General Motors and France’s Peugeot have announced a plan to form an alliance aimed at annual savings of $2 billion within five years, according to Automotive News (sub required). GM will take a 7 percent stake in Peugeot as part of a share issue by the French car company. The stake in Peugeot should cost GM between $400 million to $470 million, depending on market conditions when the deal happens.
The alliance aims to accomplish two main goals: sharing vehicle platforms, components, and modules, and establishing a global purchasing joint venture. The sharing aspect of the deal would first focus on small and midsize cars, MPVs, and crossovers. The two companies might also work on a joint platform for low-emission vehicles. GM says the deal is expected to be finalized in the second half of 2012.
I have to admit, when I saw this story the first thing that came to mind was “Oh boy! Here we go again!” GM doesn’t have the best track record when it comes to forging alliances with other carmakers. Its hook-ups with Fuji Heavy Industries (Subaru) and Suzuki Motor wound up on history’s scrap heap when it sold off those stakes right before going bankrupt. GM never got much out of its $2 billion investment in Fiat in 2005; the relationship was dissolved five years later.
Guggenheim Securities analyst Matthew Stover took the words right out of my mouth when he said the plan is risky because it is “introducing complexity at a time when GM is at a very delicate point in its restructuring.” Just when things are going pretty well — rising market share, sales, and profits — GM starts messing with a good thing.
GM’s Opel division in Germany has been a sore spot in an otherwise impressive comeback story. Opel, like Peugeot, suffers from overcapacity and money-losing operations. GM lost $747 million in Europe in 2010 and Peugeot’s core auto group lost $664 million in the second half of 2010.
GM’s alliances of days past also centered on costs savings through platform sharing and saving money by combining buying power. But none of those deals ever lived up to the optimistic promise of the original press announcements. Given the available information at this moment, it’s hard to fathom how two heads will be better than one, when independently neither head has figured out how to stop the bleeding in Europe.