General Motors may have overpaid for its $335 million investment in PSA Peugeot Citroën, according to a filing with the Securities and Exchange Commission.
The General purchased a seven percent stake in PSA Peugeot Citroën for a total of $335 million in February to use the combined purchasing power of both automakers in an effort to cut costs, combine research-and-development functions, and share some vehicle architectures. GM may have to take an impairment charge “should market conditions not recover in the near-term”, becoming the latest example of Europe’s economic crossing the Atlantic. However, it’s not inevitable that GM will take a loss on the deal, as the automaker plans to “hold the investment until its fair value recovers”, thereby acceding negative financial impact.
The long-term alliance is not expected to result in significant cost savings until 2016, as GM CFO Daniel Ammann said that the automaker doesn’t “expect any huge benefits in 2013 arising from this.” However, a recent deal with one of PSA’s subsidiaries to handle “inbound and outbound logistics” using a 30-site network of warehouses and ports will “meaningfully lower our total cost of logistics per vehicle”. GM expects the deal to result in real-world operational changes in the first half of 2013.
General Motors lost $361 million during the second quarter in Europe and has been unprofitable for 12 consecutive years in the region. Meanwhile, Peugeot lost 819 million euro ($990 million) in the first six months of 2012 and is planning to shutter a factory in France as well as cut 8,000 jobs in an effort to reduce its gigantic overcapacity issues.