A strategic alliance between PSA and General
Motors or Fiat could help in the medium- to long-term lead to a major
restructuring of the European auto industry but would be difficult to achieve
because of the need to close factories, according Fitch Rating Services. Fitch
released the report after both GM and PSA confirmed they have held discussions
about organizing an alliance that would include PSA and GM's European
volume carmakers struggle with structural issues such as overcapacity, relentless
competition and heavy price pressure, which are compounded by declining
consumer and corporate confidence in several European markets. Pressure for
further M&A or more severe restructuring will increase as new car sales
fall and may not be avoided as in 2009. Fitch assumes new industry-wide car
sales to decline by more than 5% in Europe this year. This includes a drop of 2
percent in Germany, 7 percent in France, 8 percent in Italy and 3 percent in
Spain and the UK.
"In addition, further pressure on price
and heavy discounting in Europe could shrink revenue and profitability in
2012," Fitch said.
"In particular, PSA has said it is
looking at potential alliances to improve
performance. What form any alliance or collaboration will take is unclear,and
any impact on either company's ratings remains uncertain. In particular, we believe
that a deal involving up-front cash outlays from either of these companies is
highly unlikely, as they are looking to protect their financial structure,"
Fitch said any discussion between two car
manufacturers would revolve around long-term benefits from synergies, cost
sharing, shared R&D investments, platform consolidation and broader
diversification, versus short-term costs and political issues of restructuring.
Given the highly sensitive issue of plant closure in Europe, which would be
required to help address overcapacity, benefits could take time to accrue and
be difficult and costly to implement, it said.
An alliance, whatever its form, between PSA
and GM or Fiat would also need to clarify in which markets and segments it
would operate and how synergies would be derived. All three manufacturers have
large operations in Europe and Latin America; creating synergies without
hurting market shares would need to be planned carefully.
GM's and PSA's respective current market
valuations and PSA's conditions for a merger prevent a full merger in our view,
although a cross-shareholding similar to that between Renault and Daimler could
be an option. PSA has repeatedly said that a merger would be possible, provided
it is consistent with its strategy, builds real synergies and maintains the
group's independence. Any full merger would be difficult to comply with the
group's conditions, the analysis said.