GM confirms holding talks to sell Opel to the PSA Group

Article by Christian A., on February 16, 2017

It looks like Opel/Vauxhall will have a new owner soon. This comes as the PSA Group and General Motors are currently holding talks over the possibility of GM selling its Opel unit to the French carmaker.

The discussions were first reported by Reuters and Bloomberg News, citing sources. In a recent statement, GM confirmed that the two carmakers are exploring several strategic initiatives with the objective of improving profitability as well as operational efficiency. GM added that the discussions included a potential acquisition of Opel Vauxhall by the PSA Group. GM also noted that the carmakers have been in alliance since 2012, with the partnership covering three projects in Europe.

Selling Opel to the PSA Group wouldn’t be an easy thing to do for GM. There are quite a number of financial, industrial and political considerations that needed to be factored in. That said, both GM and PSA could also earn some benefits from such transaction.

For GM, selling Opel – which also operates sister brand Vauxhall in the United Kingdom – would allow it to get rid of its European business, which have been posting losses for nearly two decades since 1999. In fact, GM has already lost $20 billion in Europe, forcing it to shut down its production facilities in Bochum, Germany. Even after squeezing out costs and vastly improving its offerings, Opel remains unprofitable and has been losing market share in Europe. This is basically because Opel, as a volume carmaker, has low profit margins with production being done in Germany, Spain and the UK, where labor costs are high.

Moreover, the European auto market is already having some problems with regards to overcapacity, specifically with the ability to produce vehicles far surpassing the demand. Getting rid of Opel would allow GM to focus on its strengths in other markets where profitability would not be a question. Nonetheless, selling Opel to PSA would mean GM giving up on its European operations and its market share in the region.

As for the PSA Group, acquiring Opel would allow it to better compete in Europe. Individually, Opel and PSA lags in Europe in terms of market share. However, acquiring Opel would allow PSA to effectively increase its share of the European auto market to around 16 percent. This would also allow the PSA Group (plus Opel) to become the second largest carmaker in Europe, next to the Volkswagen Group that boasts of controlling around a quarter of the market.

Likewise, acquiring Opel would allow PSA to boost its economies of scale, as it could further spread development costs across more vehicles. In addition, PSA might be able to gain access to several of Opel’s engineering and technological strengths, like in the area of electrification. On the other hand, acquiring Opel from GM would mean PSA has to handle excessive capacities – particularly in Germany -- that would be a result of the transaction.

Nevertheless, the transaction could lead to massive job cuts, with GM Europe alone employing around 38,000 people. Around 19,000 of these employees are in Germany and around 4,500 are located in the UK. Massive job cuts are expected to be a sensitive issue in the upcoming elections in France and Germany, as government officials weigh in on possible political backlash from the Opel-PSA deal.

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Topics: opel, psa, peugeot, citroen, gm

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