Confirming rumours that have been swirling for the past week, General Motors and PSA Peugeot Citroën today announced a strategic alliance that will result in the sharing of vehicle platforms, components and modules and the creation of a global purchasing joint venture (JV).
The companies say the alliance is intended to be both long-term and global in scale. They predict that it will leverage their combined strengths and capabilities, contribute to the profitability of both partners and strongly improve their competitiveness in Europe.
GM and PSA Peugeot Citroën will share selected platforms, modules and components on a worldwide basis to “achieve cost savings, gain efficiencies, leverage volumes and advanced technologies and reduce emissions.”
Sharing of platforms not only enables global applications, it also permits both companies to execute Europe-specific programs with scale and in a cost-effective manner.
Initially, the partners intend to focus on small and mid-size passenger cars, MPVs and crossovers. The companies will also consider developing a new common platform for low emission vehicles. The first vehicle on a common platform is expected to launch by 2016.
Each company, however, will continue to market and sell its own vehicles independently and on a competitive basis.
The new combined global purchasing JV will potentially bring efficiencies to the purchasing operations at both companies. It will be responsible for the sourcing of commodities, components and other goods and services from suppliers with combined annual purchasing volumes of approximately $125 billion.
Beyond these pillars, the alliance creates a flexible foundation that allows the companies to pursue other areas of cooperation, they said in a statement. They are already exploring areas such as integrated logistics and transportation.
The total synergies expected from the alliance are estimated at approximately $2 billion (US) annually within about five years. The synergies will largely coincide with new vehicle programs, with limited benefit expected in the first two years. It is expected the synergies will be shared about evenly between the two
In connection with the alliance, PSA Peugeot Citroën is expected to raise approximately €1 billion through a capital increase. As part of the agreement, GM plans to acquire a 7% equity stake in PSA Peugeot Citroën, making it the second-largest shareholder behind the Peugeot Family Group.
Peugeot already has engine-sharing deals with both Ford and BMW, neither of which are expected to affect the alliance.
This may not be the end of the consolidation, however. According to the Detroit News, Fiat-Chrysler CEO, Sergio Marchionne still has designs on Peugeot. He previously made overtures to the French company in 2009.
The European industry as a whole is suffering from overcapacity and Marchionne is on record that massive consolidation is a necessity for survival.
This step in that direction is but a first step in that direction – and it is unlikely to be the last.