New blow to Peugeot as GM alliance scaled back

Wed Oct 23, 2013 11:37am EDT
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By Laurence Frost

PARIS (Reuters) - PSA Peugeot Citroen (PEUP.PA: Quote) and General Motors (GM.N: Quote) are scaling back their alliance, undermining a central pillar of the French carmaker's recovery plan as the U.S. group exhibits growing confidence about its own European business.

Peugeot, which is pursuing an investment by Chinese partner Dongfeng 0049.HK as it struggles to stem losses, said on Wednesday a small car program at the heart of the GM partnership was likely to be cancelled.

"Further analysis showed that the business model just wasn't there," a Peugeot spokesman said, without elaborating. A GM spokesman declined to comment on the project.

Peugeot, which is cutting domestic jobs and plant capacity after losing 5 billion euros ($6.9 billion) last year, hopes to raise 3 billion from a capital increase in which the French state and Dongfeng would each take a 20-30 percent stake, Reuters first reported earlier this month.

While Peugeot may need the cash injection to survive a collapse in demand from recession-hit Mediterranean markets, the unraveling of ties with GM threatens the longer-term recovery of its core European operations, analysts say.

"Peugeot thought it had found a long-term partner, but the alliance seems to be disintegrating," said Paris-based Natixis analyst Georges Dieng.

"This leaves a hole in their strategy, and I don't see how they can fill it," he added. "Dongfeng doesn't really offer an alternative."

GM, the No. 1 U.S. carmaker, took a 7 percent stake in Peugeot after the companies announced what was billed as a broad-based alliance in February 2012, promising eventual savings of $1 billion each.   Continued...

General view of an empty car production building at the PSA-Peugeot Citroen automobile plant in Aulnay-sous-Bois, near Paris, July 4, 2013. REUTERS/Benoit Tessier