Government Motors, Peugeot's Would-Be "Saviour"

Here comes a knight in rusty armour. It is unfortunate that GM Europe--the only part of General Motors whose vehicles I would remotely consider buying--is also unprofitable. Let's just say that the European auto market is quite competitive aside from being stagnant. Take, for instance, French automaker Peugeot-Citroen. Hemorrhaging cash at the moment and making cars that are not so desirable, it too is feeling the pinch of European economic slowdown.

The question becomes one of whether Government Motors (or more accurately its European money-losing subsidiary) can productively join up with Peugeot-Citroen. By supposedly enhancing their market power in buying shared components and other inputs together with the associated economies of scale, it is hoped that both can survive the European shakeout. That said, there are limits to restructuring in Europe where government and labour interests often preclude shutting down automobile plants altogether:

General Motors Co. plans to extend a $335 million lifeline to struggling French auto maker PSA Peugeot Citroën as part of a tie-up that each hopes will aid turnarounds at their struggling European car operations. GM is expected to take a roughly 7% stake in Peugeot as part of an effort by the Paris-based auto maker to raise cash through a share sale. Under the deal, expected to be disclosed as early as Wednesday, the two would jointly buy supplies, build engines and, potentially, entire vehicles in Europe and elsewhere.

Recently, GM and Peugeot have been arguing separately for the need to close excess factories in Europe. But government and labor officials have opposed large-scale job cuts. Peugeot's move to raise cash is seen as a sign the company is worse off than initially believed. "One can be excused for getting the impression that things have become a lot worse than the company has been saying over the last two weeks," Credit Suisse analyst Erich Hauser said. France's stock market regulator on Tuesday called for Peugeot to disclose its discussions with other auto makers.

Again, this tale of woe extends to both GM and Peugeot:

The move would be GM's most significant manufacturing alliance since its 2009 bankruptcy. The auto maker has tried European partnerships in the past with mixed results. GM paid $2 billion to Fiat in 2005 to dissolve a failed alliance. It has been more successful with targeted partnerships in the region, including ones to build commercial vans with Fiat and an engine venture with BMW AG. GM's operations in Europe are unprofitable, losing $747 million in 2011 and a cumulative $14 billion since 1999.

Peugeot recently reported its automotive division suffered a €497 million operating loss in the second half of 2011. The firm burned through €1.65 billion in cash for all of 2011 amid slowing demand for new cars and fierce competition in Europe's oversupplied auto market.

What you have here is essentially a tale of three money losers compounding each others' misery. Call it "The Story of Modern America." The debt-swilling US government still owns over a quarter of Government Motors which would have gone bankrupt if it were not for the intervention of this supposedly free-enterprise championing nation. (Nor will the feds be fully repaid, but that's another story.) Meanwhile, handout-addled GM is seeking to partner with yet another concern with similarly questionable financial standing and expects things to get better. Isn't American enterprise grand? One thing you can be assured of is that the ultimate losers from this process of serial money wastage will be future American generations while its government--the world's most indebted--throws away good money after bad on such diversions on the highway to hell.

But what the heck, GM #1!