Struggling Opel and PSA Reportedly Considering Manufacturing Alliance

Although an alliance between General Motors’ Opel division and PSA/Peugeot-Citroen might appear to be a logical one, many analysts are skeptical that it would lead to more sales for either automaker. The two companies are reportedly negotiating an agreement to jointly develop and new engines and vehicles at GM’s 11 Opel factories and PSA’s 12 European manufacturing facilities.

Sanford C. Bernstein analyst Max Warburton said, “PSA and Opel can’t restructure independently. We see no reason why putting PSA and Opel together would speed up the process of plant closures, as both have excess capacity.”

In recent years Opel and PSA/Peugeot-Citroen have imposed extensive cost-cutting measures but both continue to lose money.

Consumers in the region continue to tighten their belts as concern about the sovereign debt crisis linger and 2012 is likely to be another dismal year for auto sales.

According to Oxford, England-based LMC Automotive, Opel will use less than three quarters of its European production potential this year. PSA is expected to use only 62 percent of its capacity in Europe.

The director of the Center for Automotive Research at the University of Duisburg-Essen, Ferdinand Dudenhoeffer, says automakers that utilize less than 90 percent of their production capacity run the risk of losing money.

Last week PSA announced that it plans to reduce investments and reduce its marketing budget after losing 92 million euros, and increasing its debt load to 3.4 billion euros last year.

GM has also announced additional cuts at Opel. In 2011, Opel and its U.K. cousin Vauxhall lost $747 million before taxes and interest. GM had hoped that its European brands would break even in 2011.

According to the average estimates of three auto industry analysts surveyed by Bloomberg, GM’s restructuring of Opel may cost $1 billion or more.

PSA and Opel have each suffered losses in market share due in part to their lack of distinctive models. Last year, PSA’s European market share fell to just 12.6 percent. Opel and Vauxhall’s market share fell to just 7.3 percent in 2011, down from 7.4 percent the previous year. managing director Simon Empson is also doubts that an Opel-PSA alliance would improve the prospects of either automaker. “From a U.K. perspective, Peugeot, Citroen and Vauxhall are probably the weakest major brands,” said Empson. “This is grasping at straws. What could you combine? They’re going after exactly the same customers.”

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