GM Purchases 7 Percent of Peugeot in Formation of Global Alliance

By Jacob Brown | February 29, 2012
Here's a little known piece of trivia: When Chrysler saw its resurgence in the mid-1990s, much of the responsibility didn't come from any of the industry rockstar executives you may have heard of, like "Maximum" Bob Lutz, or former Chrysler CEO Bob Eaton. No, Chrysler was able to consolidate costs, manage its quality, and get back on the right foot because of a little-known Frenchman named Francois Castaing, a carryover executive from the defunct American Motors. Now what does he have to do with General Motors' announcement that it has formed an alliance with PSA Peugeot Citroen? Nothing, except that the French seem to have a knack for handling large-scale logistics. GM certainly believes so, at least. In today's announcement, GM outlined that it and Peugeot, Europe's second-largest automaker, would leverage their alliance to share vehicle platforms, source supplies for building cars on a global-scale, and create potentially wider-sweeping leverage for more cooperation between the two automakers. The biggest name of the game is economies of scale; that is, sharing enough costs between the two companies to make purchasing, sharing manufacturing plants, and sharing parts between cars more affordable.
As GM's European operations haven't made a profit since the 1990s, and Peugeot has been in a steady decline, this deal between the two automakers makes plenty of sense. In its announcement, GM said it would allow the two companies as much as $125 billion in annual purchasing power with manufacturing and logistical synergies to overlap $2 billion between them. "This partnership brings tremendous opportunity for our two companies," GM CEO Dan Akerson said in a statement. "The alliance synergies, in addition to our independent plans, position GM for long-term sustainable profitability in Europe." As a goodwill measure, GM purchased seven percent of the French automaker. In return, PSA Peugeot Citroen subsidiary Gefco will provide logics services for GM's operations in Europe and Russia, two markets where GM hasn't fared well of late. This will help GM establish a better idea of how to cater to the market. In the immediate future, however, GM and Peugeot will begin to collaborate on global architectures each company can use for its separate products, including one for a small car, midsize passenger car platform, MPVs (minivans), crossovers, and possibly a specialty low-emissions car that will likely be powered by an alternative fuel. General Motors says that customers can expect the first products with shared technologies and common parts to hit dealerships by 2016. Source: General Motors