GM-Peugeot Seen as Europe Money-Losers Still Losing Money

Peugeot Said to Plan Sale of 7% Stake to GM Under Alliance
Employees work on the assembly line at the PSA Peugeot Citroen factory in Sochaux, France, on Tuesday, Dec. 20, 2011. . Photographer: Fabrice Dimier/Bloomberg

PSA Peugeot Citroen may announce as soon as this week plans to sell a stake of about 7 percent in the French carmaker to General Motors Co. as part of a development alliance, people familiar with the matter said.

The deal would involve a standstill agreement by which GM would not take a greater holding in the Paris-based carmaker without permission, said the people, who asked not to be identified because the talks are private. Peugeot may offer additional shares through a rights issue as part of the transaction, the people said.

A GM-Peugeot alliance may include developing engines and building vehicles together in the region, a person familiar said last week. GM, the world’s largest carmaker, is looking for ways to turn around its unprofitable Opel brand, while Peugeot is seeking to stem a growing debt load. Peugeot and Bayerische Motoren Werke AG began cooperating on engines for the German carmaker’s Mini brand in 2002, expanding the partnership with a 100 million-euro hybrid joint venture last year.

“They want to demonstrate that the partnership is a close one, not simply on individual projects such as those Peugeot has with BMW, which might one day separate,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler, who recommends selling Peugeot stock. “Peugeot’s dream partner, BMW, clearly wasn’t interested, which is why they have gone to GM. It is an alliance of necessity.”

Shares Surge

Peugeot surged as much as 1.47 euros, or 9.6 percent, to 16.78 euros and was up 5.6 percent to 16.16 euros as of 1:46 p.m. in Paris trading. The stock was the biggest gainer on the benchmark CAC 40 index and the broader SBF120 index. The shares have gained 33 percent this year, valuing the French carmaker at 3.78 billion euros ($5.1 billion). GM climbed 39 cents, or 1.5 percent, to $26.46 in New York trading yesterday.

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.

No final agreement has been reached on the GM-Peugeot alliance and the size of the stake could change, the people said late yesterday.

Klaus-Peter Martin, a GM spokesman, declined to comment yesterday when contacted by Bloomberg News. Jonathan Goodman, a Peugeot spokesman, also declined to comment.

Political Meddling

Peugeot Chief Executive Officer Philippe Varin said this month that the company was willing to investigate partnerships as long as they were in line with the group’s strategy, which includes expansion outside Europe, and contributes synergies while maintaining Peugeot’s independence.

Political interference and strong unions have hampered both companies from shutting factories and laying off workers to rein in costs. 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.

“If the Peugeot-GM hypothetical tie up becomes a reality, I sincerely hope it deals with the overcapacity issue,” Fiat SpA CEO Sergio Marchionne, who estimates excess European auto capacity at 20 percent, said today in Brussels. “It’s essential that the European situation will be addressed, whether I address it or other people address it, I don’t particularly care.”

European Losses

Peugeot, Europe’s second-biggest automaker after Volkswagen AG, announced plans Feb. 15 to sell 1.5 billion euros in assets to reduce debt, which widened to 3.4 billion euros as profit and sales fell.

GM, which this month posted a record annual net income of $9.19 billion for 2011, is planning more cost cuts for its unprofitable European unit after the last turnaround plan failed to end losses there.

The automaker’s Europe business, including the Opel brand, lost $747 million last year before taxes and interest. While that’s an improvement from $1.95 billion lost in 2010, GM had planned to break even in the region until November, when it pulled back the forecast as the European outlook worsened.

Peugeot, whose origins date back to the early 19th century laminated steel- and toolmaker Peugeot-Frères et Jacques Maillard-Salins, is still 30 percent owned by the Peugeot family, according to data compiled by Bloomberg.

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.

Selling Property

Blackrock Inc. last year became the second-largest investor with 5 percent, according to a regulatory filing.

Peugeot, whose carmaking division missed a target of breaking even in 2011, said Feb. 15 it will sell property as well as a holding in the Gefco trucking unit that has yet to be determined. The disposals include the Citer vehicle-rental unit that Peugeot sold to Enterprise Holdings Inc. on Feb. 1 for 440 million euros.

“The history of collaborations in the auto industry that involve equity -- or even if they don’t involve equity -- is miserable,” Maryann Keller, a principal of a self-named consulting firm in Stamford, Connecticut, said in a telephone interview. “What in the world do you get by buying a tiny stake of a French company where you could never lay anybody off or close a factory?”

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