It is no secret that PSA Peugeot Citroen is not in the best of shape today.

The rapid slump in Europe has taken its toll on the French carmaker and prompted it to defer some big-ticket investments. India was one of these and it was pretty significant since it would have marked a homecoming of sorts for PSA, which abruptly shut shop during its first stint here in the mid-1990s.

It is in this backdrop that a German magazine reported earlier this week on a possible alliance happening between PSA and Tata Motors.

The Indian company was quick to deny this the following day, terming the news ‘absolutely incorrect’.

PSA and Tatas had, over a decade ago, actually explored the possibility of working together to bring the Peugeot 307 to India.

The project was shelved because it was not found economically viable. PSA did not revive its India plans for many years and chose to focus only on Russia and China as part of its global aspirations.

Tata Motors, meanwhile, tied up with Fiat in a manufacturing/marketing joint venture before snapping up British brands, Jaguar Land Rover, for $2.5 billion in 2008.

Alliance feasible?

Would it still make sense for PSA and Tata Motors to join hands now? The French company recently entered into an equity alliance with General Motors, largely intended to generate cost savings of at least $2 billion over the next five years.

Barely three weeks back, the duo announced its intent to work jointly on four vehicle projects comprising small and mid-size cars as well as a compact multipurpose van and SUV/crossover.

Reports are now doing the rounds that the GM-PSA alliance is running into rough weather; this has fuelled speculation that Tata Motors could step into the picture instead.

On the face of it, such a tie-up will help the Indian company access PSA’s diesel engine range.

Its presence would also allow the French automaker to finally get a foothold in India, slated to become the world’s sixth largest automobile market by 2020.

It is the ideal script, except that Tata Motors has a manufacturing alliance with Fiat, even though the two have called it quits on their joint retail model. Its acquisition of JLR has been the best piece of news for its global passenger car business, which will only get a fillip from the recent entry into China. Further, from PSA’s point of view, the immediate task on hand is to bring its European operations back on track. It has had to take some painful decisions lately, which included the closure of a plant in France.

Europe FOCUS

There is little Tata Motors can do to salvage such a situation. It is also not likely that GM will bid adieu to the alliance in a hurry. Sure, things have not been working on the projected lines but global partners typically try and hang in there for a while till a viable solution is found.

For the moment, the top priority for PSA is survival. Critics say it has been way too slow on its global plans and has been content focusing on Europe. Now that the citadel is crumbling, there are not too many options left.

There has been talk of some kind of European consolidation happening with Fiat, PSA and Opel, the German arm of GM.

Clearly, PSA is in no position to contemplate new business prospects overseas unless it gets Europe in order first.

(This article was published on November 16, 2012)
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