Are Peugeot Citroen set to be bought out by GM?

Peugeot Citroen look like they’re going to run out of money to operate by the end of 2013, and it looks like their only salvation may be a takeover by GM.

Last year we reported that Peugeot Citroen (PSA) and GM were forming a joint alliance to cut costs and develop new cars.

But we questioned if the small savings of €2 billion a year from jointly developing new platforms and engines would do anything to stem the losses both companies were facing in Europe, and wondered if the only solution was a merger.

It now looks like PSA are in such deep trouble that they’re likely to run  out of money by the end of 2013, and Reuters are reporting that the only salvation for PSA seems to be a takeover by GM.

The biggest problem for PSA is probably the socialist French government, which sees no relationship between profits and jobs and are making it all but impossible for PSA to take the drastic action needed by closing production capacity and slashing the workforce.

PSA has already tried to do a deal with China’s Dongfeng – to no avail – and now appears to have turned to GM to turn their small stake in PSA in to a controlling one. But could that work?

As we said when we mused on the possible merger of GM and PSA last year, unless GM were able to close big chunks of car production in France the plan would have no legs.

If the only option open to GM were to cut production in the more efficient German and British plants – in order to keep less productive French plants open – that would be a recipe for disaster.

So the only way the GM takeover of PSA would work is if a chunk of French production could be shut down at sensible cost and Opel/Vauxhall and PSA cars moved to common platforms for new cars produced predominantly in Germany and the UK.

This could work, but only if the government of Francois Hollande take some reality pills. Which is far from certain.