PSA Group explores takeover of GM’s European unit Opel
FRANKFURT — France’s PSA Group, maker of Peugeot and Citroën cars, says it’s exploring a possible takeover of Opel, General Motors’ money-losing European business.
PSA Group said in a statement Tuesday that it was considering “numerous strategic initiatives” that would expand the existing co-operation, and that a takeover of Opel was one of them. PSA Group and GM are already involved in several joint projects in Europe.
GM said “there can be no assurance that an agreement will be reached.”
The deal immediately met resistance from labour leaders.
Germany’s IG Metall labour union and Opel’s works council said they were caught by surprise with news of the potential sale of Opel. Any such talks without their consent would be “an unprecedented violation of all German and European co-determination rights,” the two said in a joint statement.
Prime Minister Volker Bouffier of Germany’s Hesse state said that he’ll seek talks with company management, with a view to securing jobs and keeping Opel’s development centre —“the core, the most important part of Opel” — in Ruesselsheim, outside Frankfurt.
Detroit-based GM is weary of having to report losses year after year in Europe, where it last made a full-year profit in 1999 on a pre-tax basis. An outright sale would eliminate the losses but GM relies on Opel for design work and uses Opel models as the basis for GM models in other markets.
Rebecca Lindland, executive analyst for Kelley Blue Book, said that “Opel has been hemorrhaging money for the last 16 years, so hard decisions are on the table in (CEO) Mary Barra’s version of a profitable GM.”
Lindland said untangling Opel from GM would not be easy but that “even if GM sells Opel to PSA, I can see a world where both companies continue with existing joint projects long into the future, as these types of engineering collaborations provide vital economies of scale on a local and global basis.”
Combining PSA Group with Opel and its British brand, Vauxhall, would create the secondlargest carmaker by market share in Europe with 16.6 per cent of sales, according to 2016 figures. The combination would be second only to Volkswagen, with 23.9 per cent, and would vault ahead of the Renault-Nissan alliance, which had 13.9 per cent.
Being bigger can, in theory, bring per-vehicle cost advantages by spreading fixed costs such as investment in plants and equipment over a larger number of vehicles.
Efraim Levy, an analyst at CFRA Research, said that “deeper integration or partnership is more likely in our view than an outright sale” of Opel.
GM and PSA Group formed an alliance in 2012 in an attempt to make production more efficient. In late 2013, GM announced it was selling its stake, although the two companies continued working on joint vehicle projects. For instance, GM will make Citroën’s forthcoming subcompact crossover vehicle beginning later this year at a plant in Zaragoza, Spain.
Since leaving bankruptcy protection in 2009, GM has lost $5.88 billion before taxes on European operations, according to government regulatory filings.
It had hoped to reach breakeven in Europe by now, but last year posted a loss of $257 million despite selling 1.1 million vehicles, and even as GM as a whole turned in a robust profit of $9.4 billion. The company noted that the European operation would have broken even if it had not suffered a $300 million hit from the British vote to leave the European Union. The resulting plunge in the British pound shrinks the dollar value of earnings from its Vauxhall models in that market.
Barra has underlined the company’s commitment to Opel several times in recent years. But she expressed dissatisfaction with the unexpected loss.
“We aren’t satisfied with these results and the team is focused on mitigating the effect through further cost efficiencies” and new models, Barra said after the earnings update.
GM chief financial officer Chuck Stevens said the company expected only a “relatively flat performance” in Europe this year.
Opel has had some success with the Mokka, which was ahead of the trend toward smaller SUVs. But it lacks larger SUV models that would bring fatter profits.
In 2009, GM agreed on a sale of a majority stake in Opel to Canadian car parts firm Magna International and Russian lender Sberbank but called the deal off as GM’s fortunes improved after bankruptcy restructuring.