General Motors-PSA Euro Talks Tip of Iceberg?

Before they’ve even announced a tie-up, industry skeptics are shaking their collective heads and saying a General Motors-PSA Peugeot Citroen alliance is a bad idea: Both auto makers are hemorrhaging money in Europe and it’s highly unlikely teaming up will fix that.

PSA’s automotive business lost E92 million ($122 million) in 2011, and the company is cutting costs, piling up debt and selling off some of its real estate and shares in subsidiaries in an effort to turn the situation around.

GM’s European subsidiary, Germany-based Adam Opel, also is a money-loser and in the process of cutting costs in an attempt to survive, writes Paris-based WardsAuto correspondent William Diem. Indeed, Opel lost E528.2 million ($700 million) in 2011 after earlier expectations its 2010 restructuring would leave it at breakeven for the year.

While putting two money-losing European mass-market car companies together suggests many synergies for cost-cutting through plant closings, it doesn’t suggest opportunities to grow into new markets for either auto maker, he writes.

Yes, the debt-ridden, recession-bound eurozone should be a no-fly zone for global auto makers looking to shore up their bottom lines. And post-bankruptcy GM should be particularly cautious as its history is riddled with failed partnerships: Fiat, Suzuki and Saab are a few that come to mind. Not to mention GM’s Opel and U.K. Vauxhall are on the ropes.

So why the rush to France?

Some analysts say the chances of a successful Franco-German partnership are highly unlikely. They point to cross-culture failures: Daimler-Chrysler, Volkswagen-Suzuki and Ford-Mazda, among the most recent. Then how do they explain the success of alliances such as Renault-Nissan and Fiat-Chrysler?

Opportunity is where you find it. A market inroad begs to be considered, even when the timing isn’t the best. Unfortunately, the highly prized sought-after emerging markets of recent years are losing their luster.

China’s double-digit vehicle sales are falling back to Earth, India is suffering from inflation and consumer angst over whether the government is going to put a higher tax on diesel fuel; and Brazil’s rising currency is pricing it out of the export markets.

Only Russia, with the help of government intervention and rising oil prices, is seeing sales accelerate ahead of year-ago. Africa, the Middle East and parts of Asia still offer opportunity, but what to do with the over-leveraged car companies in Europe?

Several analysts tell WardsAuto Associate Editor James Amend that talks between GM and PSA make sense if they center on jointly developing engines, transmissions and architectures for vehicles sold under their respective brands.

“I can’t see them combining manufacturing bases; too many issues there with strong unions backed by the governments,” says Ian Fletcher, an analyst with IHS Global Insight in London.

"There are efficiencies to be gained by this relationship. But the big issues with their workforces and production capacities will have to be solved independently.”

Dave Cole, chairman emeritus of the Center for Automotive Research and chairman of Auto Harvest, both in Ann Arbor, MI, does not expect cooperation between Opel and PSA beyond technology-sharing, but warns the industry has entered a regulatory-driven period where “everyone is talking to everyone” over ways to trim costs.

With fuel-economy and emissions rules now tightening globally, auto makers are pursuing a variety of avenues to meet the standards. “The problem is we don’t know the answers,” he tells WardsAuto.

“It could be hybrids, diesels, EVs. So everyone is trying to work on everything. I suspect you’re going to see a lot of collaboration.”