FUTURE BEDFELLOWS? Sources claim General Motors and Peugeot Citroen are in talks with plans to strike a manufacturing alliance.
FRANKFURT/PARIS - General Motors and PSA Peugeot Citroen are discussing a manufacturing alliance designed to stem losses in Europe and lower production costs elsewhere, people with knowledge of the matter said.
For GM, an alliance would provide a means to lower operating costs at its loss-making European unit, Opel, while Peugeot would gain much-needed access to international markets at a time when auto sales in Europe are sagging, sources said.
But analysts warned that it could take up to 10 years to see the full benefits of such an alliance. They also said additional steps would be needed to overcome the fundamental problem in Europe's auto industry - excess capacity.
London-based analyst Max Warburton said: "The logical thing to do would be to close plants, but they've not been able to do it independently, and there's no reason to think they could do it together."
Peugeot confirmed it was in talks but would not name the partner. GM spokeswoman Kelly Cusinato said: "We routinely talk to others in the industry but have no comment beyond that."
In a radio interview, French Labour Minister Xavier Bertrand confirmed that the government had been informed about a possible "strategic partnership." Online newspaper La Tribune reported that the discussions had been taking place for months.
Talks between Detroit-based GM, the world's biggest automaker, and European No. 2 Peugeot are focused on sharing vehicles and parts rather than swapping stakes, according to the people. Any new shareholdings that emerged would be small and symbolic.
An alliance could eventually yield potential cost savings between $2 billion and $3 billion by pooling together vehicle development resources and sharing platforms, Morgan Stanley analysts said.
Barclays Capital said the two can share supply chains and capital expansion in emerging markets, including India.
The Peugeot-GM alliance under discussion includes shared manufacturing beyond Europe, the sources said. It would amount to more than another product-specific deal of the kind Peugeot already has with Ford Motor Co, Toyota Motor Corp and BMW AG.
A wholesale integration of France's Peugeot with Opel would be fraught with political obstacles, observers warn.
Other analysts said while the pairing could trim costs, Peugeot and Opel have little to offer one another in the region, where they both have too much capacity and remain heavily reliant on Western European buyers.
AutoPacific analyst Dave Sullivan said: "I don't see these two helping each other because they suffer from the same disease."
The European auto market has long been plagued by too much capacity, cutthroat price competition and paper-thin margins. Those structural issues have been compounded by the recent debt crisis, which has hurt consumer confidence and caused many would-be car shoppers to pull back on their spending.