Yahoo Autos GM Sells Opel and Vauxhall to PSA For $2.3 Billion
While Opel and Vauxhall CEO Karl-Thomas Neumann maintains that the brand would have been profitable last year if it wasn't for the Brexit vote, GM didn't want to wait any longer. The automaker giant has just effectively ceased its European operations, selling Opel, Vauxhall, and the European division of GM Financial to the PSA Group for $2.3 billion.
General Motors bought British carmaker Vauxhall in 1925, and gained full control over Germany's Opel by 1931. Needless to say, it's been a rough ride since then, with the Vauxhall brand being reduced to selling British-made Opels and the German company losing money by the tons. Now that the deal is done, PSA becomes Europe's second largest carmaker after Volkswagen with a 17-percent market share excluding Russia and Turkey.
What does this all mean? For starters, the BBC reports that the French believe the deal will result in savings of €1.7 billion (roughly $1.8 billion) per year by 2026. On the Vauxhall side, the British are worried about job cuts, although a "hard Brexit" outcome could also lead PSA to increase UK production to avoid import taxes. Complicating matters, the automakers face overcapacity across their European plants already.
If that's how it's going to play out, PSA will almost certainly reduce its 35,000-strong headcount in continental Europe, where Opel has multiple factories in Germany, Spain, France, Hungary, Poland and Austria. A line in their statement regarding "synergies in purchasing manufacturing and R&D" also points towards that direction.
#Peugeot shares open up 4.5% in Paris, investors believe PSA Group have negotiated a good deal. NOT taking on the pensions deficit is key.
- Sally Bundock (@SallyBundockBBC) March 6, 2017
What's for sure is that Opel/Vauxhall will license GM intellectual property "until its vehicles progressively convert to PSA platforms over the coming years." What happens to the Opel-based Buick lineup, so important for the Chinese market, remains an open question.
GM boss Mary Barra says the merger is "a win for both sides," stating that together, PSA, Opel and Vauxhall will be in a much stronger position than they are today.
But Dominic O'Connel, BBC Radio 4's business reporter, took a look at the fine print:
The [$2.3 billion] headline price suggests both General Motors and Peugeot think the former's European operations have significant value. The fine print of the deal suggests something slightly different, and shows that GM has in fact taken a hit of up to [$7.3 billion] in order to get shot of Vauxhall and Opel. First, a big chunk of the price [...] is not for car plants, but for loans taken out by the owners of Opel and Vauxhall cars through GM's finance arm. Second, GM is keeping most of the outstanding pension liabilities. Third, the Detroit giant will take an accounting hit of [$3.9 billion] on the deal-a confirmation that the value it had placed on Opel and Vauxhall in its own books was born more out of hope and the scale of past investments than any solid expectation of future profits.
While PSA Group boss Carlos Tavares says that "the future of plants is in the hands of the workers," the company is looking into new Asian markets with both Vauxhall and Opel, despite GM's previous struggles in that region.
Looking at Europe, product integration will be quite a challenge as well, since both Opel/Vauxhall and Peugeot/Citroën produce similarly priced cars, though PSA is trying to catch up to VW with the next generation of Peugeots.
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