France urges Peugeot to take over Opel

by Melanie Loos

The French government allegedly trying to urge French carmaker Peugeot-Citroën (PSA) to take over the crisis-prone German competitor Opel, fuelled rumours about a merger of both companies earlier this year.

PSA and Opel’s US parent group General Motors (GM) established a strategic alliance in February 2012, with GM buying a 7 percent Peugeot stake in a 1 billion euro share issue. In December 2012 PSA and Opel announced a closer cooperation by pooling their purchasing activities and future car programmes to cut costs. Both GM and PSA, however, denied plans to merge.

Then some weeks ago, reports by Reuters stated that the ailing French car manufacturer is about to change ownership and to resume negotiations on closer cooperation with GM.

GM and Peugeot are both suffering as, due to the ongoing recession in the euro zone, sales in the European car market slump. In 2012 Peugeot had a net loss of 5 billion euros. The share price has plunged 77 percent in the past two years to around 7 euros. The company suffers from its dependence on the European market, where car sales recently fell to their lowest level in 20 years and no fundamental improvements are in sight.

The founding Peugeot family still owns 25.4% of shares and 38% of voting rights. According to speculation based on a report by Reuters, they have recently agreed to cede control to General Motors in return for a new cash injection from GM, which the company urgently needs.

PSA aims at a deeper tie-up plan with GM. According to analysts it would require major capacity cuts and face serious obstacles. Because of both companies’ excess capacity the tie-up would require closures and redundancies. “A tie-up reducing capacity to current demand levels would eliminate 8,000-10,000 jobs at Peugeot and almost 4,000 at Opel”, says Metzler Bank analyst Jürgen Pieper. Opel employs 20,000 workers in Germany, PSA 77,000 in France.

General Motors, which reported a loss of 200 million dollars in Europe for the first quarter of 2013, said it was not interested in raising its investment. “Our position remains unchanged: we have no intention of investing additional funds into PSA at this time,” according to a company statement.

The political hurdles and resistance from trade unions are high, which would make a deal combining Peugeot and Opel difficult, as it would imply factory closures and massive job losses.

“A further cash infusion could be viewed as throwing good money after bad,” say Barclays analysts Michael Tyndall and Brian Johnson. Opel should “search for global synergies with GM operations in regions such as China, where opportunity is abundant, rather than France”.