GM, Peugeot team up to cut costs

The two said GM, the world's largest automaker, would take a 7.0 per cent stake in Peugeot, Europe's number two after Volkswagen of Germany.

But their leaders stressed the limited aim of jointly saving on production costs rather than any more ambitious tie-up.

"This is an alliance, not a merger," GM chairman and chief executive Dan Akerson said in a conference call.

PSA managing board chairman Philip Varin assured that the French automaker "remains independent, very clearly, on its strategic plan and its capital."

The deal's impact on jobs and production capacity remained unclear. France's Industry minister said he had been assured that the deal would be "favourable" for jobs.

But Varin said each of the two companies would have to deal with their production overcapacity, separately from the pact.

Under the agreement, a joint global committee steering the alliance is expected to generate some $2 billion in savings annually within about five years.

To do that GM, which controls money-losing European producers Opel and Vauxhall, and Peugeot will share certain vehicle platforms, components and modules.

But each will continue to "market and sell its vehicles independently and on a competitive basis," they said in a joint statement.

GM and Peugeot will first work together on small and midsize passenger cars, family vans and crossover sport utility vehicles.

They expect to launch the first vehicle developed on a common platform -- shared essential designs and architecture like the underbody and suspension -- by 2016.

The partners also said they will consider developing a new common platform for low-emission vehicles.

"Sharing of platforms not only enables global applications, it also permits both companies to execute Europe-specific programs with scale and in a cost-effective manner," they said.

The alliance will "contribute to the profitability of both partners and strongly improves their competitiveness in Europe."

But, they noted, it "does not replace either company's ongoing independent efforts to return their European operations to sustainable profitability."

The automakers have struggled with flagging sales in Europe, where a eurozone debt crisis in recent years has led to recession.

For GM, nearly $750 million in European losses marred a record year of profits in 2011, while Peugeot, which sells two-thirds of its vehicles in Europe, saw sales drop 1.5 per cent last year and its profit halved.

They will also create a global purchasing joint venture to buy $125 billion in commodities and other goods and services from suppliers a year.

French Industry Minister Eric Besson welcomed the deal as "good news" for jobs, saying he had been assured by Peugeot "that this partnership will be favourable to PSA's employment and presence in France."

French President Nicolas Sarkozy is facing a tough re-election battle in a two-round April-May vote and it had been feared that any announcement of layoffs could be disastrous for his campaign.

But Varin said the deal did not mean the groups could ignore their production overcapacity.

"We have over-capacities in Europe that are clear for everybody but have to be dealt with by each partner," he said in the conference call.

A source close to the matter told Dow Jones Newswires that GM was planning job cuts and possibly factory closings at Opel and Vauxhall, which together sell more than a million vehicles each year.

The Peugeot chief said the partnership has the strong support of the company's key shareholder, the Peugeot family, which controls 30.3 per cent of the capital and 45.75 per cent of voting rights in PSA.

As part of the deal, the French firm is expected to raise about one billion euros ($1.35 billion) through a share issue.

Although they will take up 150 million euros' worth of the new shares, the deal will still cut the family's overall stake.

The family said in a statement that it was "firmly convinced of the strategic rationale" of the deal.

Shares in GM, which has rebounded from a 2009 US government rescue but is still 32 per cent owned by the US Treasury, closed 0.5 per cent lower at $26.02 in New York.

Peugeot shares tumbled 2.1 per cent to 15.05 euros ($20.06) in Paris.