PSA in €2.2bn GM Opel pur­chase

The Star Early Edition - - BUSINESS REPORT INTERNATIONAL - Christoph Rauwald and Ania Nuss­baum

THE PSA Group yes­ter­day com­pleted the ac­qui­si­tion of General Mo­tors’s money-los­ing Euro­pean di­vi­sion, kick­ing off one of the mo­tor in­dus­try’s most com­plex turn­around ef­forts amid mount­ing po­lit­i­cal pres­sure to tighten emis­sions rules in the re­gion.

Michael Lohscheller, the new chief ex­ec­u­tive of the unit com­pris­ing the Opel and Vaux­hall brands, will present a busi­ness plan in 100 days, the Paris­based PSA said in a state­ment.

“We are wit­ness­ing the birth of a true Euro­pean cham­pion to­day,” PSA chief ex­ec­u­tive Car­los Tavares said in a sep­a­rate re­lease. The deal will re­in­state PSA, the maker of Peu­geot, Citroen and DS (Dis­tinc­tive Se­ries) cars, as Europe’s sec­ond-big­gest ve­hi­cle man­u­fac­turer by sales.

“Pick­ing up GM’s 1.2 mil­lion an­nual de­liv­er­ies in Europe al­lows the French com­pany to spread the cost of de­vel­op­ing new ve­hi­cles across a larger pro­duc­tion net­work. Gain­ing scale is vi­tal for mass car­mak­ers as they try to stay ahead of self-driv­ing and elec­tric-ve­hi­cle in­no­va­tions, while Sil­i­con val­ley firms like Ap­ple and Uber Tech­nolo­gies plot in­roads into the in­dus­try.

Car-mak­ers are also fac­ing spend­ing pres­sure as reg­u­la­tors crack down on diesel emis­sions.

GM is sell­ing Rues­selsheim, Ger­many-based Opel, its UK sis­ter brand Vaux­hall and their car-fi­nanc­ing op­er­a­tions for 2.2 bil­lion (R34.5bn). The Detroit-based car maker said in June it an­tic­i­pated a charge of about $5.5 bil­lion (R73bn) at the deal’s clos­ing.

Tavares will need to repli­cate a turn­around at Opel that he achieved with PSA three years ago, though he has yet to spec­ify any cut­backs along the lines of the French man­u­fac­turer’s mea­sures. PSA reaf­firmed its com­mit­ments to Opel labour agree­ments and the Ger­man com­pany’s plans to bring out a new sport util­ity ve­hi­cle at the end of the decade.

PSA re­it­er­ated goals yes­ter­day for an­nual sav­ings from the Opel deal of 1.7bn by 2026 through shared-development costs, factory in­vest­ments and pur­chas­ing. Op­er­at­ing profit mar­gins are tar­geted at 2 per­cent of rev­enue by 2020 and 6 per­cent by 2026 for the for­mer GM busi­ness, it said.

Over half of Opel ve­hi­cles will be made on com­mon tech­nol­ogy plat­forms by 2019.

Shares of PSA rose 0.4 per­cent to 18.27 in Paris. The stock has gained 18 per­cent this year, counter to a 2.4 per­cent de­cline in the Stoxx 600 Au­to­mo­biles & Parts In­dex.

French com­peti­tor Re­nault SA over­took PSA last year as Europe’s sec­ond-big­gest car­maker by sales, while Opel and Vaux­hall ranked sixth.

The com­bined mar­ket share of PSA and the GM busi­nesses in the first half of 2017 was 16.2 per­cent, down from 17 per­cent a year ear­lier, amid pres­sure from Re­nault and Fiat Chrysler Au­to­mo­biles. Volk­swa­gen re­mains the dom­i­nant car-maker at 23.4 per­cent of the mar­ket, in­dus­try data showed.

GM, which has owned Opel for al­most 90 years, pulled the plug after the di­vi­sion missed a tar­get to break even in 2016, con­tribut­ing to losses that have to­talled about $9bn since 2009.

The US man­u­fac­turer is on the hook for much of Opel’s pen­sion obli­ga­tions and will pay PSA 3bn to set­tle some re­tire­ment plans. Still, the deal will free up about $2bn cash, which GM plans to use for share buy­backs.

PSA is pay­ing GM 1.13bn cash and 650m of war­rants. It’s ac­quir­ing the fi­nanc­ing unit in a joint ven­ture with BNP Paribas, which will pro­vide the re­main­ing 460m. – Bloomberg

Photo: Bloomberg

Car­los Tavares, chief ex­ec­u­tive of the PSA Group, which is buy­ing General Mo­tors’s Opel unit in a trans­ac­tion val­ued at €2.2bn to cre­ate Europe’s sec­ond-largest car­maker to com­pete in the re­gion’s sat­u­rated mar­ket.

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