VW May Be Real Matchmaker Behind GM, PSA Courtship

Give Volkswagen at least some of the credit for nudging General Motors and PSA Peugeot Citroen into each other’s arms.

The deal announced last week, in which GM and PSA will combine certain procurement operations and work together on developing a number of vehicles, is about one thing: keeping pace with the growing purchasing might of VW.

Volkswagen, in the hunt to become the world’s biggest auto maker, already produces more than 4 million vehicles in Europe annually.

That kind of regional purchasing muscle gives the German car manufacturer the pricing power to bully the much smaller GM and PSA, which build about 1.3 million and 2.2 million vehicles on the continent, respectively, according to WardsAutodata.

The GM-PSA collaboration calls for joint development of B-segment models, covering 2.3 million units annually, and D-sector vehicles, accounting for 1.6 million units per year.

Not all of that volume necessarily will be manufactured in Europe, but the combined 3.9 million units of buying clout should put the two auto makers on a much more even cost plane with VW there and help draw attention from Tier 1 suppliers looking to peddle their latest innovations.

Combining purchasing in other areas and joint development of additional models – both which will be explored through the partnership – could close the gap with VW further.

Of course, there’s no guarantee all this will work. A similar purchasing venture between GM and Fiat a decade ago was torn apart amid a flurry of irreconcilable differences, despite the fact the marriage appeared to be paying dividends for both auto makers.

In addition, there’s a huge time lag between now and when the GM-PSA arrangement begins to pay off with the arrival of the first jointly developed vehicles in 2016. Each auto maker still must address its own overcapacity and cost-side issues, if it is to survive until then.

Finally, although the purchasing power may allow GM and PSA to better compete with VW on cost, it doesn’t guarantee they’ll end up developing cars consumers want to buy.

GM’s Opel/Vauxhall brand has much work to do to establish itself as a viable player positioned up-market from the auto maker’s own, fast-emerging Chevrolet marque in Europe. PSA, which sells 39% of its European volume in France, still needs to break out of its own backyard.

In short, the tie-up clearly won’t cure all that ails. But without it, GM and PSA could find themselves still choking on VW’s dust.