PSA CEO Lays Out Potential of GM Alliance, Backs EU Policy for Capacity Issues

PSA Peugeot-Citroën's chief executive officer (CEO) Philippe Varin has laid out some of the potential synergies that could come from its new alliance with General Motors (GM) in interviews given at the Geneva Motor Show (Switzerland). Suggesting that GM could benefit from PSA as much as many suggest that PSA will from GM, Varin has said one area is research and development (R&D) programme in hybrid powertrains could be one area. He was reported by Automotive News Europe as saying "In an alliance, every party has to bring something. We invest in hybrids," touting the potential of its diesel-hybrid programme. Varin also reiterated that the automakers will leverage each other's strengths in specific areas of vehicle development, stating: "It's clear where both parties' strengths are… We can probably bring more on the B segment and GM can bring more on the D segment".

However, he added that existing vehicle and component development programmes with the likes of Toyota, Ford and BMW will continue, reported by the trade publication as saying, "These partnerships should continue and they will continue". This was reiterated separately by BMW's chief executive officer (CEO) Norbert Reithofer who told Reuters that its relationship with PSA on the development of four-cylinder gasoline (petrol) engines would be unaffected and could be extended past its current 2015 expiry.

Varin also said that PSA was not planning to take a stake in its new alliance partner any time soon. GM will be taking a 7% stake in the business as part of a capital increase being undertaken by the French automaker (see France: 6 March 2012: PSA Sets Terms for Capital Increase, French Minister Admits Jobs Not Assured). However, he added that he did not rule out a possible purchase in future.

In related news, Varin has also told the Financial Times (FT) also backed an EU policy to reduce the vehicle manufacturing overcapacity in the region. He told the newspaper, "If we say that the EU has an industrial policy, I think that in the situation of overcapacity, the political side should support its industry when it has to make restructuring in the different countries". The senior executive added that action needed to be taken by the legislators for the region similar to that taken by the US government when the automotive industry was restructured during the economic downturn of 2009. The former CEO of steelmaker Corus also highlighted the experience gained in this industry when the EU was active in helping the sector restructure in the 1990s, stating: "There was a problem, it was addressed at the EU level, and it was addressed very efficiently. So why don't we draw some lessons from the past?" Varin's comments joined those already made by Fiat-Chrysler CEO Sergio Marchionne in which he has called for an end to interventions by countries on behalf of individual car plants. The hope is that this will bring an end to a distortion in the market which weakens competitiveness.

Outlook and Implications

Although the cost savings that are expected to be gained from the alliance between PSA and GM are expected to begin to be sought out as early as mid-year (see Europe: 7 March 2012: PSA, GM to Begin Purchasing Alliance Mid-Year), other benefits are expected to take longer to take hold. However, these should start to show through by 2016 or 2017 when up to four models should benefit from the newly shared architectures. As PSA holds a decided scale advantage in the B-segment, IHS Automotive anticipates that it to lead the development of a consolidated B platform, with G2XX (Global Gamma) entries at GM migrating to PSA's BVH1 architecture (underpinning Peugeot 208, Citroën C3 and Citroën DS3) to achieve targeted global scale of 2.3 million units. The effort aims to increase scale while delivering far greater geographic scope, building on already-strong volumes in Europe and South America. Buoyed by its strong US presence, GM holds a sizeable scale advantage in the D segment and aims to leverage its E2XX (Global Epsilon) architecture to grow aggregate platform scale to 1.6 million units by 2020. Under the alliance, GM's limited D-segment presence in Europe would benefit from sharply higher regional scale to reduce costs in the fiercely competitive European market, and PSA would retain access to a D-segment base once the PF3 platform expires. Despite favourable scale, GM-PSA's aggregate D-segment effort consists of 10 nameplates, all passenger cars (Malibu, Impala, Insignia-Regal, LaCrosse, XTS, 508, and C5), sharply limiting further scale economies, manufacturing flexibility, and additional profit potential. GM's future E2XX platform strategy would also benefit from accommodating midsize and full-size crossover-utility vehicles (CUVs) and multi-purpose vehicles (MPVs) in addition to its passenger car range, while giving PSA the opportunity to expand in a sector where it recently has been contracting. Current industry best practices enable a single platform to cover two product segments while spanning multiple product types (e.g., sedan, CUV, and MPV). Therefore, we expect consolidation of the existing Lamda basis onto E2XX, dramatically increasing per unit profitability and platform flexibility. Future CUV and MPV product strategies designed to leverage either D2XX (Global Delta which underpins many C segment sized models) or E2XX would help both GM and PSA compete more effectively in global markets. The next generation Delta, known as D3XX, would offer greater global scale, represented by 33 global entries with greater geographic coverage and nameplate balance (GM-20/PSA-13). Potential synergies are substantial, but are seen as being realized only from 2019 and beyond.

While the alliance will use existing platforms to accelerate integration efforts in the B- and D-segments, the first jointly developed platform is identified as supporting "low-emissions" vehicles. IHS Automotive assumes this to be a modular platform technique, similar to BMW's Project I, developed separately from traditional platforms that must accommodate internal combustion engines or parallel hybrid systems. The primary purpose of the all-new platform is expected to be to optimize development of battery electric vehicles and range extender technologies to best address varying market and consumer requirements. The alliance will seek to mitigate risk in this area and to operate increased leverage with the main battery suppliers. A modular approach is also expected to best support the different vehicle sizes required by each of the alliance partners in their home markets; PSA and GM Europe will make more use of a B-segment or sub-compact offering, while in North America, a C-segment or compact offering would be more popular.

For further details contact:

Mark Fulthorpe, Senior Manager, Light Vehicle Production (UK): +44 203 1593474 or mark.fulthorpe@ihs.com

Mike Jackson, Senior Manager, Light Vehicle Production (US): +1 248 465 2833 or mike.jackson@ihs.com

Denis Schemoul, Senior Analyst, Light Vehicle Production (France): +33 1 76 76 30 36 or denis.schemoul@ihs.com

Marc Rinkel, Senior Analyst, Light Vehicle Powertrain: +44 203 159 3595 or marc.rinkel@ihs.com