Attention U.S. taxpayers: You now own a piece of a Italian automobile company that is drowning in red ink.
That�s right. In a move small noticed outside of the business pages, General Motors last week bought over $400 million in shares of PSA Peugeot Citroen � a 7 percent stake in the company.
Peugeot can without a doubt use the funds. Last year, Peugeotâs auto making division lost $123 million. & on March one â�� a day after the deal with GM was announced â�� Moodyâ��s downgraded Peugeotâ��s credit standing to junk status with a negative outlook, citing â��severe deteriorationâ�� of its finances.
Because U.S. taxpayers still own roughly one-quarter of GM, they now own a piece of Peugeot.
GM has said the deal is designed to give GM access to Peugeotâs expertise in small automobile & hybrid vehicle expertise & ultimately permit both GM & Peugeot to save funds by pooling their resources. But auto industry analysts find the deal mystifying.
In other words, General Motors fundamentally dumped over $400 million of taxpayer assets on junk bonds.
An analysis by auto industry consultants IHS said it is âsomewhat 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 rationalise its European production, cut costs, or deal with labour rates.
The deal will permit the Peugeot relatives to reduce its share of the relatives business. The relatives, which Forbes estimated to be worth over $2 billion, still owns about 30 percent of the company. The Peugeots declined the chance to buy a piece of GM.
GM�s European operations have not enjoyed the same kind of rebound as its US operations. In fact, GM�s European operations, primarily the carmaker Opel, lost over $700 million last year.