National Post (National Edition)
GM’s Opel sale sign of seismic shift
General Motors is selling its European Opel and Vauxhall divisions to France’s PSA Group, which currently produces Peugeot and Citroën. It’s a blockbuster deal worth US$2.3 billion, instantly creates the continent’s secondlargest automaking group (behind Volkswagen) and may signal the European automobile market’s return to profitability.
But that’s way over in Europe. Why should you care?
We in North America have got used to thinking of GM, if not as the biggest automaker in the world, then at least one of the biggest, always competing with Japan’s Toyota and the Volkswagen Group for world supremacy.
Not anymore. With one slash of the pen, GM chief executive Mary Barra has essentially retreated from the European market. For the most part The General will not be selling cars to Germans, the French or anyone else in the EU.
While GM will not miss the steady losses — said to total as much as US$20 billion — that Opel foisted on Detroit since 1999, Opel and Vauxhall nonetheless accounted for some 1.2 million of GM’s annual production of 10 million vehicles. The chances of GM challenging for No. 1 among automakers in the near future would seem remote. Considering GM has been at, or near, the top for almost 85 years, that, my friends, is a huge disruption in the automotive world.
Essentially, rather than being a global player, The General will become North America- and China-centric.
For the immediate future, that concentration would look to be profitable. While GM’s European division has lost money every year since 1999, sales in China and North America are soaring. The Chinese absolutely love GM, buying 3.87 million of its vehicles in 2016, making China the company’s top market for the fifth year running. The Chinese love Cadillac, and Buick, for all intents and purposes, is a Chinese company, with almost 990,000 out of its total worldwide 1.2 million-unit production sold in China.
Factor in that GM’s Korean and Chinese research and development facilities are starting to prove themselves and the copious productive — and most importantly, profitable — manufacturing plants, and GM’s pivot does make a lot of (dollars and) sense.
Unfortunately, there’s much more to this deal than just nuts and bolts. For one thing, though China and the U.S. auto industries are both huge and profitable, they are also mature markets, both in the demographics of buyers and where they stand in their market cycles. Most analysts note that the North America auto segment has peaked and predict fewer sales over the next few years. And the shine on the Chinese market, if not dulled, is at least a little less brilliant. It’s not so much a question of whether GM has performed the right pivot so much as whether it’s pivoted at the right time, especially with the lack of political stability in the current American administration.
The new president has repeatedly called China a “currency manipulator” and professed the need for remedies that would promote “fair trade.” That may be on the back burner right now but the mercurial style of the current president makes a trade war at least a possibility. As the highest-profile company in the highest-profile segment of inter-country trade, GM would have the most to lose if Beijing and Washington start fulminating about trade imbalances.
Nor is this the only part of the deal that smacks of geopolitical intrigue. Both France and Germany are in the grips of the same rightwing populism that has overwhelmed the U.S., with the rise of Marine Le Pen in France and the Alternative for Germany party in Deutschland. With it comes the typical promises of protectionist policies and, with those, difficulties in closing unprofitable plants, of which the combination of Opel, Citroën and Peugeot will have many. While new(ish) PSA chief executive Carlos Tavares — the man credited with returning the perennially money-losing French automakers to profitability — has said that “shutting down a plant is rather simplistic,” and is not the path forward for the US$2-billion cost savings he projects, most industry insiders see no way for the new auto giant to save those dollars without some (difficult) plant closures.
“What better industry to express a view of ‘France first’ than the auto industry?” David J. Herman, who was CEO of Opel in the 1990s, told the New York Times. Making the acquisition work, he said, “is going to be excruciatingly difficult.”
Even Brexit makes an appearance in this fourwheeled soap opera. Part of the deal, of course, is England’s Vauxhall, whose two plants produce both Opels and Vauxhalls and rely on a tariff-free supply of parts from the EU, something that Brexit is now calling into question. It all points to a seismic shift. It may be an ocean away, but North America will not be exempt from its ramifications.
And here’s one more little detail to chew on. For the past decade, analysts and CEOs alike have proclaimed that corporate gigantism and the mergers they require — Fiat buying Chrysler, Porsche trying to swallow Volkswagen, FCA almost pleading to merge with GM, VW and, well, pretty much anyone and everyone — were the only road to profitability. Now we’re faced with the concept that the once No. 1 automaker in the world is walking away from exactly that. If that’s not food for thought, I don’t know what is.