PSA Peugeot Citroen and GM Manufacture Small Cars

PSA Peugeot Citroen managed to close a refinancing deal for 11.5 billion euro with almost 20 creditor banks.

The money will be used to help its lending unit avoid being downgraded to the junk rating, to boost the automaker’s finances, but also to asset sales and a strategic partnership with GM. Today, December 20th, the two automakers announced they will jointly purchase parts and manufacture three compact vehicles.

“It’s a relief,” Juergen Pieper, an analyst with Bankhaus Metzler in Frankfurt, said of the agreement. “The share price is so depressed because people just have doubts about the survival of this company. Otherwise, you couldn’t justify such a low market value.”

GM and Peugeot previously said that they plan to jointly manufacture two small cars, a compact crossover and a larger vehicle, but that only the compact cars got the approval. By creating this alliance, which also includes a joint purchasing agreement, the two automakers plan to make annual savings of about $2 billion within five years.

As of 3:08 p.m. in Paris trading, Peugeot gained 1.3% to 5.67 euro, while the stock increased 46% so far this year, valuing the automaker at 2 billion euro. In July Peugeot said he was burning through cash at a rate of almost 200 million euro monthly, as the auto industry in Europe is heading towards a 17-year low.