* Peugeot-Opel tie-up talks halted -sources
* Peugeot finances, bailout stir GM doubts -sources
* Peugeot spokesman says no talks in progress
By Sophie Sassard and Arno Schuetze and Laurence Frost
LONDON/FRANKFURT/PARIS, Nov 13 General Motors
and alliance partner PSA Peugeot Citroen have
halted talks on a deeper tie-up amid misgivings about the French
carmaker's worsening finances and government-backed bailout,
people familiar with the matter said.
The companies, already pursuing an operational partnership
announced in February, had also been exploring a full
combination of Peugeot with GM's European unit Opel, which is
based in Germany.
But two sources with direct knowledge of those discussions
said they were broken off after Peugeot accepted a state
guarantee for its lending arm last month and announced a further
deterioration of its cash position.
The automakers have agreed to a "pause" in early-stage talks
on a Peugeot-Opel deal, said one of the sources. The government
bailout is "sabotaging the plan", he added.
"They now consider that any deeper tie-up is unlikely before
2014, when the market picks up," another source said.
"The government bailout conditions rule out French job cuts,
which means a deal can't happen any faster," he said. "It would
be politically impossible to have all the cuts falling on the
A Peugeot spokesman said there were no Opel tie-up talks
currently in progress, breaking a month of silence since they
were first reported.
"There are no such discussions underway," the spokesman
said, declining to comment on past conversations. GM had no
comment, a Detroit-based company spokesman said.
With their costly French and German plants and exposure to
austerity-strapped southern markets, Peugeot and Opel are major
casualties of Europe's protracted slump in auto sales, which has
left the industry struggling with surplus capacity.
Peugeot, which is burning though 160 million euros ($200
million) of cash a month, is scrapping 10,000 jobs and a
domestic plant. GM, which predicts European losses of $1.5-1.8
billion this year, is in union talks to close an Opel factory in
An imminent tie-up would have required deeper plant and
workforce cuts on both sides, the same sources said.
One option discussed would have seen GM transfer Opel to the
new combined entity along with a $5 billion cheque to offset
future losses and restructuring, according to one of the people.
That could have allowed the U.S. automaker to expunge the
underperforming division from its own accounts.
Unlike Renault, which is still 15 percent state-owned, the
government has no stake in Peugeot, but political influence has
grown as its finances weakened, leading to the 18.5 billion euro
refinancing deal that put a government representative on the
Unveiling the bailout, including a 7 billion euro state
guarantee, ministers said they would expect to be consulted on
strategy and sounded a cautious note on the GM alliance.
"Peugeot needs to build alliances," Industry Minister Arnaud
Montebourg said in an Oct. 23 interview with daily Liberation.
"But we need to ... measure their consequences for our
country and obtain Peugeot's commitment to preserve all its
French sites," he told the newspaper.
Montebourg's office did not return calls and messages
seeking comment for this story.
The French bailout stirred doubts in Detroit, which further
deepened with Peugeot's warning that net debt would rise in 2012
as the group consumes cash faster than it can sell assets.
Peugeot shares have plunged 57 percent this year, compared
with a 25 percent gain by GM, which last month posted $1.48
billion in third-quarter profit on strong U.S. sales.
"GM is looking at this and saying, 'What the heck are we
doing here?'" said a person familiar with the company's
"Peugeot's incentives to cooperate may have changed because
the French government is at the table," he said. "They're not
going to want to have Opel building Peugeot product."
GM and Peugeot announced plans in February and March to pool
European purchasing, logistics and vehicle programmes including
a future small car for Brazil, a project that was dropped last
The deal also saw GM pay $400 million for a 7 percent stake
in its troubled French partner.
The decision to shelve a deeper tie-up may renew critical
scrutiny of the existing alliance plan, already questioned by
The dropped car programme in Brazil, where Peugeot needs a
partner to cut costs, hurts the company "in the area where they
needed help the most", Credit Suisse analyst Erich Hauser said.
Peugeot has sacrificed other relationships and markets to
pursue the broader GM alliance, which is now falling short of
Ford, a longstanding engine partner, said in April it
would stop making larger diesels with Peugeot, and BMW
dissolved their hybrid parts venture to team up with Toyota
The French automaker blamed financing problems for its
February decision to halt sales to Iran - the Peugeot brand's
second-biggest market - but GM told investors its new partner
had promised to exit the country.
Peugeot had also flagged plans to build cars with GM in
India and seek a partner to develop rechargeable hybrids, but GM
said it had no interest in either project.
Setbacks aside, the depth of Europe's slump is making the
alliance and its promise of eventual gains seem irrelevant,
according to Credit Suisse's Hauser.
"It's become obvious that the plan announced in February is
just inadequate," he said. "For it to make sense there would
have to be a plan B."
($1 = 0.7867 euros)
(Additional reporting by Soyoung Kim and Ben Klayman; Editing
by Will Waterman)