General Motors, the world's largest carmaker and PSA Peugeot Citroen, Europe's second largest carmaker have joined hands. The two auto giants will now work together to strengthen their positions in Europe. General Motors has paid $400 million for a 7% stake in PSA.
Although there were quite a number of speculations about GM and PSA working together, the official confirmation came only on late Wednesday. Both GM and PSA have been struggling financially in Europe. While GM is bleeding because of Opel's sales falling after the recession, PSA has been under huge losses since some years.
GM has not been able to invest in to new products for Opel. Opel is being restructured with several job losses across Europe. Losses were comparatively lesser in 2011 but the carmaker is still in the red. Opel's sales have suffered primarily because car buyers were unsure if Opel would survive the recession.
PSA also needs financial help as it is under huge amounts of debt. GM's money will help it finance new car development. PSA and GM in their statement have said the deal will be effective from the second half of this year.
GM and PSA hope that by merging product development, platform sharing and purchasing they will be able to reduce procurement costs which will result in savings of up to $2 billion per year. The two carmakers will be focusing in developing a platform for small cars and mid size cars and then move on to develop MPVs and crossovers. A jointly developed product by GM and PSA is expected to debut in 2016.