GM sells Opel, Vauxhall to PSA for $2.2 billion
General Motors is saying goodbye to its Opel and Vauxhall brands and ending its presence as a major automotive manufacturer in Europe after nearly 90 years there.
GM said Monday it has reached a deal to sell its European operations to French automaker PSA Groupe for $2.2 billion US, a decision that shakes up the automotive landscape in Europe and could lead to additional consolidation in the global automotive industry.
The deal instantly vaults PSA into second place in Europe with 17 percent market share, second only to Volkswagen AG. PSA Groupe has ambitions to become an even larger player by capitalizing on the national identities of four automotive brands — Peugeot, Citroën, Opel and Vauxhall.
“We want to create a European automotive champion,” PSA Groupe chairman Carlos Tavares said. “We will totally unleash the potential of the Opel and Vauxhall brands.”
Selling Opel and Vauxhall frees GM from a division that has bled money for 16 consecutive years, allowing the Detroit automaker to spend more time and money on the development off self-driving cars and on developing cars and trucks in North America and China, where it is earning most of its profits.
“This was a difficult decision for General Motors,” GM CEO Mary Barra said. “But we are unified in our belief that it is the right one.”
Barra said GM’s European unit would have met its goal of not losing any money in 2016 had it not been for additional currency costs caused by Britain’s exit from the European Union. Barra said GM executives came to realize that the so-called Brexit, combined with Europe’s tough regulatory environment, would continue to make it difficult for GM to earn profits in Europe.
By selling Opel and Vauxhall to Peugeot, Barra said GM is giving its European workers a better shot at a successful future. “What we really saw was an opportunity to strengthen the business,” Barra said. “It became really clear to us that scale was important.”
The sale includes all of Opel and Vauxhall’s automotive operations, including the brands, six assembly and five component-manufacturing plants, and an engineering centre in Russelsheim, Germany. The move covers approximately 40,000 employees.
PSA Groupe said it is forming a 50-50 joint venture with French bank BNP Paribas to purchase and operate GM’s car-financing division.
GM will retain its engineering centre in Torino, Italy, and will have the right to buy stock in PSA Groupe valued at $689 billion over the next nine years. Based on a reference price of 17.34 euro, the stock rights correspond to about 39.7 million shares of PSA Groupe, or 4.2 per cent of the French automaker’s total shares.
GM also said it will record a non-cash special charge of $4-4.5 billion after the transaction closes later this year.
Still, selling Opel and Vauxhall lowers the amount of cash GM must keep on hand by nearly $2 billion. GM said it plans to use that money to repurchase shares and other investments.
So far, Barra’s bold move has been greeted with enthusiasm on Wall Street. GM’s stock price has risen $2.71 per share, or 7.6 per cent, to $38.23 since Feb. 13, the day before GM and PSA Groupe confirmed they were in discussions.
“Opel/Vauxhall was a profit-losing puzzle no one at GM could solve for decades, and outside forces such as Brexit and an increasingly complex regulatory environment did not help the situation,” Rebecca Lindland, executive analyst at Kelley Blue Book, said in an email.
Lindland said unloading Opel and Vauxhall allows GM to invest in growing markets such as China and India and frees up capital for further expansion into ride- and car-sharing and autonomous vehicles.