UPDATE 1-France names former EADS head Gallois to Peugeot board

Tue Dec 18, 2012 12:01pm EST

PARIS Dec 18 (Reuters) - PSA Peugeot Citroen named a senior government adviser and former head of EADS to its supervisory board, delivering on a pledge the struggling carmaker made in return for a state-backed bailout.

The Peugeot board agreed to submit the nomination of Louis Gallois, a senior economic adviser to President Francois Hollande's government, to the annual shareholder meeting in April, the company said in a two-line statement on Tuesday.

Gallois, a former chief executive of European Aeronautic Defence & Space Co. and the state-owned SNCF railway, recently prepared a far-reaching report on French competitiveness that recommended slashing payroll taxes, an effective endorsement of longstanding auto industry demands in which the carmaker's controlling Peugeot family may take some comfort.

Peugeot, one of the carmakers worst hit by the collapse of auto sales in austerity-strapped southern European markets, drew ministerial wrath in July by announcing plans to scrap 8,500 jobs and a major assembly plant.

While the French government is domestic rival Renault's biggest shareholder with a 15 percent stake, it has no equity holding in Peugeot.

But the Paris-based carmaker, struggling to halt cash burn of 160 million euros ($211 million) a month at its core auto division, was forced to seek a state-backed rescue for its Banque PSA financing arm after a series of credit downgrades hit borrowing costs.

In return for an 18.5 billion euro package including up to 7 billion in state loan guarantees, Peugeot agreed in October to appoint a government-nominated board representative.

The bailout and increased government intervention in Peugeot has raised doubts at alliance partner General Motors about cooperation potential beyond a handful of joint projects already outlined, sources have said.

"It's complicated because the uncertainty surrounding the European market specifically makes any move in this area one that has to be carefully considered," GM Chief Executive Dan Akerson said about the Peugeot alliance in a Dec. 13 interview with Automotive News.

"You want to advantage yourself, but at the same time you don't want to disadvantage yourself by making a strategic error," Akerson was quoted as saying.

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