GM, Peugeot CitroŽn form European alliance to cut costs

General Motors (GM), the world's largest carmaker has taken steps to stem losses at its European operations by forming an alliance with Europe's second-largest carmaker PSA Peugeot CitroŽn in a deal that will bring in savings of $2 billion to the partners.

The Detroit-based auto giant will acquire a 7-per cent stake in its French rival, share vehicle architectures and form a joint purchasing venture that will buy parts worth $125 billion per year from suppliers.

As part of the deal, Peugeot will raise €1 billion through a capital increase that includes an investment from the Peugeot family, and GM will acquire a 7-per cent equity stake in Peugeot, making it the second-largest shareholder behind the Peugeot family's 30-per cent stake.

Last year private equity firm Blackrock Inc became the European auto maker's second-largest investor with 5-per cent holding.

''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 Peugeot, said, ''This alliance is a tremendously exciting moment for both groups and this partnership is 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.''