It appears the French government stepping into help re-finance PSA's finance unit and the French OEM's current performance has acted as a brake on talks with GM over an enhanced alliance.
IHS Automotive perspective | |
Significance | GM has reportedly halted talks on a deeper collaboration with PSA Peugeot-Citroën over concerns about the French OEM's financial situation. Meanwhile Opel labour boss Wolfgang Schaefer-Klug says the company will not face the kind of cuts that Ford's European operation is undergoing. |
Implications | GM is reported to have shelved any talks on a more enhanced alliance until 2014 while it sees how the European market and PSA's cash position develops. GM is said to have been alarmed by the acceptance of French government guarantees for its lending arm. |
Outlook | If talks have indeed halted over enhanced collaboration between GM and PSA, this is a negative development for their short-term prospects as both companies would benefit from the more competitive cost structures that a deeper alliance would bring. Given the current sale environment in Europe both companies should be as open-minded as possible to deeper ties and enhanced synergies. |
General Motors (GM) and PSA Peugeot-Citroën have abandoned talks over a deeper collaboration, which would be in addition to the terms of reference of the collaboration to share purchasing and logistics, as well as an alliance on R&D and production networks. According to a Reuters report, GM has decided to call a halt to discussions as it is concerned over the state aid that has been offered to PSA's financing unit and the potential conditions attached. GM is also concerned, according to the report, about PSA's deteriorating cash position and has opted to adopt a "wait-and-see" approach. A unnamed source was quoted by Reuters as saying: "They now consider that any deeper tie-up is unlikely before 2014, when the market picks up." A deeper tie-up would presumably combine both companies' European production networks and would involves significant job cuts and plant closures in order to create the necessary industrial efficiencies. GM is worried that the state guarantees from the French government have only been offered under the condition that PSA vastly reduces the number of job cuts that the company was planning in France, and that further restructuring will also, by implication, be very difficult to implement. PSA announced in September that its Banque PSA Finance unit was being refinanced with the help of the French government (see France: 24 September 2012: PSA's revenues dip in Q3, confirms strategy with GM and funding for credit arm) . The OEM said the BPF banking pool has been requested to provide a total of EUR11.5 billion in cash facilities, of which EUR1 billion will come in the form of additional liquidity. Its main credit facilities have been renegotiated, with draw downs possible between 2013 and 2015. It added that the French government is intending to provide up to EUR7 billion in refinancing guarantees for new bond issues, with draw downs over the same period. As part of the deal, a "guarantee monitoring committee" comprising representatives from the State and the Group will be set up.
One option that has reportedly been discussed was for GM to transfer Opel to the new combined entity along with USD5 billion in cash to offset future losses and restructuring. This would have allowed GM to remove Opel from its own books and alleviated pressure on investors concerned at the poor performance of the European unit. One thing that is for certain is that any combined entity, or deeper alliance than the one previously announced, would require a far more savage programme of job cuts and plant closures. This is certainly not on the agenda of the chairman of Opel's works council Wolfgang Schaefer-Klug, quoted in a another Reuters report as claiming that the job cuts faced by his members would be much less than anticipated, and certainly not on the level that Ford if looking to implement. He said: "I don't expect that it will come to some huge number of job cuts as part of the restructuring, rather the opposite, much fewer [than many believe]. Only Bochum is up for discussion according to GM, no other Opel plants, whether in Germany or elsewhere in Europe."
Outlook and implications
It can easily be argued that the alliance between GM and PSA will only achieve what both companies want to achieve if it is formulated on a significantly enhanced level and includes shared production networks and significant technology crossover. Only then would both companies see the kind of shared resources and cost savings that would have the potential to be transformative. However, this would be a massive step for the management teams of both companies to take and would incur huge political resistance and militant opposition from both companies' labour forces. However, with GM Europe set to lose in the region of USD1.5–1.8 billion this year and PSA also losing up to USD200 million, all options should be kept on the table. However, it appears that PSA's deal with the French government to underwrite its financing has stymied moves towards an enhanced alliance.
For its part, GM recently fleshed out its own European restructuring plan, which included the loss of 2,600 jobs in 2012 alone (see Europe: 1 November 2012: GM outlines recovery plan for Europe, 2,600 job cuts to be implemented in 2012). As a result it appears somewhat premature for the company's works council chairman to state the restructuring that will be applied to Opel will not be as severe at 6,200 job losses and the closure of the Genk plant that Ford is implementing across its European operations. Given the current environment in the European market, far more radical restructuring programmes over and above the plans that have already been announced should not be discounted.