Will GM and Peugeot Strike a Deal Despite European Woes?
Talks of a joint venture between General Motors (NYSE:GM) and Peugeot could be slowing to a halt alongside the European car market. Announced in February, GM bought a 7 percent share of Peugeot for 320 million euros in March, but the venture has already missed deadlines and faces regulatory difficulties.
European and American companies have both been hemorrhaging money in the euro zone. GM has lost $16.8 billion in the market since 1999, while Peugeot bleeds 200 million euros in cash every month, or roughly $259 million at today’s exchange rate. Fiat is expecting a loss of nearly 700 million euros in the region for 2012, or nearly $900 million. American manufacturer Ford (NYSE:F) is forecasting over $1 billion in losses in the area for the year.
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Volkswagon is Europe’s largest manufacturer, and has mentioned government support as an option for the ailing market. “It is unclear if all car makers will survive without governmental help,” said CFO Hans Dieter Poetsch in September. “Especially car makers in southern Europe that produce small cars will be affected.”
French newspaper La Tribune quoted anonymous sources saying that GM and Peugeot are currently engaged in talks regarding the joint venture. While the companies have declined to comment, their initial plan was slated to save $2 billion annually between the pair. This type of cost cutting will be essential if the companies want to see green in the European market.
“It is a question of survival,” said Fiat CEO Sergio Marchionne to reporters on October 11, according to The Detroit News. Toyota (NYSE:TM), which is experiencing massive sales drops in China, has plans to increase its market share in the region to 4.5 percent in 2012. Europe is the company’s fourth-largest market, and is the biggest Japanese brand the area. Toyota has been profitable in Europe since 2011, but executives are still cautious.
“We have to run a sensible business, a profitable business. It’s very easy to lose money here in Europe,” said Toyota Motor Europe VP Karl Schlicht, according to Reuters. If Japanese car makers suffer long-term damage due to the territory dispute with China, they could turn more attention to Europe, adding pressure to an already cut-throat market.