GM hesitates over Peugeot alliance plan: source

Wed Feb 29, 2012 7:36am EST
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By Philipp Halstrick and Laurence Frost

FRANKFURT/PARIS (Reuters) - French car maker PSA Peugeot Citroen's (PEUP.PA: Quote) alliance talks with General Motors (GM.N: Quote) may yet fail as the U.S. automaker hesitates over criticism from investors, a source with knowledge of the discussions said.

Intense public scrutiny is also undermining the draft deal, in which GM would take a small Peugeot stake as part of a 1 billion euro ($1.34 billion) share issue by the cash-strapped French automaker, the source said, adding: "This is not a done deal yet."

Peugeot has yet to offer any public statement, more than 18 hours after France's AMF market watchdog demanded a response to press reports on the discussions that sent its shares yo-yoing. GM has also declined to comment.

The Detroit-based automaker is not completely convinced by the draft deal on the table, the source said.

GM shares have dropped 4.4 percent since the alliance plan was first reported by a French newspaper on February 21, while Peugeot's have advanced 6.6 percent.

"This is not the type of solution we need to see in the European mass market, where capacity has to leave," Credit Suisse analyst Erich Hauser told investors in a note on the tie-up talks.

Like Peugeot, GM's Opel division is struggling to reverse mounting European losses compounded by the region's auto sales slump and cut-throat price competition. GM's European operations lost $747 million last year, while Peugeot's core auto division was 497 million euros in the red in the second half.

The French government is still waiting for information from Peugeot about the alliance plan, an official said on Wednesday.   Continued...

The Peugeot 3008 Hybrid4 is pictured during the International Motor Show (IAA) in Frankfurt, September 14, 2011.  REUTERS/Ralph Orlowski