GM & Peugeot Citroen Alliance. The beginning of the end for mass market car makers?

GM & PSA Alliance - an admission of failure?

General Motors (GM) and Peugeot Citroen (PSA) have formed an alliance to cut costs and develop new cars. But is this an admission  mass car makers are no longer viable?

Yesterday we had an email announcing that GM and PSA had formed an alliance to share buying power, co-develop new models and share platforms in a bid to find more profit in their products (or any profit).

The figures looked impressive enough with a claim the new alliance could save as much as €2 billion a year, although not until about 2017. But then we looked at the figures again and realised that €2 billion a year saved wouldn’t restore profitability to PSA or GM Europe even if it happened straight away – it’s probably no more than about 1 per cent of what PSA and GM spend each year. Really, they’d be better off screwing their suppliers for that 1 per cent.

What the attempt at an alliance between PSA and GM seems to be is a tacit acknowledgement that mass car makers just can’t compete with ‘Brands’; car makers whose badge signals quality to buyers, buyers who are willing to pay a premium for ‘quality’.

PSA and GM Europe are losing money hand over fist, they have far more manufacturing capacity than they can ever hope to utilise and yet are unable to divest themselves easily of that capacity in Europe for political reasons. A band aid alliance is not going to change that; all that could is to re-brand themselves as ‘Premium’ car makers.

You only have to look at what Tata has done with Jaguar and Land Rover – where margins on their cars are an impressive 20 per cent – and Audi, where record profits have just been revealed. All on the back of the car buyer’s perception that they are ‘Premium’ brands.

It’s starting to look like there is no room in the car market for a middle ground. There are premium success stories and there are budget success stories. But when UK car buyers buy far more 3 Series BMWs than Ford Mondeos, maybe it’s time to look at the harsh reality that there is no more middle ground left?

Sadly, apart from Vauxhall and Opel, it looks like a big chunk of those car makers in trouble are French (and you can perhaps throw Fiat in there too), and can probably only survive in the long-term by moving production out of Europe and aiming for cut-price fleet sales on the back of lower production costs.

Either that, or shut up shop.