GM sheds money drain, gains cash with sale of unit
By shedding the bulk of its European operations, General Motors is getting rid of a perennial money drain and gaining essential cash that it can use to reward shareholders and invest in future technology such as electric cars and ride-sharing.
The Detroit automaker also indicated that it may pull out of more unprofitable markets in the future.
GM on Monday sold its European Opel and Vauxhall brands to French carmaker PSA Group for roughly $2.33 billion, retreating from the world’s third-largest auto market after almost two decades of futile efforts to make money. The brands have lost $20 billion in the fiercely competitive region since last making a full-year profit in 1999.
“I think they’re ready to cut their losses and move on,” said Morningstar analyst David Whiston. “They’d rather take their time and money and spend it elsewhere on something that has a better return.”
The sale, expected to close by the end of the year, also includes GM’s European auto financing arm, which goes to a joint venture between PSA and French bank BNP Paribas. GM has to keep $6.5 billion in unfunded pension obligations. But it unloads any future losses and about $1 billion per year in capital expenditures on new products.
Chief Financial Officer Chuck Stevens told reporters that the sale also means GM only has to keep $18 billion on hand to weather an economic downturn, rather than $20 billion. That $2 billion will go to speed up a company commitment to buy back $8 billion worth of stock. GM could repurchase as much as $5 billion this year.
The sale also was influenced by stronger European clean-air regulations that will require significant spending on electric-car development, as well as currency issues caused by Britain’s exit from the European Union, GM said.
“Increasing regulatory and compliance costs will continue to be a burden for the foreseeable future,” President Dan Ammann said. After the sale, PSA, with a larger scale in Europe, can spread those costs over more vehicles, he said.
GM Chairman and CEO Mary Barra told analysts that the sale may not be GM’s last. She said the company has work to do on some international businesses and could make a similar deal for them if they don’t make enough money. GM has operations in Asia, South America, the Middle East, North America and elsewhere.