* Peugeot says GM small-car programme like to be scrapped
* Peugeot quarterly revenue falls on European sales slide
* Competition from premiums, low-cost hits market share
By Laurence Frost
PARIS, Oct 23 PSA Peugeot Citroen and
General Motors are scaling back their alliance,
undermining a central pillar of the French carmaker's recovery
plan as the U.S. group exhibits growing confidence about its own
Peugeot, which is pursuing an investment by Chinese partner
Dongfeng as it struggles to stem losses, said on
Wednesday a small car programme at the heart of the GM
partnership was likely to be cancelled.
"Further analysis showed that the business model just wasn't
there," a Peugeot spokesman said, without elaborating. A GM
spokesman declined to comment on the project.
Peugeot, which is cutting domestic jobs and plant capacity
after losing 5 billion euros ($6.9 billion) last year, hopes to
raise 3 billion from a capital increase in which the French
state and Dongfeng would each take a 20-30 percent stake,
Reuters first reported earlier this month.
While Peugeot may need the cash injection to survive a
collapse in demand from recession-hit Mediterranean markets, the
unravelling of ties with GM threatens the longer-term recovery
of its core European operations, analysts say.
"Peugeot thought it had found a long-term partner, but the
alliance seems to be disintegrating," said Paris-based Natixis
analyst Georges Dieng.
"This leaves a hole in their strategy, and I don't see how
they can fill it," he added. "Dongfeng doesn't really offer an
GM, the No. 1 U.S. carmaker, took a 7 percent stake in
Peugeot after the companies announced what was billed as a
broad-based alliance in February 2012, promising eventual
savings of $1 billion each.
Peugeot, which reported a drop in third-quarter sales and
further market share losses on Wednesday, said the figure may
now be "readjusted downwards", without elaborating.
In the early days of the alliance, Peugeot and GM unveiled
plans for at least five vehicle and powertrain programmes.
But that was followed by unsuccessful talks on a deeper
combination and a steady scaling back of plans.
Besides joint purchasing now underway, just two minivans
have survived from "about forty" projects initially floated,
according to Peugeot programmes chief Jean-Christophe Quemard.
The dropped plan to replace the Peugeot 208, Citroen C3 and
Opel Corsa with a common small car was "absolutely key" to the
partnership, Barclays analyst Kristina Church said.
"It certainly seems GM has no focus on the alliance with
Peugeot any more. There's some backing away going on," she said.
GM TAKES CONTROL
The loosening of ties signals GM's renewed commitment to
manage its own European turnaround independently, following in
domestic rival Ford's footsteps.
Around the time it partnered with Peugeot, a distant
European second to Volkswagen by sales, GM was still
wavering over the future of its European Opel division.
But after several high-level departures and a deal with
unions to close its inefficient Bochum plant in Germany, GM
appears to have settled on a new course.
In March, it hired former VW executive Karl-Thomas Neumann
as its new Europe chief, and within four months announced a
partial transfer of Opel Mokka compact SUV production from Korea
Neumann scored another victory last week by bringing GM's
profitable Russian operations under his remit.
Detroit-based GM is also stepping up efforts to win
economies of scale by using its own vehicle platforms globally.
"They don't want to be partnered with a struggling company,
and they have alternative methods to turn things around,"
Barclays' Church said of GM's alliance with Peugeot.
Over the past 12 years, GM has lost around $18 billion in
Europe, where the company expects to break even only in
mid-decade after its regional operating loss widened to $1.8
billion last year from $700 million in 2011.
Peugeot's problems have been even deeper recently,
reflecting its heavy exposure to southern European auto markets.
Third-quarter sales fell 3.7 percent to 12.11 billion euros
as it continued to lose ground to VW and other major competitors
at home. The group claimed 10.9 percent of regional car sales in
January-September, down almost a percentage point.
The revenue decline reflects "growing pressure on market
shares from premium and low-cost brands", Peugeot said, as well
as the impact of a weaker Brazilian real and other currencies
against the euro.
Peugeot nonetheless reiterated its goal to cut 2013
operational cash consumption at least by half to 1.5 billion
euros, with a further "very significant reduction" next year.
Peugeot shares had risen 3 percent by 1515 GMT to 10.71
euros - still more than 80 percent below a 2008 high of almost
59 euros. GM shares were down 1.4 percent.