Peugeot-GM Tie-Up to Focus on Model Expertise, Varin Says

PSA Peugeot Citroen (UG), Europe’s second-largest carmaker, said it may help General Motors Co. (GM) develop smaller models while gaining its partner’s expertise in sport-utility vehicles as the manufacturers’ alliance expands.

Peugeot can also offer Detroit-based GM help with hybrid- powered models, with GM assisting on models in the so-called D segment of mid-size sedans, Peugeot Chief Executive Officer Philippe Varin told journalists at the Geneva Motor Show.

GM, which owns the twinned Opel and Vauxhall brands in Europe, and Paris-based Peugeot announced an alliance on Feb. 29 that will include joint purchasing and vehicle development to reduce costs for their European operations. The partnership will be global, rather than being limited to working with Opel, Varin said, reiterating that each carmaker needs to take its own reorganizational steps to restore profit.

“In an alliance, every party has to bring something,” Varin said. “We invest in hybrids,” as European carmakers generally work with smaller cars and reducing carbon-dioxide emissions, while GM’s specialists “definitely have a lot of knowledge around the world” on SUVs and related models.

GM, the world’s largest carmaker, will pay about 320 million euros ($420 million) to buy 7 percent of Peugeot, according to a regulatory filing by the U.S. company on March 5. The transaction will make GM the second-largest shareholder after the Peugeot family, which plans to sell part of its rights to the French company’s shares to GM during a 1 billion-euro stock sale to current investors running from tomorrow until March 28.

Cash for Investment

Peugeot is unlikely to buy a stake in GM soon because it needs to conserve cash, though it hasn’t ruled out purchasing a holding in the future, Varin said. Proceeds from the rights offer will help Peugeot accelerate investments to expand in developing markets, the CEO said.

The alliance is scheduled to last for 10 years, with automatic renewal periods of three years. GM and Peugeot have estimated that cost savings will reach $2 billion annually in about five years, evenly split between the two companies, coming primarily through developing models together. The carmakers will also reduce costs through global joint purchasing with combined volumes of $125 billion in materials annually.

Existing Partnerships

Cooperation with GM won’t affect Peugeot’s existing partnerships with Toyota Motor Corp. (7203), Fiat SpA (F) and Bayerische Motoren Werke AG (BMW), Varin said.

The alliance agreement calls for GM and Peugeot to have four products within the first four years that they are either manufacturing or have plans to go into production within the following 18 months, according to GM’s filing.

Peugeot, which ranks second in Europe’s auto industry to Volkswagen AG (VOW3), said Feb. 15 that it will reduce investments and marketing spending while widening a cost-savings goal by 25 percent to 1 billion euros.

The steeper cuts were prompted by a 92 million-euro loss in 2011 at Peugeot’s carmaking division. Peugeot also aims to sell 1.5 billion euros in assets to reduce debt, which widened to 3.4 billion euros last year as profit and sales fell. Moody’s Investors Service cut Peugeot’s credit rating to junk on March 1, citing concern about deteriorating finances.

GM is planning more cost cuts for its unprofitable European unit after turnaround programs failed to end losses. The company’s European business, comprised chiefly of Ruesselsheim, Germany-based Opel and U.K. sister brand Vauxhall, lost $747 million last year before interest and tax.

To contact the reporter on this story: Alex Webb in Geneva via awebb25@bloomberg.net

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

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