Peugeot’s Future Could Rest On Whether General Motors Can Shut Down European Car Factories

After 200 years as an industrial clan, the Peugeot family is facing some tough decisions that will determine the fate of French automaker Peugeot SA (EPA:UG), which has been hit hard by the European sovereign debt crisis that sent the region’s auto sector into a tailspin.

Unlike other major auto companies, the maker of the Peugeot and Citroën brands is heavily reliant on Europe for its sales. General Motors Co. (NYSE:GM), which owns Germany-based Opel, has also been hit with $1.8 billion in European losses last year, but its strong share of the booming U.S. and China car markets has helped offset the gale-force European headwinds.

Now, one of Europe’s oldest industrial families, Peugeot, which owns about one-fourth of Paris-based Peugeot SA and controls nearly 40 percent of the company’s voting rights, is considering drastic measures to get Detroit-based GM to come to the rescue. GM acquired 7 percent of Peugeot in February 2012 in a move to reduce costs by combining some engineering and purchasing operations.

According to Reuters, the family is considering giving up control of its company, which started as a maker of coffee, salt and pepper grinders in 1810 and became one of the first major producers of the penny-farthing bicycle in 1882.

Both companies are facing overcapacity issues in Europe, where shutting a factory is tantamount to treason in the eyes of union members and is otherwise a highly politically unpopular move that can take years and cost millions of dollars.

Both companies are mum on the possibility of a GM-Peugeot tie-in, but anonymous sources told Reuters that any deal would require assurances to GM that it could lay off workers and shut facilities. Any such move would face outcry from German and French politicians and unions. France is facing a jobless rate that could top 11 percent before the end of the year, and any further moves to reduce Peugeot’s workforce there would be met with strong opposition. The company already cut 10 percent of its roughly 100,000-strong French workforce last year, as reported by Bloomberg.

Talks for further GM-Peugeot integration were stopped by the French government last year over concerns Peugeot would essentially become a property of the Detroit auto giant. But if keeping Peugeot French threatens the future existence of iconic French vehicle brands, then giving control to GM may become the lesser of two evils.