French Resistance to GM-PSA Deal Driven by Job Risks, National Pride

PARIS – Unions here are skeptical about PSA Peugeot Citroen’s alliance deal with General Motors announced yesterday, fearing jobs will be lost, while investors have concerns that the E1 billion ($1.3 billion) capital increase will dilute their holdings.

The auto makers plan to share vehicle platforms, components and modules and set up a global parts-and-services procurement joint venture with a combined purchasing power of E94 billion ($125 billion) under a new collaboration deal expected to save the two companies E1.5 billion ($2 billion) annually within five years.

Meanwhile, French commentators are playing on the country’s tendency to view America as a rival. Respected journalist Florence Lagarde writes, “The telephone press conference took place in the United States, which positions the center of gravity for the new partnership.”

She also notes the GM-PSA tie-up resembles the Renault-Nissan Alliance, but “in the Renault-Nissan case, the French one was the savior; in this case it is pretty much the opposite.”

One French newspaper, Ouest France, published a cartoon of a GM-Uncle Sam character pulling on the Peugeot Lion’s tail and noting, “It hasn’t even shown its claws.”

Although GM CEO Dan Akerson says the U.S. auto maker does not intend to increase its investment in PSA beyond 7%, people know things can change.

PSA is worth about E3.5 billion ($4.7 billion), so the E1 billion in new shares represent a significant dilution. Of that, the Peugeot family will invest E150 million ($200 million) and GM will pay E300 million ($400 million), according to the French press. Even with its investment, the Peugeot family ownership will drop from about 30% to about 25%.

Les Echoes, the leading French business newspaper, writes “If the Bourse (stock market) first applauded the project bringing PSA and GM closer together, investors later were chilled by the perspective of the augmentation of capital.

“For the French auto maker to consent to an augmentation of capital when its shares are close to their historic low, and for the Peugeot family to give up some voting rights, the danger must be grave,” the newspaper says.

The announcement of the deal with GM late yesterday purposely took place after the French stock market closed. Earlier in the day, PSA shares rose. However, Gaetan Toulemonde, an analyst at the Deutsche Bank, says it was a technical rally caused by investors who were selling PSA shares short to limit their losses. Shares fell 3.9% in heavy trading Thursday, the day after the announcement.

Skeptical CGT union officials says GM’s Adam Opel subsidiary in Germany and PSA build similar cars in the same segments and both makers are producing well below capacity; PSA, for example, is running short shifts in April and May.

The official line on jobs is that the new alliance will not involve itself in any potential factory closings. Eric Besson, minister of industry and labor, says PSA assures him the alliance will be “favorable to employment.”