UPDATE 2-GM yet to reap full benefits of European alliance plans

Thu Dec 12, 2013 12:59pm EST

By Edward Taylor

FRANKFURT Dec 12 (Reuters) - General Motors Co scaled back its alliance with Peugeot on Thursday and put a brave face on yet another setback for its efforts to seek growth in Europe through collaboration and partnerships.

It was the second time in a year GM had trimmed its expectations on the deal it agreed in February 2012, but it said the alliance could still offer up new opportunities.

In a joint press release, the carmakers cancelled a joint vehicle project and said annual savings from sharing development costs on a raft of projects will now come to only $1.2 billion, rather than $2 billion.

"The partners are now focused on execution of the alliance while remaining open to new opportunities," GM's executive vice president and Opel Chief Executive Karl-Thomas Neumann said.

In the early days of the alliance, Peugeot and GM unveiled plans for at least five vehicle and powertrain programmes.

But on Thursday PSA Peugeot Citroen and General Motors said they would stop joint development of a common vehicle platform and small petrol engine, once again reducing the scope of what was intended to be a broad-based alliance.

Work to develop a light commercial vehicle, a multi-purpose people carrier and a crossover SUV would continue, they said.

"Joint ventures always start with overly ambitious targets," ISI analyst Arndt Ellinghorst said, adding that he currently estimated joint savings for Peugeot and GM to amount to zero.

"Partnerships can work, but it always takes much longer for the benefits to materialise," he added.

The Peugeot-GM alliance had sought to save cash through joint purchasing, logistics and three programmes to develop small cars and two minivan families, for introduction in 2016 through 2018.

On Thursday, the companies said a new multi-purpose vehicle for both companies would be built in Zaragoza, Spain. A planned C-segment crossover vehicle would be built in Peugeot's Sochaux factory. Opel separately announced that a new vehicle would also be built at its plant in Ruesselsheim, Germany.

In 2012, when GM paid $400 million to take a 7 percent stake in Peugeot, the two carmakers even explored a full tie-up of Peugeot and GM's European arm Opel, but these plans were halted amid misgivings about the French carmaker's worsening finances.

On Thursday, General Motors announced it was selling its entire 7 percent Peugeot stake to institutional investors, and the French auto maker said it was pursuing a deal with China's Dongfeng Motor Group.

"Our equity stake was planned to support PSA in their efforts to raise capital at the time of the creation of the GM and PSA alliance, and that support is no longer needed," GM Vice Chairman Steve Girsky said in a statement.

"The alliance remains strong with our focus on joint vehicle programs, cross manufacturing, purchasing, and logistics," Girsky added.

Juergen Pieper, analyst with Metzler Equities in Frankfurt, said: "This partnership always had a defensive character. Two weak players, Opel and Peugeot, thought they could combine to become much stronger, but that isn't case here."

For GM it is the second attempt at forging a broad-based alliance in Europe. Previously, it had sought to develop small vehicles with Italian partner Fiat, but that venture fell apart in 2005 and GM was forced to pay Fiat $2 billion to dissolve the partnership.

Peugeot, its sister brand Citroen and Opel are among the worst hit by a European car sales slump that put a $1.8 billion dent in GM's 2012 earnings. Over the past 13 years, GM has racked up losses of more than $18 billion in Europe.

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