GM May Have Overpaid For Peugeot Alliance
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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.
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Let the naysayers speak! haha
This was not a way to make money on a stock purchase like GM is some humongous day trader. The value of the investment will be realized in savings, some immediate and quantifiable (such as the logistics and supplier volume savings) and some not as measureable (such as R&D time savings), not a rise in the stock prices. This is just GM being open with their investment to the stock holders and nothing else.
Well GM saved FIAT in 2000 with a 20% purchase, and IIRC after 4 years had the option to buy the remaining 80% at current market value but declined. And look at FIAT now, they control Chrysler and Marchionne is one of the greatest auto-execs ever. They may be struggling in Europe right now, but who isn’t.
GM saved Fiat from dying and they could do the same to help le french.
Then again this could all go Saab.
Andrew: think you coined a phrase! “going Saab”!
I actually laughed a little as I typed it
I seen it a few times so it’s not as funny as it was the 1st few times lol
Things could go SAAB, nice…
GM drove Peugeot off the lot and it depreciated 20%
Was GM-Fiat a succes…? Lets assume that management at least learned from their recent quite amateur-like errors and GM will now actually benefit longterm by putting the only german brand they have on a french platform. I doubt that it will help the image of Opel, which is the biggest problem, or the core expertise on developing complex small cars, but hey lets see what’s next…doing just great yéhaa!