GM-PSA alliance might not fix their problems in Europe

Article by Anita Panait, on February 24, 2012

General Motors Co. and PSA/Peugeot-Citroen are holding negotiations over a possible European alliance to develop engines and produce vehicles together, according to a person familiar with the situation. Should the negotiations succeed in forging a deal, the alliance could cover 11 plants of GM's Opel unit with PSA's 12 European manufacturing sites.

The efforts could be seen by some as a possible solution to plug companies’ losing European operations, but there are analysts who are critical of the possible alliance. Max Warburton at Sanford C. Bernstein expressed doubt that the alliance will produce a difference in the companies' outlooks, saying that "Two wrongs don't make a right."

Warburton remarked that both Opel and PSA cannot restructure independently. He said that there is no reason why putting PSA and Opel together would speed up the process of plant closures, noting that both carmakers have excess capacity.

Both GM and PSA continue to incur losses in Europe despite implementing extensive cost-cutting programs in the last few years. Both companies might still continue to suffer losses since the current European sovereign debt crisis in the continent had led consumers to become wary of their expenses, which may cause the demand for vehicles to drop for the fifth straight year in 2012.

GM and PSA have wanted to control costs by closing some of their European plants and implementing massive job cuts, but they were faced with oppositions from unions and politicians.

This year, PSA is expected to use only 62 percent of its European capacity while Opel is forecasted to operate at 74 percent, according to LMC Automotive. Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg- Essen, warned that carmakers risk losses when they use less than 90 percent of their capacity.

PSA announced last week that it plans to cut investments and marketing spending in an effort to save EUR1 billion, an increase from EUR800 million. The company’s car-making division posted EUR92 million in losses in 2011.

Just last month, it was reported that Opel may decide to team up with Chinese automaker SAIC to expand its sales in China, as per German newspaper Handelsblatt. Opel parent GM has a joint venture with SAIC in China. Opel has been in discussion with SAIC about a sales partnership to sell and distribute its cars in China.

Opel is hoping to hike volume outside Europe as the Eurozone crisis continues to affect the region's car sales. However, GM is limiting Opel’s global expansion as it considers Chevrolet and Buick to be its main brands in China.

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Topics: gm, psa, europe

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