GM in talks to buy small Peugeot stake: sources

PARIS/FRANKFURT/NEW YORK Tue Feb 28, 2012 5:51am IST

The Peugeot 3008 Hybrid4 is pictured during the International Motor Show (IAA) in Frankfurt, September 14, 2011. REUTERS/Ralph Orlowski

The Peugeot 3008 Hybrid4 is pictured during the International Motor Show (IAA) in Frankfurt, September 14, 2011.

Credit: Reuters/Ralph Orlowski

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PARIS/FRANKFURT/NEW YORK (Reuters) - General Motors Co (GM.N) is in advanced discussions to buy a small stake in French automaker PSA Peugeot Citroen (PEUP.PA) as part of their proposed strategic alliance in Europe and elsewhere, sources familiar with the situation said on Monday.

Under the terms being discussed, GM would likely buy a stake of less than 5 percent in Peugeot, the sources said.

Any purchase by GM would be "purely symbolic" to cement the commercial alliance, one of the sources said, adding that the size of the stake would be "in that region." At Peugeot's current market value of $4.8 billion, a 5 percent stake would be worth $240 million.

A deal could be announced in the next few days, although sources warned that an agreement has not been reached and talks could still fall apart.

A GM spokesman declined to comment. A Peugeot spokesman did not immediately return calls and messages seeking comment.

GM and Peugeot are discussing a broad strategic alliance designed to stem losses in Europe and cut production costs elsewhere, people familiar with the matter said last week.

For GM, an alliance would provide a means to lower operating costs at its loss-making European unit, Opel, while Peugeot would gain much-needed access to international markets at a time when auto sales in Europe are sagging, sources said previously.

Peugeot, which is heavily reliant on the French and European markets, has been under pressure to find a partner to broaden its presence around the world and gain access to growth markets like Latin America, China and Russia.

"The challenge for Peugeot is that it's not in the U.S. market, one of the world's largest, and its presence in China is growing but still small. It's too reliant on its home market, which is shrinking, at least in this economy," said one industry banker who declined to be identified because he was not authorized to speak with the media.

But the plan has met with some skepticism in the United States, with industry experts and analysts saying that for GM, the potential benefits from such an alliance are less clear.

Peugeot would bring well-regarded diesel engine and small engine technology to the table, but it is grappling with the same problems that Opel has and does not help GM outside Europe, analysts said.

"Frankly we believe it will introduce complications at a very delicate time in its own restructuring," Guggenheim analyst Matthew Stover said last week. "In the grand scheme of things, GM has much more to offer PSA than the other way around."

Sources close to the talks said that while both sides expect cost savings from sharing vehicle platforms and technology, Peugeot wants this alliance more than GM does.

Analysts said that an alliance with Peugeot would allow the companies to pool together resources to develop vehicles but it could take a decade to fully realize the benefits of the pact.

They also said more steps would be needed to overcome the core problem for both automakers in Europe: overcapacity.

The European auto market has long been plagued by too much capacity, cutthroat price competition and paper-thin margins. Those structural issues have been compounded by the recent debt crisis, which has hurt consumer confidence and caused many would-be car buyers to pull back on their spending.

Opel is one of the key concerns for GM investors. In 2009, the automaker's then-CEO Ed Whitacre scotched a planned sale of the unit. Last year, GM lost $747 million in Europe and Morgan Stanley analysts value Opel at negative $8 billion.

GM Vice Chairman Steve Girsky has taken charge of the Opel restructuring, and GM said this month that it would detail further steps soon.

Any stake investment in Peugeot would have little impact on the balance sheet of GM, which ended 2011 with $37.5 billion in liquidity.

(Reporting by Christian Plumb in Paris, Philipp Halstrick in Frankfurt and Soyoung Kim in New York; Additional reporting by Deepa Seetharaman in Detroit, Editing by Gary Hill)

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