GM ‘pay­ing’ PSA just to get out of Europe

New Straits Times - - Busi­ness World -

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.

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