GENERAL MOTORS WANTS TO EXPAND ALLIANCE WITH PEUGEOT

By The Wall Street Journal - General Motors Co. and France's PSA Peugeot Citroen SA aim to begin joint development of at least two passenger cars by this fall, GM Chief Executive Dan Akerson said, describing the new alliance between the companies as a changed way of doing business for the Detroit auto maker.

The cars are likely to go on sale by 2016 in global markets, Mr. Akerson said. The first vehicle to be launched would be a superminicar for the South American market, where GM and Peugeot are looking to turn around their operations, people familiar with the plans said.

Mr. Akerson said he wants the partnership, criticized by U.S. and European investors as being too limited in scope to significantly improve the standing of either company, to go well beyond joint purchasing and parts-sharing. GM, he said, is shifting some executives to Europe to work on expanding the alliance.

"This isn't just capacity reduction," Mr. Akerson said in an interview, responding to critics who say the deal doesn't address GM's overcapacity problems in Europe. "This is a whole new way of looking at the business. There will be other specific initiatives that will underpin the master agreement; this deal could see significant gains on a number of levels."

The alliance comes as GM separately negotiates a deal with unions to cut costs and reduce capacity throughout Europe, where strong labor unions and government intervention have prevented companies from closing plants despite chronic overcapacity. GM, which has incurred more than $14 billion in losses in Europe since 1999, has concluded that plant closings are necessary for returning its European operations to profitability.

GM agreed to pay about $420 million for a 7% stake in Peugeot under the deal. Peugeot also is raising money through a rights offering. The auto makers said the deal will save them $1 billion each annually starting in 2017.

A spokesman for Peugeot declined to comment on details of future plans. "We are looking at a number of different development projects and are in the process of evaluating them," Peugeot spokesman Jonathan Goodman said.

Peugeot's top global managers are set to meet on Thursday, but don't plan to discuss specific joint projects with GM in Latin America or Europe, a person familiar with the situation said.

Developing vehicles jointly -- if executed properly and across a number of vehicle platforms -- could amount to billions in savings beyond the purchasing and development figure. A typical product program starts at roughly $1 billion and can cost several billion dollars. While developing two separate vehicles off the same platform would cost slightly more, splitting the cost between two companies could cut that tab by 25% or more for each project.

That said, industry experts expect GM and Peugeot to have difficulty achieving those savings. With few exceptions, alliances that focus on joint product and materials savings have been disappointing in the past.