GM May Write Down Investment in Peugeot, Filing Says

GM May Write Down Peugeot Stake If Value Doesn’t Improve
PSA Peugeot Citroen reported a 662 million-euro first-half loss at its automaking unit on July 25. Photographer: Balint Porneczi/Bloomberg

General Motors Co., which acquired a 7 percent stake in PSA Peugeot Citroen in March, said it may have to write down its investment as the European auto market heads toward its fifth straight annual sales decline.

The amount at which GM is carrying the investment in Paris-based Peugeot exceeded its fair value at June 30, GM said yesterday in a filing with the U.S. Securities and Exchange Commission. The Detroit-based automaker said it plans to hold the investment until the value recovers.

“They’re acknowledging that it was a bad decision,” said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. “The writing is on the wall and they see that in hindsight it was not a good investment.”

After rebounding from a government-backed bankruptcy three years ago with rising U.S. auto demand, GM is struggling in Europe, where it has lost $16.8 billion since 1999. Industry overcapacity and falling sales have led to mounting competition and losses. The Peugeot alliance, under which GM paid about 320 million euros ($423 million) for its stake, is supposed to help through cooperation for purchasing and vehicle development.

“We assessed whether the decline in value represented an other-than-temporary impairment and concluded that the impairment is temporary,” GM said in its filing yesterday on the stake. “The recent economic uncertainty is weighing heavily on the valuation of PSA. Should market conditions not recover in the near-term, we may conclude the impairment is other-than-temporary, resulting in an impairment charge.”

The filing didn’t give GM’s carrying value for the investment.

‘Good Progress’

“We continue to make good progress on all of our work streams with PSA, which will create long-term value for both partners,” Jim Cain, a GM spokesman, said yesterday in an e-mailed statement.

GM Chief Financial Officer Dan Ammann told analysts on a conference call Aug. 2 that “we have no intention of putting any more money into PSA.”

Peugeot reported a 662 million-euro first-half loss at its automaking unit on July 25. The carmaker has burned through 200 million euros in cash monthly for the last year. Peugeot plans to cut 8,000 jobs and close a factory on the outskirts of Paris to reduce costs.

The French automaker’s first-half sales in Europe fell 14 percent to 827,163 vehicles, according to the European Automobile Manufacturers’ Association.

Share Performance

Peugeot rose 0.7 percent to 5.91 euros at the close yesterday in Paris. The shares have declined 56 percent since Feb. 28, the day before the automakers announced that GM would take the stake in the French company.

GM gained 4.7 percent to $20.04 at the close in New York yesterday, as the broader U.S. markets rose.

The U.S. automaker is also trying to revamp its Opel unit in Germany as the company tries to stem losses in the region.

Vice Chairman Steve Girsky, who became chairman of Opel’s board in November and is interim leader of GM’s European operations, is heading a plan to improve the business by investing in new models, revising its brand strategy, reducing costs and leveraging the Peugeot alliance.

“We haven’t moved fast enough to fix the things we can control,” Girksy said in a statement Aug. 2 about Europe. “We have a clear plan how to change that.”

GM wants to close an assembly plant in Bochum, Germany, and has been talking with union leaders about doing so.

Chief Executive Officer Dan Akerson told analysts Aug. 2 that Opel management continues to talk with German unions about issues such as productivity, cost and capacity.

“We expect to have a comprehensive agreement in place sometime this fall,” he said.

Rainer Einenkel, the top labor representative at Opel’s plant in Bochum, said yesterday that the union will not negotiate over the closing of factories in Europe. Talks will resume at the end of August, he said in an e-mailed statement.

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