FRANKFURT -- General Motors Co. and PSA/Peugeot-Citroen have something in common: They both lose money in Europe. The issues they face may not be fixed by teaming up.
The two carmakers are in talks about forming an alliance to develop engines and build vehicles together in Europe, a person familiar with the situation said on Wednesday.
A deal between the two automakers could link the 11 factories of GM's Opel unit with PSA's 12 European manufacturing plants.
Some analysts, including Max Warburton at Sanford C. Bernstein in London, are skeptical that the alliance will make much difference in the companies' outlooks.
"Two wrongs don't make a right," he said. "PSA and Opel can't restructure independently. We see no reason why putting PSA and Opel together would speed up the process of plant closures, as both have excess capacity."
The companies have failed to end losses in Europe after extensive cost-cutting programs in recent years.
The prospects for a turnaround aren't improving with auto demand in the region poised to drop for the fifth straight year in 2012 as the sovereign debt crisis unsettles consumers. Political interference and strong unions have hampered both companies from shutting factories and laying off workers to rein in costs.
PSA is projected to use just 62 percent of its European capacity this year, compared with 74 percent at Opel, according to LMC Automotive in Oxford, England.
Carmakers risk losses when they use less than 90 percent of their capacity, said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg- Essen.
PSA, Europe's second-largest carmaker, last week announced plans to reduce investments and marketing spending as part of a goal of saving 1 billion euros, an increase from a previous 800 million euros. The steeper cuts come after the car- making division lost 92 million euros in 2011.
The Paris-based manufacturer also aims to sell 1.5 billion euros in assets to reduce debt, which widened to 3.4 billion euros last year.
General Motors is planning more cost cuts for its unprofitable European unit after the last turnaround plan failed to end losses. The automaker's Europe business, which is chiefly Opel and its U.K. sister brand Vauxhall, lost $747 million last year before interest and tax.
While that's an improvement from $1.95 billion lost in 2010, GM had planned to break even in the region until November, when it pulled back the forecast as the European outlook worsened.
GM's restructuring of its European operations may cost at least $1 billion, the average estimate of three analysts surveyed by Bloomberg last week said.
The lack of distinctive models has eroded market share for the two groups. PSA's share in Western Europe slumped to 12.6 percent in 2011 from 13.7 percent last year after its sales in the region fell 8.8 percent. Opel and Vauxhall's share slipped to 7.3 percent from 7.4 percent. The GM brands controlled 12.6 percent of the market in 1993.
"From a U.K. perspective, Peugeot, Citroen and Vauxhall are probably the weakest major brands," said Simon Empson, managing director of Broadspeed.com, a discount car website. "This is grasping at straws. What could you combine? They're going after exactly the same customers."
Peugeot's best-seller is the subcompact 207 line, which starts at 12,350 euros, and vies with Opel's 11,825-euro Corsa. Opel's 16,770-euro Astra compact, its top-seller, rivals Peugeot's 17,050-euro 308 model.
Savings from a GM-PSA alliance may ultimately approach $2 billion and $3 billion for the Detroit automaker, according to an estimate by Morgan Stanley.
"Any restructuring of GM Europe would require cash resources from Detroit," Adam Jonas, an analyst with Morgan Stanley, wrote as lead author in a note to investors. "We expect an alliance would help GM get more bang for its buck, and would not expect significant capital commitment over and above that required to initiate joint projects."
GM could record savings by sharing vehicle platforms with PSA and tap into technology such as Peugeot's diesel engines, Jonas wrote.
'Who's going to cut?'
The alliance possibilities cited by analysts are less far-reaching than the 1999 transaction in which Renault SA and Nissan Motor Co. bought stakes in each other.
Bob Lutz, a former GM executive, said that year that Renault would be better off sinking $5.4 billion in the ocean rather than buying a stake in Nissan. Lutz by 2005 had changed his mind, citing "the personality, drive, firm will and daring of Carlos Ghosn," the CEO of both automakers.
The Renault-Nissan alliance is worldwide while a GM-PSA tie-up would involve two money-losing European units.
"The problem of bringing together two generalists in the same region is who's going to cut anything?" said Colin Couchman, a London-based analyst at IHS Automotive. "There's massive crossover between the brands. They both have the same overcapacity problems and both have political interference."
French Labor Minister Xavier Bertrand warned Peugeot CEO Philippe Varin against cutting jobs as a result of a deal with GM.