Wednesday, February 29, 2012

GM, PSA complete deal on alliance

 General Motors and French automaker PSA Peugeot Citroën have announced the creation of a long-term strategic alliance  will use the combined strengths and capabilities of the two companies, contribute to the profitability of both partners and improve their competitiveness in Europe and other parts of the world.
 However, the alliance is aimed a future vehicle development, sourcing of components through a global sourcing venture capable of buying up to $125 in parts and services annually. In addition, GM is expected to purchase a 7 percent of equity stake in the family-owned French automaker.
 However, the new alliance doesn’t contemplate any broader cooperation. Each company will continue to market and sell its vehicles independently and on a competitive basis.
“Beyond these pillars, the alliance creates a flexible foundation that allows the companies to pursue other areas of cooperation,” the two companies said in a joint statement issued in New York.
“This partnership brings tremendous opportunity for our two companies,” said Dan Akerson, GM chairman and CEO. “The alliance synergies, in addition to our independent plans, position GM for long-term sustainable profitability in Europe,” Akerson said.
However, the alliance while promising to produce savings that could grow to $2 billion annually, does not address the other issues facing GM in Europe, including the restructuring of the Opel and Vauxhall brands and the costly overcapacity issue embedded in GM’s European operations, which have no lost money for 15 consecutive years.
GM’s losses in Europe, which now total more than $20 billion dollars over pas two decades, coupled with devastating losses from in foray into mortgage market in the US, were among the underlying causes for the company’s financial crisis in 2008 and 2009 that forced into a Chapter 11 bankruptcy in which the US Treasury Department put up the capital to reorganize the company.
 Akerson has vowed to stop the losses.
 The family-ownership of PSA Citroen has protected the French automaker from some of the stresses created by the turbulence in the financial markets over the years. However, the competitive pressures in the auto business have forced PSA to look for other partners.
 In connection with the alliance, PSA Peugeot Citroën is expected to raise $1.3 billion through a capital increase with preferential subscription rights for shareholders of PSA Peugeot Citroën, underwritten by a syndicate of banks and including an investment from the Peugeot Family Group, as a sign of its confidence in the success of the alliance.
  As part of the agreement, which includes no specific provision regarding the governance of PSA Peugeot Citroën, GM plans to acquire a 7 percent equity stake in PSA Peugeot Citroën, making it the second-largest shareholder behind the Peugeot Family Group.
Philippe Varin, chairman of the managing board of PSA Peugeot Citroën, declared, “This alliance is a tremendously exciting moment for both groups and this partnership is rich in its development potential. With the strong support of our historical shareholder and the arrival of a new and prestigious shareholder, the whole group is mobilized to reap the full benefit of this agreement.”
Under the terms of the agreement, GM and PSA Peugeot Citroën will share selected platforms, modules and components on a worldwide basis in order to achieve cost savings, gain efficiencies, leverage volumes and advanced technologies and reduce emissions.
 Initially, GM and PSA Peugeot Citroën intend to focus on small and midsize passenger cars, MPVs and crossovers. The companies will also consider developing a new common platform for low emission vehicles. The first vehicle on a common platform is expected to launch by 2016.
This alliance, which will be managed by a steering committee with an equal number of executives from each company,  enhances but does not replace either company’s ongoing independent efforts to return their European operations to sustainable profitability
  PSA sells no cars in the US but competes with GM in markets such critical markets as China, South America and Russia.
 The alliance also is exploring areas for further cooperation, such as integrated logistics and transportation. To this end, GM intends to establish a strategic, commercial cooperation with Gefco, an integrated logistics services company and subsidiary of PSA Peugeot Citroën, whereby Gefco would provide logistics services to GM in Europe and Russia.
The total “synergies” expected from the alliance are estimated at approximately $2 billion annually within about five years. The savings will largely coincide with new vehicle programs, with limited benefit expected in the first two years.  It is expected the synergies will be shared about evenly between the two companies.  By  Joseph Szczesny


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