM entered a deal to pay around 320 million euros ($423 million) for the Peugeot stake as part of an alliance that includes purchasing and vehicle development.
The company announced the deal last February. In its filing, GM came to the conclusion that this impairment is temporary after evaluating if the drop in value was due to an other-than-temporary impairment. The PSA valuation is feeling the impact of the recent economic crisis. If market conditions are unable to recover right away, the company may determine that the impairment is other-than- temporary and it will have to report an impairment charge. [source: Bloomberg]