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GM and Peugeot to join forces, sources say

General Motors and PSA Peugeot Citroen have confirmed the creation of a “long-term and broad-scale” strategic alliance they expect to contribute to improved profitability and competitiveness, especially in the weak European market where both makers have been struggling.

As part of their new partnership GM will take a 7 percent equity stake in the French manufacturer, becoming the second-largest shareholder in PSA after the founding Peugeot family, which will continue to hold a one-third stake in the firm.

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

There will be two main pillars to the alliance, the makers revealed:

  • The sharing of vehicle platforms, components and modules; and
  • The creation of a global purchasing joint venture for sourcing of parts and service.

The combined entity will be responsible for about $125 billion in annual purchasing.

Additional opportunities will be pursued by the two partners, GM and Peugeot suggested, including integrated logistics and transportation. 

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The two companies will continue to operate as independent organizations, however, especially when it comes to vehicle marketing and sales.

Along with its decision to enterinto an alliance with GM, PSA Peugeot Citroen plans to raise approximately 1 billion Euros (about $1.35 billion) in additional capital to help fund its global expansion efforts.

“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,” said PSA board chairman Phillippe Varin.

While an official announcement did not specifically address the issue, GM is believed to be accepting a standstill agreement that will prevent it from increasing its stake in PSA beyond 7% without approval of the French maker’s board.

Specific details of the joint platform and component efforts will likely not be detailed for some time but it is believed that GM could assume control of utility vehicle development – what the Europeans refer to as Multi-Purpose Vehicles.  The makers confirm their joint efforts will cover small and midsize passenger cars and crossovers, as well. 

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A joint statement also noted that “The companies will also consider developing a new common platform for low emission vehicles,” adding that, “The first vehicle on a common platform is expected to launch by 2016.

In all, the makers said they expected “total synergies” from their alliance to total about $2 billion within five years, and that “the synergies will be shared about evenly between the two companies.”

Though there could be clear global advantages, it is clear that both makers expect the alliance to be particularly beneficial in Europe, where each has been struggling.  That’s particularly true for GM, whose troubled Opel division failed to achieve a promised turnaround in 2011, instead running about $747 million in red ink and seriously depressing an otherwise dramatic revival for the parent company.

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While some analysts have praised the overall alliance structure, Jim Hall, of 2953 Analytics, insists “this won’t solve Opel’s problems,” since that is largely an issue of a weak brand image, he stressed.

But GM clearly believes that there are better opportunities than the skeptics contend.  And it may have no choice but to give the partnership approach a try.

The U.S. maker nearly sold off a controlling interest in Opel in the months after it emerged from bankruptcy protection in 2011 – ultimately calling off a planned sale to a Russo-Canadian partnership headed by super-supplier Magna International.  But the situation has, if anything worsened, since then for Opel. 

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Despite GM’s upbeat expectations, the maker clearly knows that alliances can go sour – as happened with a brief partnership with Italy’s Fiat.  It cost General Motors $2 billion to exit that deal, a pay-out that only hastened its collapse in 2009.

But industry analysts do agree that alliances appear to be the way of the future in an increasingly competitive auto industry.  Peugeot already has partnerships in place with both BMW and Ford, though another with Mitsubishi failed to materialize.

Other alliances are popping up across the industry, including a fast-expanding partnership between the Renault/Nissan Alliance and Germany’s Daimler AG.

The challenge, analysts caution, is lining up deals that provide similar mutual benefits.