GM, PSA IN ALLIANCE TALKS, FRENCH MINISTER SAYS; PRODUCTION TIE-UP IN FOCUS

By Automotive News - General Motors Co. and PSA/ Peugeot-Citroen are in talks about a possible alliance, PSA CEO Philippe Varin told the French government, following earlier news reports about the discussions.

French Labor Minister Xavier Bertrand today told the radio station Europe 1 that Varin informed him of the talks between the two automakers on Tuesday.

GM and PSA are discussing a broad manufacturing alliance designed to stem losses in Europe and lower production costs elsewhere, according to Reuters sources.

The talks are focused on sharing vehicles and parts rather than a capital tie-up, according to Reuters. Any new shareholdings that emerged would be small and symbolic.

On Tuesday, the Financial Times reported that a PSA-GM tie-up would see the automakers jointly build cars and components in Europe. Under the partnership, if concluded, PSA and GM's Opel/Vauxhall unit would jointly develop engines, transmission systems and entire vehicles that would be sold under their respective brands.

U.S. comeback

GM can offer PSA help in China and Brazil as the French automaker seeks to reduce its dependence on the stagnating European market, according to French business paper La Tribune. Another possibility would be GM helping PSA to return to the United States, a market the automaker left in 1992 after a 33-year presence, the paper said.

Should the outcome of talks with GM be positive, an accord could be announced at the Geneva car show the first week of March, according to La Tribune.

While potential synergies have been identified, PSA is treading cautiously to avoid building expectations, mindful of the 2010 failure of advanced tie-up talks with Mitsubishi Motors.

"A partnership with GM would make sense, because Peugeot and Opel both lack scale," said Sascha Gommel, a Frankfurt-based Commerzbank analyst, adding that Fiat is also a potential partner.

"Peugeot is in a difficult situation because competitors like Volkswagen and Renault-Nissan can produce much higher volumes and so have a scale advantage," Gommel said.

Europe struggles

GM is struggling in Europe with its unprofitable Opel brand. The automaker's Europe business, including Opel, lost $747 million last year before taxes and interest.

PSA is Europe's second-largest automaker after Volkswagen. PSA's 2011 sales in Europe plunged 8.8 percent to 1.68 million vehicles, while GM's dropped 1.9 percent to 1.17 million. Volkswagen AG's European sales rose 7.8 percent to 3.17 million.

PSA's global deliveries fell 1.5 percent to 3.5 million vehicles in 2011.

PSA's stock has slumped by 50 percent over the last 12 months, bringing its market value to 3.4 billion euros ($4.5 billion), while the carmaker had revenue of 59.9 billion euros in 2011.

Varin last week announced plans to sell 1.5 billion euros worth of assets to reduce debt, which widened to 3.4 billion euros in December.

Any alliance involving the French carmaker will require the support of the Peugeot family, which controls 30 percent of the stock.

The GM-PSA alliance under discussion includes shared manufacturing beyond Europe and would amount to more than a product-specific deal of the kind PSA also has with Ford Motor Co., Toyota and BMW, according to Reuters.

Among its existing production deals, PSA currently manufactures diesel engines with Ford, gasoline engines with BMW and small cars with Toyota. It also shares some vehicles with Mitsubishi Motors. Talks on a deeper alliance with Mitsubishi foundered in 2010.

PSA issued a short statement that said: "In the context of its globalization strategy and improving its operational performance, PSA Peugeot Citroen looks at potential cooperations and alliances. There can be no certainty at this stage that these discussions will result in any agreement."

GM spokesman Johan Willems said: "We routinely talk with others in the industry, but have no comment beyond that."

Fiat not in talks

Fiat isn't currently in talks with PSA, a person familiar with the matter told Bloomberg today. Fiat held talks with PSA after the 2008 financial crisis regarding a possible combination, a person familiar with the matter said. Negotiations failed because the Peugeot family didn't want to lose control over the carmaker, the person said.

Fiat CEO Sergio Marchionne said last month in Detroit he's willing to participate in industry consolidation in Europe and would consider adding a third partner before a planned merger between Fiat and U.S. automaker Chrysler Group.

Carmakers in Europe need to consolidate to compete with VW, which had a market share in the region of 23.3 percent last year, Marchionne said Jan. 10.

He said at the time that Fiat wasn't discussing with PSA or other potential partners, including GM's Open unit, though he would't close the door on any eventual alliances.