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Friday
Mar092012

An American Auto Bailout for France?

LIONEL BONAVENTURE/AFP/Getty Images(WASHINGTON) -- Attention U.S. taxpayers: You now own a piece of a French car company that is drowning in red ink.

In a move little noticed outside of the business pages, General Motors last week bought more than $400 million in shares of PSA Peugeot Citroen -- a 7 percent stake in the company.

Because U.S. taxpayers still own roughly one quarter of GM, they now own a piece of Peugeot.

Peugeot can undoubtedly use the cash.  Last year, Peugeot’s auto making division lost $123 million.  And on March 1 -- just a day after the deal with GM was announced -- Moody’s downgraded Peugeot’s credit rating to junk status with a negative outlook, citing “severe deterioration” of its finances.

In other words, General Motors essentially just dumped more than $400 million of taxpayer assets on junk bonds.

GM has said the deal is designed to give GM access to Peugeot’s expertise in small car and hybrid vehicle technology and ultimately allow both GM and Peugeot to save money by pooling their resources.  But auto industry analysts find the deal mystifying.

An analysis by auto industry consultants IHS said it is “somewhat baffling that GM is willing to get involved in an alliance that it frankly does not need for size or complexity, while still avoiding any public plan to rationalize its European production, cut costs, or deal with labour rates.”

The deal will allow the Peugeot family to reduce its share of the family business.  The family, which Forbes estimated to be worth more than $2 billion, still owns about 30 percent of the company.  The Peugeots declined the opportunity to buy a piece of GM.

Copyright 2012 ABC News Radio







ABC News Radio