Vauxhall to merge with Peugeot-Citroen?

Speculation is mounting that Vauxhall-Opel and Peugeot-Citroen are analysing merger plans that would create the second-largest automotive alliance in Europe.

US giant GM, which owns Vauxhall and Opel, already has a 7% stake in PSA Peugeot Citroen. It is now being suggested that it’s looking to increase this, in an effort to remove its loss-making European arm from its books.

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Experts believe GM could increase its stake to around 30% (with PSA retaining the remaining 70%), something that would cost it around $10bn. That’s a lot of cash, but GM Europe is already expected to lose $1bn this year alone.

PSA is also reportedly losing more than £150m a month and its debt is at record levels.

Such a merger would help GM remove the financial drain on its reserves without cutting itself off from the vast engineering resource of GM Europe – recognised as producing well-developed cars that play a key role in GM’s European sales.

Indeed, some industry analysts are saying the merger provides GM with an effective way of offloading its ‘toxic asset’ from its books, thus ensuring the company can appear profitable.

The US taxpayer still owns 26% of GM and the government is under pressure to get its money back by selling its share – but the stock price has dwindled and the weak performance of Europe is partly to blame. Indeed, if it sold the stake now, the US taxpayer would lose $25bn.

By taking GM Europe out of the equation, GM would become much more profitable and thus be a more desirable investment for shareholders – boosting the share price accordingly.

The new alliance would also be better placed to succeed, as models such as the Vauxhall Astra and Peugeot 308 could be developed off shared platforms, cutting engineering costs. Factories could also be better utilised (although the risk is that there would be plant closures too).

There are many hurdles to overcome, not least expected French government opposition to the deal plus possible anti-competitive restrictions in Europe.

However, according to rumours, the megamerger may well be investigated. Vauxhall-Opel-Peugeot-Citroen to become Europe’s second largest car group? Watch this space.

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