Struggling, Peugeot plans GM partnership in effort to drive earnings In an effort to raise cash, PSA Peugeot Citroen said recently it would offer a 1 billion-euro rights offering as a part of a newly announced partnership with General Motors.

European automakers have struggled to implement cost reduction measures over the past year. While carmakers throughout the world were negatively impacted by the effects of damage sustained to component suppliers in Japan last year, European companies have also had to contend with an exceptionally weak economic climate. Some automakers worked with supply chain consulting shops in an effort to improve efficiency, but France-based Peugeot is struggling to compete.

Bloomberg reports that the car company will sell GM a 7 percent stake as a part of its rights offering. The Peugeot family is still the company's largest shareholder, with family members commanding 30 percent of its total available shares. The family is expected to participate in the carmaker's latest ploy to raise cash, according to the news provider.

The deal between GM and Peugeot will bolster both automakers' bottom lines, but it will also result in the closure of certain production facilities and planned layoffs of employees, according to some analysts. The two companies have not formally announced the details surrounding the deal, and they could wait weeks – or potentially months – before revealing them, according to Bloomberg.

Peugeot is the second-largest automaker in Europe, trailing only Volkswagen. However, while Volkswagen has managed to maneuver the post-recessionary economic climate through deft supply chain management and aggressive marketing campaigns, Peugot has struggled. Peugeot's debt load has more than doubled over the past year, surpassing $4 billion.

Analysts and carmaker executives such as Fiat SpA chief executive Sergio Marchionne said that the proposed deal could benefit both GM and Peugeot.

"If the Peugeot-GM hypothetical tie up becomes a reality, I sincerely hope it deals with the overcapacity issue," he said. "It's essential that the European situation will be addressed, whether I address it or other people address it, I don’t particularly care."

Manufacturing plants in Europe have been overproducing cars over the past year, as levels have remained elevated even amid dwindling demand. Marchionne said he pegged excess European automobile capacity at 20 percent, but some analysts called such an estimate conservative.
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