PSA Group (Peugeot Citroën) has announced it has agreed to buy General Motors’ (GM) Opel and Vauxhall for €2.2 billion, creating the second-largest carmaker by volume in Europe.
PSA expects the merger to generate combined savings of €1.7 billion annually by 2026, with a ‘significant part’ delivered by 2020.
It also intends to turnaround the long-haemorrhaging Opel unit, which has lost money every year since 1999. PSA has set targets for Opel’s operating profit margin to reach 2% by 2020 and 6% by 2026.
The deal also includes GM’s financing operations, with these being acquired in a 50-50 joint venture with BNP Paribas.
‘We are confident that the Opel/Vauxhall turnaround will significantly accelerate with our support,’ said PSA chief executive Carlos Tavares. ‘Having already created together winning products for the European market, we know that Opel/Vauxhall is the right partner.’
Analysts clearly see the benefit of the deal for GM, but find it more difficult to pinpoint the main benefits for PSA. Kelley Blue Book executive analyst Rebecca Lindland said: ‘Opel/Vauxhall was a profit losing puzzle no one at GM could solve for decades, and outside forces such as Brexit and an increasingly complex regulatory environment did not help the situation. […]
For PSA, the acquisition should provide bargaining power with its suppliers and economies of scale. But production cost savings will be challenged by the powerful labour unions of Germany, the UK and France.’
GM decided to offload Opel after it failed to return to profitability by its 2016 deadline – delaying the goal by a further two years.
PSA intends that by adding to the Group Opel’s 1.2 million annual vehicle sales, it will spread the increasing costs of developing new vehicles across a wider combined operation. Opel and PSA’s pre-merger cooperation is already beginning to bear fruit through the sharing of development costs. Opel’s new Crossland X SUV, unveiled in February, shares the same underpinnings as PSA’s Citroën C3 hatchback, with a larger Opel SUV set to be revealed later this year, built at a PSA facility in France.
However, analysts believe that while Tavares has pledged to honour existing agreements and job guarantees in place at Opel and UK sister brand Vauxhall, costly excess capacity means that job losses and plant closures will be necessary once current commitments expire. Due to Brexit potentially erecting tariffs, Vauxhall’s two UK plants are considered particularly vulnerable. Director of supply chain firm Vendigital Richard Gane said the merger is ‘a bad day’ for the UK car industry, adding: ‘There is great concern […]that once current production runs are completed Vauxhall’s UK-based plants at Ellesmere Port and Luton could close, forcing around 4,500 redundancies.’ However, Tavares has argued that keeping Vauxhall could give PSA a tariff-free base to serve the UK market if Vauxhall’s operations were reconfigured to more directly serve the UK market.
During negotiations, GM and PSA were in conflict in negotiations about Opel’s €8.5 billion pension deficit, as well as ‘non-compete’ agreements sought by GM to prevent legacy Opel cars competing against it in its core markets of the US and China. Sources told Reuters that the ‘non-compete issues’ were finally resolved when GM agreed to inject ‘substantially more’ into the pensions than the $1 billion (€945 million) to $2 billion (€189 million) it had initially offered – with GM now retaining $6.5 billion (€6.1 billion) in underfunded pensions at Opel as part of the final deal. Existing Opel models will be barred from entering new overseas markets under the ‘non-compete’ agreements that had also complicated negotiations, with GM being similarly excluded from marketing the same underlying technologies in Europe.
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