Odd Couplings: GM To Buy 7 Percent Of PSA? What For?

Hear that chafing sound? It is analysts scratching their heads. They wonder why in the world would GM buy 7 percent of France's PSA Peugeot Citroen. Bloomberg says this is about to happen. Neither GM nor PSA wants to confirm the deal. However, Bloomberg already has intricate details of the planned transaction, someone seems to be talking on deep dark background. Sounds like the odd couple is about to do it. The question remains: Why? Analysts are hard pressed to come up with a logical reason for a tie-up. The biggest problem of both: Too many workers, too many factories, not enough sales. LMC Automotive in Oxford, UK, puts the capacity utilization of PSA's European plants at 62 percent, and that of Opel at 74 percent. Traditional industry benchmarks require capacity utilization of better than 80 percent as a prerequisite of profitable production. An alliance between two ailing businesses does not produce a healthy one. Car consultant Maryann Keller told Bloomberg: "What in the world do you get by buying a tiny stake of a French company where you could never lay anybody off or close a factory?" GM lost $747 million in Europe in 2011, where losing money has a great tradition for the General. It is GM's 12th annual loss in a row. So far, GM has lost $12.4 billion in Europe, and there is no end in sight. PSA's track record is less bleak. The company made money in 2010, lost money in 2009, made money in 2008. Recently, PSA has been engaged in a frenzied sell-off of assets. It looks like they are raising money in a hurry. Both are looking at a Europe that is about to contract. PSA is heavily exposed to the troubled Mediterranean parts of Europe. Both have been hemorrhaging market share in Europe. All kinds of reasons are being presented for the alliance that just won't make sense: Diesel engines, light commercials, joint sourcing of parts. None of these create the desired slap the forehead effect. I guess we'll get a convincing reason if the deal indeed goes ahead. Any better ideas, Best & Brightest? from The Truth About Cars http://www.thetruthaboutcars.com

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