GM News: An Alliance Is Formed: GM Buys 7% Stake Into PSA Peugeot Citroën

[William Maley]

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William Maley

Editor/Reporter - CheersandGears.com

February 29, 2012

The rumor of GM and PSA Peugeot Citroën creating an alliance for the past couple of weeks is now true. Today, the two announced a new global alliance in which GM will buy a 7% stake in PSA.

The alliance would have GM and PSA sharing vehicle platforms, components and modules. Plus, the alliance would give both stronger purchasing power for sourcing components, raw materials and other goods and services. The vehicle platforms in question are will be small and midsize passenger cars, MPVs and crossovers, with the first one arriving by 2016.

GM says that results from the alliance will save approximately $2 billion annually within about five years.

Still, analysts and investors are still wondering why GM & PSA are teaming up.

Press Release is on Page 2

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GM and PSA Peugeot Citroën Create Global Alliance

Long-term strategic pairing to leverage combined scale and strengths

NEW YORK – General Motors and PSA Peugeot Citroën today announced the creation of a long-term and broad-scale global strategic alliance that will leverage the combined strengths and capabilities of the two companies, contribute to the profitability of both partners and strongly improve their competitiveness in Europe.

The alliance is structured around two main pillars: the sharing of vehicle platforms, components and modules; and the creation of a global purchasing joint venture for the sourcing of commodities, components and other goods and services from suppliers with combined annual purchasing volumes of approximately $125 billion. Each company will continue to market and sell its vehicles independently and on a competitive basis.

Beyond these pillars, the alliance creates a flexible foundation that allows the companies to pursue other areas of cooperation.

In connection with the alliance, PSA Peugeot Citroën is expected to raise approximately €1 billion through a capital increase with preferential subscription rights for shareholders of PSA Peugeot Citroën, underwritten by a syndicate of banks and including an investment from the Peugeot Family Group, as a sign of its confidence in the success of the alliance. As part of the agreement, which includes no specific provision regarding the governance of PSA Peugeot Citroën, GM plans to acquire a 7 percent equity stake in PSA Peugeot Citroën, making it the second-largest shareholder behind the Peugeot Family Group.

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

Philippe Varin, chairman of the managing board of PSA Peugeot Citroën, declared, “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 and the arrival of a new and prestigious shareholder, the whole group is mobilized to reap the full benefit of this agreement.”

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. Sharing of platforms not only enables global applications, it also permits both companies to execute Europe-specific programs with scale and in a cost-effective manner.

Initially, GM and PSA Peugeot Citroën intend to focus on small and midsize passenger cars, MPVs and crossovers. The companies will also consider developing a new common platform for low emission vehicles. The first vehicle on a common platform is expected to launch by 2016.

This alliance enhances but does not replace either company’s ongoing independent efforts to return their European operations to sustainable profitability.

The purchasing cooperation defined in the agreement allows the companies to act as one global purchasing organization when it comes to sourcing commodities, components and services from suppliers, taking full advantage of the joint expertise, volume, platforms and standardized parts. Combining GM’s robust global processes and organizational structure with best practices from PSA Peugeot Citroën will bring significant value and efficiencies to the purchasing operations at both companies.

Additionally, the alliance is exploring areas for further cooperation, such as integrated logistics and transportation. To this end, GM intends to establish a strategic, commercial cooperation with Gefco, an integrated logistics services company and subsidiary of PSA Peugeot Citroën, whereby Gefco would provide logistics services to GM in Europe and Russia.

The total synergies expected from the alliance are estimated at approximately $2 billion USD annually within about five years. The synergies will largely coincide with new vehicle programs, with limited benefit expected in the first two years. It is expected the synergies will be shared about evenly between the two companies.

The alliance will be supervised by a global steering committee that includes an equal number of senior leader representatives from each company.

Its implementation is subject to requisite regulatory approvals in certain jurisdictions as well as notification to the appropriate workers councils.

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[G. David Felt]

This still comes across as a big win for PSA Peugeot Citroen. I see very little upside for GM.

[z28luvr01]

I think this GM Europe will be the ones mostly affected by this. The only way this affects us here on this side of the pond is that the next iteration of Malibu/Cruze/Sonic et. al could be riding on something that Peugeot/Citroen had a hand in designing. I don't see either making a Fiat-esque return to the US.

Ultimately this sends a strong message to GME - we've found your potential replacement, so shape up or else....

[regfootball]

Chrysler has Fiat, Nissan has Renault. PSA + GM is not bad if GM wants to expand into that portion of Europe. Perhaps at some point, Opel becomes a sub brand of PSA and that is the way to shed Opel......

[Z-06]

After researching, I think I am giving a cautious yes to this idea for the following reasons:

1. Financially I think investing in PSA means GM leveraging PSA than other ways around like how Dr. Z leveraged Chrysler.
   
2. Logistically platform and engine sharing means better control over suppliers.
   
3. Market wise, give heartburn to VW close to its own battle grounds, who thinks it is indestructible and also keep Toyota under check.
   
4. Politically put some fire beneath German government and unions which have been real hard to negotiate.
   

[hyperv6]

I have to agree on the leverage on the Germans. This could be a good bargining chip.

As for sharing platforms . Peugeot will get help with better and new platforms and GM will leverage it out over a greater number of models. This should help lower the cost per unit they build and increase profits.

Better product for Peugeot and lower unit cost for GM. I see no down side with only 7% investment. I am sure GM has this also set that they can pull out easily.

Right now GM is all about incresed profits and this will help in Europe where profits were very hard to come by. With the loss of Saab and the Fiat/Alfa shared platforms GM was not sharing as much as they used to in Europe.

[G. David Felt]

Z and Hyper you make excellent points, I am warming up to this Alliance.

[daves87rs]

I have to agree on the leverage on the Germans. This could be a good bargining chip.

As for sharing platforms . Peugeot will get help with better and new platforms and GM will leverage it out over a greater number of models. This should help lower the cost per unit they build and increase profits.

Better product for Peugeot and lower unit cost for GM. I see no down side with only 7% investment. I am sure GM has this also set that they can pull out easily.

Right now GM is all about incresed profits and this will help in Europe where profits were very hard to come by. With the loss of Saab and the Fiat/Alfa shared platforms GM was not sharing as much as they used to in Europe.

+1

[hyperv6]

Z made the best points I just agreed for the most part. The Leverage part with the Germans is one I never considered till he pointed it out. I will give him a plus one for that one!

[Drew Dowdell]

They could platform share the Peugeot RCZ right into Chevy dealerships and I wouldn't complain. The Citroen C1 and Peugeot 107 would share with the Spark. The Peugoet 206+ and Citroen C3 - C3 Picasso could ride with the Chevy Sonic. Peugeot 308 and Citroen C4 line are a dead ringer for the Cruze platform. The Peugeot 508 and Citroen C5 and C6 go on Epsilon II. Peugeot 407, which is in major need of a makeover could go on Alpha.

[Z-06]

Actually there is more synergy like you pointed out than originally perceived because both companies are so vastly different yet play in the same sand box in some key segments. The alliance can really cause a major heartburn to Germans, Japanese and Korean manufacturers and I like the secondary competitiveness it creates for market share.

Drew and I were talking at Detroit show about consolidation of auto manufacturers in EU and China in next 5 years. Honestly we were expecting EU companies to duke it out not GM coming in. This is the first major move in the middlegame.

I also like how there are no commitment terms unlike the Fiat fiasco last decade. The Italians docked GM for $2B+ in cash, which honestly saved Fiat from bankruptcy. Obama and Chrysler should thank GM indirectly.

Frankly the news came so fast that people are still grasping on to the impact that's why no "editorials" or "expert opnions" are flying off at-random. I give credit to Ackerson's team here.

[hyperv6]

I thnk this is a good example where the money guys are not all bad. Like it or not there is a need for good finance people in a company the problem is not all of them are that good. I think GM right now has a good mix and they are working together well.

[walter36]

I think we will see a Peugeot version of the next gen Chevy Volt.