GM-Peugeot Discussion Said to Slow While Economy Worsens

General Motors-Peugeot Talks Said to Slow While Economy Worsens
PSA Peugeot Citroen is trying to turn around its automotive operations as it burns through 200 million euros in cash per month and its shares trade near a 23-year low. Photographer: Alexander Zemlianichenko Jr./Bloomberg

General Motors Co. and PSA Peugeot Citroen’s efforts to deepen their alliance have slowed recently amid a worsening European auto market and complicated regulatory review, people familiar with the matter said.

The companies have already missed a June 30 deadline on the parts-buying plan. The automakers also aimed to announce as soon as this week at the Paris Motor Show more details on plans to jointly build four model lines using common underpinnings and to combine purchasing efforts, said the people, who asked not to be identified discussing internal negotiations.

“The broader an alliance gets, the more complex it is,” Juergen Reers, a partner with Roland Berger Strategy Consultants, a consulting firm in Munich, said yesterday in a telephone interview.

The weakening European economy and the companies’ different processes for developing cars have hindered progress, the people said, underscoring the challenge of synchronizing operations in an industry where products are planned years in advance. The automakers outlined in February a sweeping alliance to save $2 billion a year. GM bought 7 percent of Peugeot in the deal.

November Target

Peugeot Chief Executive Officer Philippe Varin said today at the Paris show that while a joint purchasing agreement requires regulatory approval it should be achieved in November.

Frederic Saint-Geours, the company’s vice president for brands, told journalists at the show that alliance projects will be achieved by the year’s end and that talks are not being delayed.

Johan Willems, a GM spokesman, said yesterday that “things are going very well” as the purchasing plan awaits approvals.

“We’re going through that, and it doesn’t make sense to do anything, to sign anything definite, until these things are done,” he said. “From our perspective, we are on track.”

The companies hadn’t planned to reveal greater details this week, said Kelly Cusinato, a GM spokeswoman.

GM said in a filing with the U.S. Securities and Exchange Commission it aimed to sign agreements with Peugeot on product-development, vehicle-supply and powertrain-supply plans by the end of October.

Cycle Plans

GM announced a logistics agreement with PSA on July 2, more than two months after the April 30 deadline set out in the automakers’ Feb. 29 master agreement filed with the SEC.

Willems disputed the idea that Europe’s worsening economy is slowing the alliance efforts.

“There’s a lot of pressure for ourselves to deliver and not to slow things down,” he said.

Making joint ventures and alliances work can be very challenging because carmakers have complex product plans that extend years into the future, said Reers of Roland Berger.

“The cycle plans for similar vehicles aren’t aligned,” he said. “So one of the two companies can have access to a new platform earlier than the other and end up with a competitive advantage.”

GM’s German Opel brand has looked at basing most of its model range on platforms developed by Peugeot, said one of the people familiar with the talks. The next Opel Astra hatchback, the unit’s best-selling model and competitor to the Peugeot 308, won’t use Peugeot underpinnings, because it’s too far along in development, the person said.

European Losses

The alliance was announced on Feb. 29, weeks before either automaker planned because of leaks about the talks, said one of the people. This left more terms to be worked on than is typical after a deal is made public, the person said. Vehicle sales, pricing and economic conditions in Europe have also been worse than either side forecast when the agreement was struck, the person said.

GM has been trying to fix its European business since the 1990s. The world’s largest automaker has lost $16.8 billion in Europe since 1999. Peugeot is trying to turn around its automotive operations as it burns through 200 million euros ($257 million) in cash per month and its shares trade near a 23-year low. The French automaker is cutting 8,000 jobs and closing a factory on the outskirts of Paris.

Peugeot’s shares tumbled 54 percent since the alliance was announced through yesterday, while GM lost 10 percent. GM rose 0.2 percent to $23.43 at 9:44 a.m. New York time.

The two companies are also looking at combining some back office functions to lower costs in the face of tougher economic conditions in Europe, one of the people said.

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