The pain of Europe’s automotive market intensified last week as two of the continent’s greatest car companies unveiled shocking results. French group PSA Peugeot Citroen reported an operating loss of €497m (US$654m) for H2 2011 at its automotive division and saw group net profits halved to €588m for FY11. And General Motors executives were wringing their hands at the “unacceptable” losses of U$700m last year reported by its European arm (Adam Opel and Vauxhall). Even Volkswagen ended the month posting an unexpected 0.9% slide in operating profit as economic conditions bit deeper.
At such desperate times the knife comes out, and PSA confirmed the sale of car rental business Citer and a stake in logistics unit Gefco in an effort to raise €1.5bn; at GM, Chief Financial Officer Dan Amman said Opel’s painful restructuring had “not gone far enough”. The news that GM and PSA were considering an alliance left some automotive industry watchers wondering how combining such problems would not create an even bigger problem.
PSA confirmed the sale of car rental business Citer and a stake in logistics unit Gefco in an effort to raise €1.5bn; at GM, Chief Financial Officer Dan Amman said Opel’s painful restructuring had “not gone far enough”.
The talks between GM and PSA are not about a potential merger, though they do seem to be a symptom of the European automotive sector’s increasingly desperate attempts to get a grip on its various problems. Making great cars counts for little if Europeans don’t want to buy them, a problem confounded by the continent’s social market economy straightjacket which has left its automotive companies unable to perform the sharp U-turn they need to make toward more profitable markets.
One could see signs of the manoeuvre performed with more finesse as Renault-Nissan shrugged off concern over imminent Russian elections to press ahead with its plan to acquire a controlling stake in AvtoVAZ. As the last great growth market in Europe, Russia is clearly a risk worth taking for Renault, especially if it helps to shift critical mass away from a core European market that the group’s boss Carlos Ghosn thinks could contract by as much as 3% this year.
PSA’s talks with GM Europe, if successful, are likely to allow a similar rebalancing, albeit one less palpable and more transient. While PSA depends on its haemorrhaging European market, GM has fought its way out of Chapter 11 via US government shareholding to become very profitable indeed in North America, where full year profit jumped to US$7.6bn last year. GM was also the biggest OEM in China for the seventh consecutive year, and has a leading position in Latin America. It is not difficult to see how, if the right arrangement were found, PSA could help GM with its Opel problem while getting GM’s help to wean itself off Europe.
It is not difficult to see how, if the right arrangement were found, PSA could help GM with its Opel problem while getting GM’s help to wean itself off Europe.
The question is whether the talks come too late. Alliances aside, the €1.5bn PSA hopes to raise from Citer, Gefco and other disposals is a drop in the ocean of the group’s €22.54bn in financial liabilities. Cash burn will continue until PSA can find a way, no doubt shortly after France’s presidential election, to rid itself of the factories in its home market expensively producing cars which not enough people want to buy.
Meanwhile, the angry way GM greeted the horrendous figures of its European arm suggests frustration and not a little regret that the US group decided not to sell Opel to Magna in 2009. Whatever GM executives’ protestations, a quick sale to Magna’s rival bidder at the time, Fiat, must be tempting; and Fiat-Chrysler Chief Executive Sergio Marchionne recently suggested his interest had been rekindled. As the European automotive market becomes more difficult, PR-friendly solutions could seem less credible than a swift move to brutally cut out the problem.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Thomas Williams is deputy editor and head of German coverage for Mergermarket EMEA. He is also Mergermarket’s European automotive and industrials correspondent, and writes for the group’s live deals product, Dealreporter. www.ft.com/mergermarket
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