General Motors Co. (NYSE: GM) said Wednesday it began a long-term and broad-scale engineering and development alliance with French automaker PSA Peugeot Citreon to boost each company's sagging European businesses.
The companies will share vehicle platforms, components and modules and jointly purchase goods and services from suppliers. As part of the agreement, GM will purchase a 7 percent stake in Peugeot.
The two companies hope the alliance will help each with their struggles in the competitive European market. But they will remain separate companies, directly competing with each other in different markets and auto segments across Europe.
The companies' combined purchases will total about $125 billion, they said in a joint statement. Within five years, each company expects to save about $1 billion annually from the agreement. GM's approximate $335 million buy into Peugeot shares cuts a chunk into the $1.3 billion Peugeot hopes to raise through share sales to finance new projects and recoup its existing losses.
This partnership brings tremendous opportunity for our two companies, said Dan Akerson, GM chairman and CEO. The alliance synergies, in addition to our independent plans, position GM for long-term sustainable profitability in Europe.
The companies said they will focus the alliance at first on small and midsize passenger vehicles and crossovers. They said they could develop common platforms for low emission vehicles in the future. They expect to launch their first common-platform vehicle by 2016.
Wall Street analysts, though, expressed skepticism on a conference call, questioning the companies' top executives as to whether the alliance will be able to help their struggling European operations as the region remains overstocked with supply.
GM lost $747 million in its European segment last year. It continues to post huge losses in its Opel unit in the region. And it has lost about $14 billion in Europe since 1999. The European losses tempered news earlier this month of GM's record-high, $7.6 billion overall profit.
Peugeot also swung to a comparatively small loss last year after posting a huge 2010 profit. This is a deal it hopes will cut costs and create flexibility.
This alliance is a tremendously exciting moment for both groups and this partnership is rich in its development potential. With the strong support of our historical shareholder and the arrival of a new and prestigious shareholder, the whole group is mobilized to reap the full benefit of this agreement, said Philippe Varin, the managing board chairman of Peugeot.
As a whole, vehicle sales in Europe have fallen 14 percent in the last four-plus years.
Peugeot's stocks closed about 2.1 percent lower Wednesday. As of 2:15 p.m. ET, GM shares fell about 0.19 percent to $26.09.