GM and PSA Peugeot-Citroën are reported to be in advanced talks aimed at establishing an alliance in Europe to build cars and components. The agreement, if it comes to pass, could have implications for supply chain and logistics operations.
A report in the Financial Times, quoting sources familiar with the deal, states that the partnership would see GM's Opel-Vauxhall division develop engines, transmission systems and finished vehicles with PSA that would be sold under the companies respective brands. It is widely reported that PSA's CEO Phillippe Varin has contacted French labour minister Xavier Bertrand to confirm that the two carmakers are in discussion.
An official announcement is expected at the end of March at the Geneva motor show.
The agreement would not constitute a merger but talks have been taking place for several months as the carmakers look at ways of restoring profitability to their European operations, says the report.
Neither carmaker has confirmed the pending agreement, but admitted they were open to discussions. "In the context of its globalisation strategy and improving its operational performance, PSA Peugeot Citroen looks at potential co-operations and alliances," the company said in a statement.
A GM spokesperson would only confirm that the company routinely speaks with others in the industry.
GM Europe lost $582m through the first nine months of 2011 and the loss-making Opel-Vauxhall division is fighting to sustain its annual €265m cost-saving target and meet ambitious targets of €1 billion profit by 2016. The company is expected to announce further cuts in a restructuring plan, which could include closing factories in Germany and the UK.
Peugeot last week reported a loss of €497m in the second half of 2011. Along with a €1 billion cost savings drive, PSA said recently that it is putting in place a new commercial organisation, will "drastically" reduce inventories and sell €1.5 billion in assets, including a stake in its profitable logistics subsidiary, Gefco (read more here). 
Cooperation with other OEMs would not be new for PSA, which already manufactures diesel engines with Ford, gasoline engines with BMW and small cars with Toyota in the Czech Republic. It also shares some vehicles with Mitsubishi and manufactures light commercial vehicles with Fiat. Although it has reportedly sought deeper alliances before, including with Fiat and Mitsubishi, this would be the first to take form.
GM has explored alliances in the past, including a purchasing agreement with Fiat that ended after fives years in 2005.
A partnership between the two carmakers would likely be aimed at reducing development and manufacturing costs. According to Pietro Boggia and Martyn Briggs, consultants at the Automotive and Transportation practice at Frost & Sullivan, potential areas for savings for PSA could come from leveraging electric vehicle development from GM as well as several vehicle platforms and capacity in the short term. PSA, on the other hand, has known strengths in diesel hybrid engines. "This could be an example barter between the companies," they said.
Also, PSA has plans to expand sales outside of Europe and could use GM's network to gain entries. "GM may be able to offer Peugeot a cost effective route/market entry to emerging markets such as India and China. However, we believe such a partnership would be more likely to have an impact in the short term on European operations," said Boggia and Briggs.
Potential for logistics
Such an alliance would also be likely to bring a certain level of logistics sharing, especially where component and vehicle production is combined. At the PSA-Toyota factory in the Czech Republic, for example, Gefco carries out extensive logistics operations for both carmakers for both inbound and outbound logistics.
The respective manufacturing footprints of PSA and Opel/Vauxhall could lead to sharing backhauls for outbound vehicle logistics or component flows, as PSA has factories in France, Spain and the Czech Republic, and Opel in Germany, Poland, Spain and the UK. Gefco also already counts GM as a current customer.
However, there is also potential that the agreement would consolidate some production as either or both carmakers closed plants in Europe.
Past alliances have also proved that a wider sharing on logistics procurement and cooperation is not necessarily a given. Renault Nissan, for example, established an alliance with Daimler for engine and vehicle development and production in 2010. While the carmakers also have similarly complimentary production networks in Europe as PSA and Opel, so far there has been little progress on logistics and distribution cooperation.
"We are having discussions with Daimler about this but we are still unsure," said Frans Kroon, manager of outbound engineering at Renault Nissan, in an interview in the current issue of Finished Vehicle Logistics (read more here).
Even a full-scale integration, like that between Renault and Nissan, took around a decade before more serious efforts were made to combine logistics and supply chain management operations. Nevertheless, should an agreement be reached between the carmakers, the potential for logistics savings should not be overlooked.