PARIS/LONDON Oct 14 General Motors
scaled back cooperation with Peugeot months into their alliance
and later turned down a government-backed merger, leaving
China's Dongfeng as the French carmaker's last hope,
people familiar with the matter said.
GM took a 7 percent stake in PSA Peugeot Citroen
after the carmakers announced what was billed as a broad-based
alliance in February, 2012.
Yet the pairing hit obstacles within eight months, when GM
revealed its Chinese partner SAIC would veto key
plans including for larger cars, said the sources, who declined
to be identified because the matter was confidential.
"We never found out whether GM had known that all along,"
one person said.
By June this year, Peugeot had won French government
approval for a restructuring tie-up with GM's Opel division, but
the U.S. carmaker turned it down, citing CEO Dan Akerson's
likely succession by early 2015 and political sensitivities,
people said. GM is still 7.3 percent U.S. government-owned.
The series of setbacks with GM has forced Peugeot Chief
Executive Philippe Varin to look elsewhere for a cash injection
amid mounting concern over the company's finances.
Peugeot shares fell 9.1 percent on Monday after Reuters
reported the company was preparing a 3 billion euro ($4 billion)
capital increase in which Dongfeng and the French state would
buy matching stakes of between 20 and 30 percent.
The move would reduce GM's stake in Peugeot and give the
Chinese state-owned carmaker access to its French partner's
technology, in return for help in potential new markets,
according to people with knowledge of the talks. Peugeot and
Dongfeng already have a Chinese joint venture, DPCA.
But the size and timing of the planned capital increase, and
the government's readiness to contribute, are driven by
financial concerns that have lately resurfaced despite Peugeot's
assurances in July that it would surpass 2013 cash goals,
"The government is worried about Peugeot's financial state,
which is one reason why such a big share issue is imminent,"
said a person familiar with the matter.
"There's an awareness that the cash situation will not pick
up in the way that had been set out," another person said. "The
slight improvement we've seen so far cannot be sustained."
Peugeot, which had said it would beat its target of halving
industrial cash consumption to 1.5 billion euros, will give a
progress update when it publishes third-quarter revenue next
week, a spokesman said, declining further comment.
Peugeot ended the first half with cash of 7.71 billion
euros, excluding listed subsidiary Faurecia, and is
set to consume about 2 billion this year as restructuring costs
increase net industrial debt to 4.8 billion.
Together with 2.4 billion in undrawn credit lines, that will
leave about 8 billion in available reserves - but the real
cushion is closer to 5 billion because Peugeot needs the
difference just to operate.
Peugeot's dependence on European sales and exposure to
Mediterranean markets has made it the worst casualty of the
region's auto slump, with a 5 billion euro net loss last year.
The company, slashing jobs and plant capacity to pursue a
return to profit in 2015, had announced plans for at least five
joint vehicle and powertrain programmes with GM soon after their
alliance was unveiled last year.
The two carmakers have since held unsuccessful talks about a
Peugeot and GM are pushing ahead with joint purchasing,
logistics and three programmes to develop small cars and two
minivan families, for introduction in 2016 through 2018.
"We started out with about 40 potential projects," Peugeot
programme chief Jean-Christophe Quemard said last month.
"There are things we would have liked to do but can't,"
Quemard said, citing technical incompatibilities between vehicle
designs. "It's very frustrating and takes a great deal of time."
LEVEL OF INFLUENCE
The future of the alliance could be affected by Dongfeng's
level of influence in any expanded partnership with Peugeot, GM
Vice-Chairman Steve Girsky told Reuters last month. A GM
spokesman declined further comment on Monday.
Under a "change of control" clause in their alliance
agreement, GM has the right to pull out if any third party
acquires Peugeot stake of more than 10 percent.
"It's clear to us that Peugeot's existing alliance with GM
would be at risk following such a transaction," Barclays analyst
Kristina Church said in a note to investors. "The need for a 3
billion euro cash injection reveals how dire a financial
situation the company finds itself in."
French Finance Minister Pierre Moscovici declined to
confirm or deny that the government was preparing to commit
fresh funds, in addition to a 7 billion euro state guarantee
granted to Peugeot's financing arm last year.
"I'm not going to comment on that kind of thing," Moscovici
told France Inter radio. "The government is not going to remain
indifferent to Peugeot ... After all, we're talking about the
future of a major listed company that employs almost 100,000
people in France."
The carmaker has lost more business to competitors in recent
months and its European market share fell to 9.7 percent in
August from 11.3 a year earlier. In September its slice of
French sales tumbled 3 points to 27.7 percent.
Unveiling cutbacks last year, CEO Varin said his recovery
plan assumed a steady return to a 13 percent European market
Renault, itself 15 percent French
government-owned, declined to comment on the possible injection
of public cash into its domestic rival. But insiders said
privately that the reported capital increase plan was met with
"Everyone here has been worried for months about our mutual
network of suppliers crashing if PSA goes bankrupt," one said.
"If this capital increase does happen, Peugeot gets more time
and more cash they can use to pay off suppliers, and that has to
be a good thing."