Peugot, GM Discuss Joining Forces in Europe

Shares of French automaker PSA Peugot Citroen saw their biggest one-day jump in three years Wednesday after the French government confirmed the company is discussing a possible alliance with General Motors (NYSE:GM), Reuters reports.

The French government has been notified of a possible “strategic partnership” between Peugot and GM, the world’s largest automaker, said Labour Minister Xavier Bertrand. Peugot, Europe’s second-largest car maker, is looking at a manufacturing partnership to help alleviate losses in Europe and cut production costs in other parts of the world, Reuters said, citing sources with knowledge of the matter.

The talks with GM, which online newspaper La Tribune says have been going on for months, are over a possible collaboration on vehicles and parts, not trading shares, according to the report. New shareholdings that may result from the deal would be negligible and of a symbolic nature.

Peugeot shares were up as much as 3 euros, or 21 percent, while GM was down 0.1 percent on the news. Before the surge, Peugeot had fallen 50 percent in the past year, putting it at the bottom of the 15-member Stoxx Europe autos and parts index. Natixis analysts raised their rating on Peugot stock to Buy from Neutral, saying the partnership could be a “game changer” for the company.

However, not everyone is convinced the match will be so productive. GM’s European Opel division, like Peugot, is facing serious restructuring to cope with losses exacerbated by Europe’s floundering auto market and tough price competition, the report said. Credit Suisse analyst Erich Hauer says that, since the two companies are dealing with similar issues of overcapacity and dependence on Western European buyers, their partnership is not likely to be mutually beneficial.

“We struggle to see how yet another ‘me-too’ cooperation with GM Europe on componentry will help address any of the fundamental issues,” said Hauser. However, sources say the possible Peugeot-GM alliance includes shared manufacturing outside of Europe as well, amounting to much more than the existing product-specific deals Peugeot has with Ford (NYSE:F), Toyota (NYSE:TM), and BMW.

Peugeot has said that in addition to small cars, it needs a new commercial van partner to replace Fiat, which recently announced plans to abandon its Sevelnord joint venture in 2017. GM might be interested in stepping in for Fiat after being left hanging when Renault pulled its Trafic van from their shared plant in Luton, Britain.

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