GM May Take Stake in PSA As Part of Alliance—Report

General Motors (GM) could take a stake in PSA Peugeot-Citroën as part of an alliance being discussed between the pair according to reports in the media that have appeared in the past couple of days. Several media outlets including Bloomberg News, The Wall Street Journal (WSJ) and the Financial Times (FT) have suggested that the stake could be up to 7% of the French automaker. The acquisition would come as part of a EUR1-billion (USD1.34-billion) rights issue being considered by PSA in order to provide it with extra funding for projects including those expected to be implemented by the pairing. This stake-holding agreement would also include a standstill agreement which would not allow GM to increase its stake without permission. However, sources added that no final agreement has been reached and that the size of the stake could change, with Reuters being told that it would be less than 5%.

Although the two parties continue to remain reluctant to talk about the deal directly, PSA has certainly indicated that discussions with other parties are taking place (see United States – France: 22 February 2012: PSA, GM in Alliance Talks—Report). Executive vice-president Guillaume Faury has also told Reuters that any new alliance would have to be discussed with existing partners such as BMW and Ford with which it has engine-development and production deals. Faury said: "If there's any agreement that goes beyond our existing partnerships, each of those partnerships will have to evaluate what can be done," but he added that PSA's partners would have to allow existing agreements to "evolve as a function of whatever deal is signed".

The lack of details from the automakers has also brought the ire of market regulators and investors. A spokesperson for the French stock market regulator, the Autorité des Marches Financiers (AMF), told Dow Jones International News yesterday (28 February) that "the AMF is following this operation very closely," but that "Peugeot-Citroën must inform on this subject and respect market regulations" on disclosure. This followed a day of fluctuating share prices as reports emerged with regards to the sale of a stake in PSA and the French automaker's plans for a rights issue. United States' bankers who deal with accounts in the US automaker have also reported that investors are pressing GM on how it would benefit from the tie-up with PSA.

Outlook and Implications

Reports regarding a deal between the two automakers continue without little or no clarification from either side. Initial information suggested that this relationship would focus purely on the development of engines, transmissions, and vehicle architecture, but the latest reports also suggest procurement could also be a facet as part of efforts to reduce costs, notably at loss-making European operations. However, the suggestion that this could also include GM holding a stake in PSA indicates that this could be a wider, more in-depth and long-standing relationship than was originally thought, even though sources have said that the ownership would be symbolic more than anything.

Nonetheless, while there are certainly benefits that could be achieved possibly in the area of small vehicles, light commercial vehicles (LCVs), and the supply of next generation engines for Euro VII, it remains to be seen how great the savings will be. It is also unlikely to tackle the spectre of low capacity utilisation that each face in Europe. This is an issue that cannot be tackled together without causing a political and union furore in their production strongholds, Germany and France, as well as others that could be affected such as Spain. French politicians are already rattling their sabre with regards to the prospect of this deal (see France: 23 February 2012: French Minister Confirms Talks Between PSA and GM) and this could well come up again with the prospect of the election taking place within the next couple of months. There may also be questions from the other side of the Atlantic relating to GM's involvement with PSA from the US Treasury which continues to hold a stake in the automaker.

For now though, this is all largely speculation. Although it had been thought an announcement would be made at the Geneva Motor Show (Switzerland) next week, reports suggest that this could come as early as today (29 February) given the speculation over the past few days. However, it remains to be seen whether any details will be divulged or whether there is still much to be decided in this new relationship.