U.S. automaker General Motors Co. (GM) is reportedly in talks to forge a broad alliance with Europe's second largest car maker PSA Peugeot Citroën (PEUGY.PK) in its bid to strengthen its European operations. Rather than a takeover, the companies are looking for a collaboration on technological perspective to ensure synergies in vehicle architecture, transmissions and engines.
Peugeot shares surged 13.72 percent, subsequent to the disclosure of French Labor Minister Xavier Bertrand about the ongoing talks. Shares closed at 16.36 euros on a volume of 14.40 million shares on Wednesday's trading in Paris.
According to French newspaper La Tribune, a possible alliance could be announced in early March at the Geneva car show. The newspaper said discussions have been going on for several months and the discussions haven't yet reached a conclusion.
Peugeot has been focusing on thinning costs and to resort to cheaper assembly lines to overcome the hurdles in European automobile market - hard hit by economic turmoil. Vehicle sales have been on the downturn in Peugeot's core business areas and that prompted most of the automotive manufacturers and suppliers to scale back production.
After the reports emerged in La Tribune, PSA Peugeot Citroën confirmed earlier in the day that discussions are on for potential co-operations and alliances as part of its globalization strategy and improving its operational performance, without giving out any names. The company added that there is no certainty that the discussions will result in any agreement.
The proposed strategic partnership will help the companies in saving money on the cost of developing new models. Detroit-based General Motors has been struggling since its bankruptcy to boost its European business, which primarily comprises of its unprofitable Opel brand as well as Vauxhall brand. Its European business lost $700 million in 2011.
Peugeot is said to be ready for any alliance that falls in line with its primary strategy of expanding globally, along with synergies and remaining independent. The Peugeot family didn't want to lose control over the French car maker.
Analysts reportedly anticipates the European market to shrink in 2012 for the fifth consecutive year, with the market faced with an oversupply of capacity.
Last week, Peugeot announced a new asset sale program as it expects market conditions in 2012 to remain tough in Europe. Peugeot will dispose assets totaling about 1.5 billion euros, including the car rental subsidiary that is being sold to Enterprise Holdings Inc. The sale also includes the real estate and capital of Gefco trucking unit.
In Wednesday's regular trading session, GM is currently trading at $27.04, down $0.02 or 0.07% on a volume of 0.71 million shares. In the past 52-week period, the stock has been trading in a range of $19.00 to $35.94.
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