Chemistry Board

Peugeot and Opel halt tie-up

General Motors and alliance partner PSA Peugeot Citroen have halted talks on a deeper tie-up amid misgivings about the French carmaker's worsening finances and government-backed bailout, people familiar with the matter said.

The companies, already pursuing an operational partnership announced in February, had also been exploring a full combination of Peugeot with GM's European unit Opel, which is based in Germany.

But two sources with direct knowledge of those discussions said they were broken off after Peugeot accepted a state guarantee for its lending arm last month and announced a further deterioration of its cash position.

The automakers have agreed to a "pause" in early-stage talks on a Peugeot-Opel deal, said one of the sources. The government bailout is "sabotaging the plan", he added.

"They now consider that any deeper tie-up is unlikely before 2014, when the market picks up," another source said.

"The government bailout conditions rule out French job cuts, which means a deal can't happen any faster," he said. "It would be politically impossible to have all the cuts falling on the German side."

A Peugeot spokesman said there were no Opel tie-up talks currently in progress, breaking a month of silence since they were first reported.

With their costly French and German plants and exposure to austerity-strapped southern markets, Peugeot and Opel are major casualties of Europe's protracted slump in auto sales, which has left the industry struggling with surplus capacity.

Peugeot, which is burning though 160 million euros ($200 million) of cash a month, is scrapping 10,000 jobs and a domestic plant. GM, which predicts European losses of $1.5-1.8 billion this year, is in union talks to close an Opel factory in Bochum, Germany.

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