PSA Groupe to buy GM's Opel/Vauxhall for $2.3 billion

PSA Groupe to buy GM's Opel/Vauxhall for $2.3 billion

GM to keep European pension obligations, get out of money-losing businesses.

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March 7, 2017
By Robert Schoenberger
Cars/Light trucks Design Manufacturing

Cleveland, Ohio – Peugeot Citroen owner PSA Groupe has agreed to buy General Motors (GM’s) Opel and Vauxhall European brands for $2.33 billion – $1.38 billion for the automotive assets and $0.95 for the financing wing of GM Europe.

Following regulatory review, company executives at GM and PSA expect the deal to close by year’s end, allowing GM to exit the European market following nearly 90 years of business there.

With a final deal in place, some of the questions surrounding the agreement, and the logic behind it, are much more clear.

Buick

  • The sale agreement calls PSA to continue supplying vehicles to GM’s Buick and Holden brands. In practical terms, that means the Buick Cascada convertible will still be available in North America. Longer term, GM will have to take over design and engineering of Buick Regal and La Crosse sedans if it plans to keep them. Both of those cars came out of Opel’s design center in Germany, a soon-to-be PSA property. Given the poor state of sedan sales in the U.S. these days, GM could opt to discontinue the vehicles or use the basic platform of a Chevrolet or Cadillac car to cut costs.

PSA to the USA

  • PSA CEO Carlos Tavares said last week that one selling point for PSA would be the ability to use Opel/Vauxhall plants to produce vehicles to be sold in North America and other markets. Nothing in the sales deal prevents them from doing so in the long term. During a conference call with analysts, GM President Dan Amman said, “Once they migrate to PSA vehicle architectures over time, PSA is free to market them anywhere they choose.”

    So, PSA won’t be able to sell Opel-derived vehicles in the U.S., but as it designs and builds new vehicle platforms, those are fair game. GM CEO Mary Barra said the companies plan to continue working together on vehicle platforms and technologies with PSA showing interest in the electrification systems used in the Chevy Bolt EV and Volt plug-in hybrids and interest in the hydrogen fuel cell system that GM is developing with Honda.

    In Europe, GM will continue to sell Chevy Corvette and Camaro vehicles and a small number of Cadillac models. However, Amman says the company won’t be returning to the mass market any time soon.

Only 20%?

  • Though the bulk of the company’s design and manufacturing expertise is housed at GM’s tech center in Warren, Michigan, the automaker has gotten a lot of critical engineering work out of Opel’s German operations. When asked repeatedly how GM will get along without the German brand’s engine, transmission, and vehicle engineering work, executives mentioned a shocking statistic. Internal analyses of Opel found that only 20% of the projects its engineers are facing apply to GM’s profitable North American division or fast-growing Asian business. So, a whopping 80% of Opel/Vauxhall’s work won’t be missed at all.

Pension risk

  • One stumbling block to getting the sale finalized was pension benefits. GM has $9.8 billion of pension obligations to European employees but only $3.3 billion in assets in its funds to support those. GM has agreed to take on those obligations, putting the company on the hook for $6.5 billion in benefits. GM may not have to fund that with operating cash. If assets within those pension funds gain value, the gap between obligations and assets could shrink. Executives said they expect to spend about $300 million per year shoring up the European funds for the foreseeable future.

In its presentations to investors, GM had a simple chart showing where its priorities are – a cross-chart showing profitability of various business units from left to right (left of center are money losers, right of center or profit centers) and its corporate strengths from top to bottom (top being strong market position, bottom being weak position). Opel/Vauxhall along with Chevrolet operations in Russia and Europe that GM had already abandoned were in the bottom left quadrant – money-losing segments where GM is weak. Also in that category – GM’s North American car business, along with a clear signal that the automaker plans to reduce its exposure to that market in the future.

Barra and other executives said GM’s growth prospects are in the upper-right portion of that chart – profitable areas where GM is strong. Business include trucks/SUVs, sales in China, financial operations, and autonomous vehicles/transportation as a service offerings. Effectively, GM is arguing that dumping Opel/Vauxhall will allow it to further transform itself into a mobility/technology company instead of an automobile manufacturer.

About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and DesignHe has written about the automotive industry for more than 17 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.

rschoenberger@gie.net