General Motors and Peugeot Mulling A Joint Venture In Europe

General Motors and PSA/Peugeot-Citroen are currently working on ways to combine their European operations as part of a second phase of their alliance that they created earlier this year.  There is one option for GM’s Opel/Vauxhall unit to merge with PSA/Peugeot-Citroen’s automotive operations as part of a joint venture according to French newspaper La Tribune.  GM and PSA/Peugeot-Citroen are working on ways to prevent additional losses in the struggling auto market in Europe.

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The discussions between PSA/Peugeot-Citroen and GM started after their initial alliance deal.  The options included selling Opel to PSA/Peugeot-Citroen and buying PSA/Peugeot-Citroen automotive business and putting them all together in one new entity.  General Motors would own a 30% stake in the joint venture and would invest up to $10 billion in the new company.

If GM had a 30% stake in the company, GM would not have to consolidate Opel’s financial results.  This would remove GM’s largest financial liability according to sources with La Tribune.  GM would put cash in the venture because of imbalances in annual revenues between PSA/Peugeot-Citroen and Opel.  If a joint venture became an option, the French government may just object.

GM and PSA are working on a deeper tie to save costs are at an early stage.  ”To the extent that GM is able to cut its losses in Europe or get another manufacturer to share some of their burden, that would seem to make sense,” stated New York-based analyst Brian Sponheimer.  ”Structure is obviously the key.”

GM lost money in Europe for 12 straight years.  GM would likely not announce anything until after they reach a new labor deal with German hourly workers.  However some analysts are saying that GM cannot tackle costs in Europe unless they close plants.

GM paid 320 million euros for a 7% stake in PSA as part of the original alliance deal.  GM said this past August that they may have to write down the value of the investment.  PSA and GM have five possible joint vehicle programs after talks with French unions in March.

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