GM-PSA Purchasing, Vehicle-Development Tie-Up to Save $2B Annually

General Motors and PSA Peugeot Citroen will share vehicle platforms, components and modules and set up a global parts-and-services procurement joint venture with a combined purchasing power of $125 billion under a new collaboration deal expected to save the two auto makers $2 billion annually within five years.

The pact also calls for GM to take a 7% stake in PSA, making the U.S. company the second-largest shareholder in the French auto maker behind the Peugeot Family Group.

There are no plans to increase GM’s share beyond 7%, GM Vice Chairman Stephen Girsky assures during a conference call with analysts and reporters today.

There also is no put or call option, GM officials say in reference to a similar, but failed, earlier alliance between GM and Fiat to share powertrains and purchasing. That JV ended acrimoniously in 2005, when Fiat squeezed a $2 billion payment out of GM in exchange for cancelling a put option that would have forced the U.S. company to buy the then-financially crippled Italian auto maker.

“I wasn’t here,” Akerson says when asked why the tie-up with PSA stands to work better than the one with Fiat. “Fundamentally the (Fiat) deal worked, but it was a bit unbalanced. The put option had a loaded gun at the head of General Motors. This is not anything close to that.

“What we have here is a much broader (cooperation). A, it’s more balanced. B, there are known concrete synergies. And C, lessons (from the Fiat courtship) were learned.”

In addition to GM taking a stake, PSA is expected to raise E1 billion ($1.4 billion) through a capital increase with preferential subscription rights for shareholders, underwritten by banks and including an investment by the Peugeot Family Group as a sign of confidence in the new alliance. The auto maker says the cash infusion will fund development of low-emission or emerging markets vehicles.

GM and PSA say the deal “creates a flexible foundation” to explore other areas of cooperation.

“The alliance synergies, in addition to our independent plans, position GM for long-term sustainable profitability in Europe,” Akerson says.

PSA Chairman Philippe Varin calls it “a tremendously exciting moment for both groups.”

Initially, the platform-sharing focus will be on small and midsize cars, multipurpose vehicles and cross/utility vehicles, the auto makers say.

The co-development would affect joint volumes of 2.3 million units in the B-segment and 1.6 million D-segment vehicles.

Some of the products could be sold globally, including the D-segment models, which likely would be marketed in North America, GM officials say, though the European and Latin American markets appear to be the initial driving focus of the tie-up.

Executives say the two will explore further cooperation on platforms across their entire product portfolios.

The first vehicle on a common architecture is expected to launch by 2016. The alliance will allow GM and PSA to develop niche products they would not have been able to do on their own, executives say.

Plans also are under study to develop a new common platform for low-emissions vehicles, though Varin declines to say whether PSA has an interest in the Chevrolet Volt’s extended-range electric-vehicle technology.

The purchasing JV will allow the two to act as one global purchasing organization for commodities, components and services, GM and PSA say. They don’t reveal specifically how much the joint procurement is expected to save, saying only it will bring “significant value and efficiencies” to both companies.

Together the auto makers sell 12 million vehicles annually, Varin notes. “This scale is unmatched.”

Joint logistics and transportation operations are being explored, as well. GM will establish commercial cooperation with Gefco, a PSA logistics subsidiary, as a first step in that direction.

A global steering committee with an equal number of executives from each company will oversee the alliance, which is subject to regulatory and workers-council approvals.

The pact is expected to be finalized in second-half 2012.

In today’s conference call, both auto makers emphasize the tie-up is not a merger, and each will continue to work on its own restructuring plan independently. The alliance will not have a direct impact on capacity reduction, officials contend, although it would appear possible that with common platforms, shared production capacity could follow.

“We look at this as adding additional tools to the tool kit,” Girsky says of the tie-up, adding GM will continue working on its own to cut costs, hike revenues and reduce the break-even at its money-losing Adam Opel operations in Germany.

“The alliance is not about reducing overcapacity,” Varin insists.

Both companies promise the collaboration won’t jeopardize relationships each has with other partners.

“We don’t want to harm those cooperations,” Varin says. “This will have no impact.”

But PSA says there will be no talks with Chrysler-Fiat, which has said it would be interested in a strategic collaboration with the French auto maker.

“We have enough on our plate,” Varin says. “We (won’t) do anything that harms this cooperation.”

Girsky says the GM-PSA deal was not top-down driven, but bubbled up from teams working on smaller cooperative projects that saw possibilities for a deeper involvement.

“There is commitment up and down the organization,” he says.

The auto makers say they have kept their unions informed of the talks and plan to continue to involve labor in future discussions.

– with William Diem in Paris

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