Paul Horrell 01 March 2012

Peugeot-Citroen and GM join forces

Will the move generate the cash both companies need in Europe? Paul Horrell reports

GM PSA

29 February is traditionally the day when surprising marriages are proposed. Late yesterday, 29 February 2012, we saw GM and PSA Peugeot-Citroen getting together in an alliance.

It is not a merger. The two will still be separate companies, which means they'll sell separate cars against each other through separate dealer networks. But they will get it on with each other: they'll jointly use common platforms underneath their cars, and begin to share engines and the like. To show it's serious, GM is taking a symbolic shareholding (seven percent) in Peugeot-Citroen.

Why do it? Because Europe is a bad place to run a mass-market car business. Sales are sluggish in a weak economy, competition is fierce, and nearly all the established players have too many factories. Owning a car plant and employing its workers, when it isn't running at full capacity, is a ruinously expensive operation.

GM is making money worldwide, but losing it fast in Europe - nearly £0.5 billion in 2011. PSA's automotive division, which does the majority of its business in Europe, is in the red overall. GM and PSA reckon that by sharing platforms, and by jointly purchasing materials and parts in large numbers, they will be able to save about £1.25 billion a year from about 2016.

That will be the year when the first joint platforms might be used: Peugeot could replace the 508 and Citroen C5 and C6 with cars built on the modified platform of the next-gen Vauxhall/Opel Insignia. Then they can tackle small cars and crossovers, and low-emission powertrains. If the alliance takes root, the long-term benefits could be impressive.

But the real need isn't to save money in 2016. It's to save it now. And the new alliance says very little about that. Both GM and PSA share the same big ugly problem in Europe. Too many car factories and not enough car buyers.

GM has expensive plants in Germany. PSA has them in France. Both have tried to shut factories, but the German and French governments and unions are powerful and resistant. No car factory has shut in Germany since the second world war. So both GM and PSA have, instead, cut plants elsewhere. PSA closed Ryton in Coventry, GM closed Vauxhall's Luton plant and an Opel one in Antwerp, Belgium. Those actions didn't get to the heart of the problem.

I don't have any ill will towards factory workers in France, Germany or elsewhere, but the fact is they're living on borrowed time. If major plants don't shut soon, one of Europe's big carmakers will likely come crashing down. And that'll benefit nobody, least of all the workers.

So I'm struggling to see how this new GM-PSA alliance will actually address the real problem.

Oh, and one more thing. Does this news sound vaguely familiar? Ah yes, it's remarkably similar to the relationship GM had with Fiat in the last decade. That one got as far as producing the joint platform for the current Punto and Corsa, plus a few shared engines. Then it broke up in chaos and rancour.

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