GM ‘paying’ PSA just to get out of Europe

General Motors Co (GM) will practically pay France’s PSA Group to take its long-struggling European unit off its hands as it looks to cauterise a perennial bleeder.

PSA will pay a total of US$2.2 billion (RM9.78 billion) to buy GM’s German Opel unit, its United Kingdom sister brand Vauxhall and its European auto lending business.

In return, GM will give the French carmaker US$3.2 billion to cover future Europe pension obligations and keep managing US$9.8 billion worth of plans for existing retirees.

Europe’s burden on GM’s balance sheet will now be confined to pensions, leaving Peugeot owner PSA with the task of fixing the troubled Opel brand and turning around a business that’s lost about US$9 billion since 2009.

Once the deal closed, GM would pay about US$400 million annually for 15 years to fund the German and United Kingdom plans, said spokesman Tom Henderson.

GM executives dismissed the idea they were paying PSA to take Opel off their hands.

The carmaker was cutting losses and cash burn while keeping its obligations to retirees who worked for the company, said chief financial officer Chuck Stevens.

The carmaker burned through about US$4.4 billion during the last three years in Europe.

“It’s a known obligation,” said Stevens on a conference call on Monday. “All we’re doing is recognising an obligation that we had and the historical drag on the business.”

By dropping its European business, GM would improve profit and cash flow, said Stevens.

Rather than keep about US$20 billion in cash on hand to run the business and cushion against recessions, the company could shrink its buffer to about US$18 billion, he added.

The newly freed US$2 billion would accelerate GM’s share buyback programme once the deal closed later this year, said Stevens.

The move also allows GM to redirect about US$1.1 billion in capital expenditures the company typically spends per year in Europe.