September 1, 2014

Vauxhall, Opel, Pegueot, Citroen merger talks fail

Talks between GM Europe and PSA (Peugeot Citroen) have failed as a French government bailout for PSA looks imminent.

GM and PSA Logos

When we reported in March that G.M. Europe (Vauxhall and Opel) has signed an agreement with PSA (Peugeot Citroen) to cut costs and share platforms we thought it a pointless gesture; the savings, compared to the huge losses, were minimal.

So it was no surprise that GM and PSA seemed to be moving to a much cosier relationship last month with talks to effectively merge GM’s European operation in to a new company with PSA, share product and development and take GM Europe off GM’s balance sheet. But it all looks to have gone wrong.

Reuters are reporting that the talks to effectively merge the two operations have failed, and they’ve failed as PSA gets further in the mire and the French socialist government seem intent on bailing PSA out of trouble.

That sounds like a potential plus – more money to play with – but it is in fact the opposite.

The only way any GM/PSA merger could work is if the partnership divested itself of its over-capacity in Europe, but a socialist government has no concept that jobs are related to profit, so any bailout the French government provides PSA will almost certainly be predicated on government and Union seats on the board and no factory closures or job losses.

That would mean a PSA/GM partnership would be saddled with a core of French production that couldn’t be cut, and huge cuts in capacity in the more efficient plants in Germany and the UK. Which is not something GM would countenance.

So the French government may stupidly prop up PSA, but it’s a short term fix. The only long term fix is a reduction in production capacity and jobs in Europe. So, for now, GM Europe looks to have lost its opportunity to make Europe work.

Does that mean Vauxhall being closed down? It could.

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