When General Motors teamed up with and purchased a seven percent stake in French automaker PSA Peugeot Citroën for $335 million in February of 2012, the Europe-only deal was pitched as a way to slash costs in Europe — a market that was and still is faced with significant manufacturing overcapacity, and slumping consumer demand. Since the initial announcement, General Motors and Peugeot have solidified the ways in which the two automakers will collaborate, identifying the co-development of certain future vehicles and integrated logistics operations as the pillars around which to build the partnership.
eSince the partnership was announced, several factors have changed — making us wonder whether GM really needs to be involved with the French automaker, and to what extent.
1. Vehicle Co-Development
As part of the agreement, GM and PSA Peugeot Citroën will “begin sharing select platforms, modules and components on a worldwide basis” — all in an effort to achieve cost savings, gain efficiencies, leverage volumes and advanced technologies, as well as to reduce emissions. The partnership currently calls for the following development projects:
- A joint program for a C-segment-MPV for Opel/Vauxhall and a C-segment CUV for the Peugeot brand
- A joint B-segment MPV program for both groups
- The co-development of an upgraded low CO2 B-segment platform to feed Opel/Vauxhall and PSA’s next generation of cars in Europe and other regions
The initial agreement contained plans for to jointly develop mid-size vehicles, although that project seems to have been scrapped.
More than any other element in the partnership, the joint development of platforms and vehicles seems to be the most troublesome to us, as it has the potential to drain engineering prowess of the jointly-developed vehicles (and their respective segments) from GM-Opel, increasing the difficulty with which GM could to re-enter the segment with an offering of its own, when/if the partnership is dissolved.
Even more concerning is the seeming lack of an answer to the question “why?”. Why does GM-Opel need to co-develop the aforementioned vehicles with PSA Peugeot Citroën — a regional automaker without any truly exceptional vehicles, and no global vehicles — when The General itself is a global engineering, design, development, and manufacturing powerhouse? As it stands, perhaps GM needs to increase (or improve) its own internal R&D efficiencies before jumping head first into co-developing products with Peugeot while losing the ability to re-enter the segment in the future. And why does GM even need a lackluster and underperforming auto manufacturer such as Peugeot to assist with the development of these vehicles in the first place?
2. Buick Muddies Things Up
The recent alignment of Opel-Vauxhall and Buick into a global hybrid brand further muddies the relationship with PSA Peugeot Citroën. Whereas before it was all about Opel-Vauxhall and PSA Peugeot Citroën, it’s very possible that GM’s premium Buick brand is now involved in the relationship as well. Even though its involvement may be indirect and be limited to sharing some vehicles with Opel, it still complicates the relationship nonetheless.
The only way in which Buick’s involvement wouldn’t obfuscate the situation is if Opel’s partnership with PSA Peugeot Citroën were limited to the three programs and vehicle segments outlined above. However, rumors are swirling that the next-gen Opel-Vauxhall Astra — which serves as the basis of the Buick Verano/Excelle GT — will ride on a common PSA Peugeot Citroën and GM-Opel platform. This would be troublesome if the platform in question would be different than the D2XX architecture that will underpin the next-generation Chevrolet Cruze, along with its various variants.
3. Sourcing, Distribution, And Logistics
The only project of the GM-Opel-Peugeot relationship that makes sense to us is the one that involves cutting costs by combining sourcing, distribution, and logistics operations. By doing so, both parties increase their operations and will be able to take advantage of greater scale economies.
In fact, GM has already transferred the majority of its logistics business in Europe to Gefco — a wholly-owned subsidiary of PSA Peugeot Citroen. The agreement has an effect on the majority of Opel/Vauxhall, Chevrolet, and Cadillac logistics activities in Europe (including Russia) as well as auxiliary services such as material and component deliveries to manufacturing plants, delivery of finished vehicles to dealerships, and the transport of aftersales spare parts to distribution centers.
The move, according to GM, allows it to “focus its internal resources on [its] core automotive business”, rather than tying up resources on logistics operations. The General expects to realize roughly $2 billion annually in savings between itself and Peugeot Citroën within about about five years —- a move that is expected to bring GM Europe to a break even point by 2015. Greater cost savings will come in the form of a larger sourcing and purchasing operation, with combined purchases estimated at $125 billion a year.
4. Possible Latin American Expansion
Then there’s this possibility: a collaboration between GM and PSA Peugeot Citroën in Latin America and other emerging markets. According to both alliance partners, the Latin American efforts will only take place if the relationship goes well. But, at the expense of sounding repetitive, why?
Why does General Motors need Peugeot’s help in expanding its presence into Latin America? Is it not big enough to do it by itself? Does it need a partner, with its own interests, strategies, and points of view, to pull it in different directions during said expansion? And why can’t GM simply take care of it alone in the region?
So of the four projects on which GM and PSA Peugeot Citroën might collaborate, only one seems to make the most business sense, while the others have the ability to put The General at a noticeable technological and engineering disadvantage. Undoubtedly, the collaboration is being pitched as a way to weather the slumping European economy and related slump in new car sales and cut costs, but we wonder if GM would have been better off by not partnering with the French automaker, weathering the European economic storm itself, and retaining technology and platform development in-house. Perhaps doing so would result in prolonging the break-even period for Opel, from 2015 to 2016 or 2017… but during this time, PSA Peugeot Citroën would have already run out of financial resources — and been eliminated (read: no bailout due to lack of competitive potential). Interestingly, the death of Peugeot would have definitely helped with the overcapacity/low demand part of European region. Whatever happens, let’s hope that GM doesn’t feel obligated to take over PSA Peugeot Citroen entirely, an idea that seems to have crossed the minds of some executives at the French automaker.