General Motors and France's PSA Peugeot Citroen, both struggling in Europe, on Wednesday unveiled the details of a strategic alliance that will see the U.S. auto giant take a small stake in Europe's No. 2 carmaker.
The companies said in a joint statement their plans to share vehicle platforms and pool the purchasing of components and services will save them $2 billion a year within five years, split roughly equally.
GM intends to take a 7 percent stake in the French automaker via a $1 billion (euro0.74 billion) capital increase, which will make GM the second largest shareholder in the French company behind the Peugeot family, which has controlled its namesake enterprise since its founding over two centuries ago.
The two companies are seeking efficiencies to survive Europe's brutally competitive and over-supplied car market. A large number of manufacturers and low prices means carmakers can't make much profit per vehicle and costs need to be kept down.
GM's European business lost around euro700 million ($940 million) last year and the company has said it's determined to turn it around.
GM and Peugeot said they will continue to sell their own vehicles independently and on a competitive basis. The deal will mean they can leverage a combined purchasing volume of $125 billion with suppliers.
"This partnership brings tremendous opportunity for our two companies," said Dan Akerson, GM chairman and CEO. "The alliance synergies in addition to our independent plans, position GM for long-term sustainable profitability in Europe."
Philippe Varin, chairman of the managing board of PSA Peugeot Citroen, said the partnership was "rich in its development potential."
"With the strong support of our historical shareholder and the arrival of a new and prestigious shareholder, the whole group is mobilized to reap the full benefit of this agreement," he said.
The companies said the alliance would focus on small and midsize cars and that they would share selected platforms and larger parts modules to gain cost savings from larger volumes. The first common platform is expected to launch by 2016.
GM posted a record profit last year of $7.6 billion, but the company's earnings were dragged down by the loss in Europe.
The Detroit automaker has promised to restructure its European unit, which consists of the Opel and Vauxhall brands. It has replaced the head of GM Europe and put Vice Chairman Steve Girsky in charge of the management board.
Losses in Europe are expected to continue until the restructuring takes hold. Akerson has said the company will have to cut factory capacity, but GM is eyeing the balance sheet for savings and ways to grow revenue in the region.
GM almost sold Opel and Vauxhall to Canadian auto parts supplier Magna International Inc. and Russian lender Sperbank in November 2009 as GM emerged from bankruptcy protection. But the sale was scuttled by Girsky and other board members who overruled then-CEO Fritz Henderson.
The company says Opel's engineering and design operations in Germany are key to its future small and midsize cars. The company also feared its technology would fall into the hands of the Russians and be used to compete against GM models there.
Girsky has said GM plans to fix Opel and it's no longer for sale.
The Paris-based maker of the Peugeot 207 hatchback and Citroen C4 Picasso minivan lost euro439 million ($578 million) on its car business last year amid falling sales and concerns over management's strategy. The family-controlled company whose roots stretch back over 200 years has been hard hit by the economic downturn in Europe, where it sells more than 50 percent of the 3.5 million cars it sells annually.
The Peugeot family controls 46.26 percent of the comany's voting rights. GM's 7 percent stake would be worth about euro228 million based on Peugeot's market capitalization of euro3.26 billion.
Peugeot shares rose more than 20 percent to a four-month high last week on the Paris stock exchange on news of the alliance talks. Peugeot Citroen shares closed down 2.1 percent Wednesday at euro15.05 ($20.23).
Peugeot is second by sales only to Germany's Volkswagen AG among Europe's carmakers. It already has a partnership with BMW AG to jointly develop a lower-emission engine for some of their most popular models.
Peugeot Citroen has also worked with Mitsubishi Motors on product development with cooperation on SUVs, clean technologies with electric vehicles and a joint venture in Russia. Two years ago Peugeot and Mitsubishi abandoned talks on a "strategic partnership," saying that circumstances were not right.
Last week Peugeot Citroen forecast a 10 percent drop in car sales in its core French market this year, after booking a loss in 2011, as economic conditions remain tough.
Peugeot Citroen forecast the European car market will shrink about 5 percent this year, after a 0.5 percent drop in 2011.
Last year Peugeot Citroen sold 3.5 million cars, 1.5 percent fewer than in 2010. In the hard-hit European market, Peugeot Citroen car sales slumped 6.1 percent, worse than French rival Renault.
The company is stepping up a cost-cutting plan announced last October, and now aims to achieve euro1 billion ($1.3 billion) in savings this year. Last October the company announced plans to cut 6,000 jobs to save euro800 million in 2012.
The company also aims to raise euro1.5 billion ($2 billion) through asset sales, including property and a stake in its Gefco logistics subsidiary.
Associated Press writers David McHugh in Frankfurt and Tom Krisher in Detroit contributed to this article.