Peugeot, GM scale back alliance, small car programme in jeopardy

Mumbai, October 25, 2013: French carmaker PSA Peugeot Citroën and General Motors of the US are scaling back their alliance, says a Reuters report, which has suggested that this essentially means that a key part of the French carmaker's recovery plan is uncertain even as the US company is increasingly confident about its own European business, the report added.

Peugeot, which is keen on investment by its Chinese partner Dongfeng, also said a small car programme at the heart of the GM partnership could face the axe.

The Peugeot-GM alliance was inked in 2012 when the US carmaker took a 7 percent stake and, according to the Financial Times (FT), has cited it as an important reason for its positive operating cash flow in the first half of the year.

Peugeot is cutting domestic jobs and plant capacity after losing 5 billion euros (Rs 42,165 crore) last year, hopes to raise 3 billion (Rs 25,299 crore) from a capital increase in which the French state and Dongfeng would each take a 20-30 percent stake, Reuters has earlier said. The recession in the European car market is the main cause of Peugeot’s problems

Peugeot’s project in India for a manufacturing and engine plant included a 170,000 units per annum capacity is now on hold. It is the last key global OE that has not yet made an Indian foray. In the context of the lasts developments, this could only be further delayed. India’s own car market is in its biggest ever slowdown with sales down by 5 percent.

According to the FT, funding by Dongfeng would allow the French carmaker to invest in new products and to expand its footprint, reducing reliance on Europe.

While Peugeot is doing well in China with Dongfeng, it is behind Fiat in markets such as South America, and Renault-Nissan in tapping growth in south-east Asian markets.

Additionally, a potential issue with the French government is fears of the company coming under Chinese control, the FT has said.

Peugeot’s six main unions, representing almost 65 percent of its workforce, have supported plans to cut overtime pay and to freeze salaries, with the agreement inked recently.

Photograph: On February 29, 2012, GM chairman and CEO Dan Akerson (left) and PSA Peugeot Citroën chairman of the Managing Board Philippe Varin had announced a strategic alliance aimed at profiting both companies and improving their competitiveness in Europe.