Peugeot, General Motors Said to Target $2 Billion in Savings From Alliance

PSA Peugeot Citroen and General Motors Co. (GM) plan to announce about $2 billion in cost savings from their alliance, two people familiar with the matter said.

The synergies will come in part from working together to develop new vehicles, said the people, who declined to be identified discussing private talks. The carmakers will announce their alliance as soon as today, the people said.

The partnership includes restructuring at GM and Peugeot that will result in plant closures and job cuts, said another person familiar. The two are still working out the specifics and will not disclose those details for several weeks or even months due to political concerns in France, the person said.

Peugeot, Europe’s second-biggest automaker after Volkswagen AG, announced plans this month to sell assets and delay investments as debt more than doubled in the second half to 3.4 billion euros. GM will buy about 7 percent of the French carmaker and take part in a 1 billion-euro ($1.34 billion) rights offering by Peugeot, people familiar said.

“All capacity and cost reductions can only be taken positively,” said Sascha Gommel, a Frankfurt-based Commerzbank analyst who has a “hold” rating on Peugeot. “The capital increase is a negative, as it dilutes earnings per share.”

Shares Rise

Peugeot traded down 33 cents, or 2.2 percent, at 15.04 euros at 4:52 p.m. in Paris, after rising as much as 4.6 percent earlier. The stock has gained 24 percent this year, valuing the company at 3.5 billion euros. GM traded 0.2 percent lower at $26.08 in New York.

Caroline Ho, a Peugeot spokeswoman, and Klaus-Peter Martin, a GM spokesman, declined to comment when contacted today by Bloomberg.

Both automakers know they need to shed jobs and factory capacity and view the pact as a way to get political support to do so, the person said. The deal also holds appeal to GM because it gives them access to Peugeot’s PSA bank and another lender to finance vehicle sales in Europe, the person said.

Political interference and strong unions have hampered both companies from shutting factories and laying off workers to rein in costs. French Labor Minister Xavier Bertrand warned Peugeot Chief Executive Officer Philippe Varin last week against cutting jobs as a result of the GM deal. President Nicolas Sarkozy, who’s running for re-election this year, summoned Varin on Nov. 17 to ask him to reconsider plans to cut as many as 6,800 jobs, including temporary staff employed by partners.

European Overcapacity

PSA is projected to use just 62 percent of its European capacity this year, compared with 74 percent at Opel, according to LMC Automotive in Oxford, England. Carmakers risk losses when they use less than 90 percent of their capacity, according to Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen.

Peugeot, whose origins date back to the early 19th century laminated steel- and toolmaker Peugeot-Frères et Jacques Maillard-Salins, is still controlled by the Peugeot family.

The company’s current chairman, Thierry Peugeot, is the great-grandson of Eugene, who jointly led the company with his cousin Armand when it produced its first automobile in 1891. Thierry is joined on the board by relatives Roland, Robert and Jean-Philippe Peugeot, and Marie-Helene Roncoroni.

Peugeot’s 2011 sales in Europe plunged 8.8 percent to 1.68 million vehicles, while GM’s dropped 1.9 percent to 1.17 million. The prospects for a turnaround aren’t improving with auto demand in the region poised to drop for the fifth straight year in 2012 as the sovereign debt crisis unsettles consumers.

Detroit-based GM, the world’s largest carmaker, is looking for ways to turn around its unprofitable Opel brand. The automaker’s Europe business, including the Opel brand, lost $747 million last year before taxes and interest.

To contact the reporters on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net.

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.

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