Grand auto alliance draws mixed reaction

Pictures of the logo of French carmaker PSA Peugeot Citroen (left) and the logo of US giant carmaker General Motors. Photo / AFP

General Motors and French carmaker PSA Peugeot Citroen have formed a "long-term and broad-scale" alliance to share vehicle platforms and jointly buy parts and materials.

The deal will pair the world's largest carmaker, GM, with the eighth-largest. Peugeot is also Europe's second-largest carmaker behind Volkswagen.

GM and Peugeot, which are already overhauling their struggling European operations, expect the partnership to generate limited benefits in the first two years. But yearly savings of about US$1 billion ($1.2 billion) are targeted for each company within five years.

GM will invest US$400 million to US$470 million for a 7 per cent stake in Peugeot, becoming its second-largest shareholder after the Peugeot family. The companies plan to work initially on small and mid-size cars, crossovers and multi-purpose vehicles. They may also develop a new platform for low-emission vehicles, with the first models expected to go on sale by 2016.

But reaction from big business to the partnership has been mixed. Said Standard & Poors: "We expect each company will still need to address one of the most difficult and 02-03-2012 16:30:50potentially costly challenges - excess capacity - individually rather than via the alliance ... joint ventures are common in the auto sector, although their track record ... has been mixed at best.

"Still, if this arrangement, along with actions by other European automakers, manages to overcome political resistance to possible reductions in capacity in Europe, the industry's profitability could benefit."

Other analysts argued that the deal introduces complexity at a time when GM is at a delicate point in its restructuring. "Peugeot's struggling; Opel's struggling. You can't just put two struggling entities together and expect magic," said one.