General Motors has sold it’s Opel and Vauxhall brands to the Peugeot Citroen Group (PSA) in a deal believed to be worth $2.3 billion dollars. The completion of the sale enlarges the PSA Group into the second biggest auto manufacture in Europe. Opel/Vauxhall has been making a loss for 20 years, it ends a 90 year ownership between the GM and German based Opel.
The deal is expected to generate annual cost savings of 1.7bn euros by 2026, PSA expects Opel to begin making a profit margin of 2 percent by 2020 rising to 6 percent by 2026. The deal will include the Opel and Vauxhall brands and GM’s finance unit BNP Paribas SA.
For GM the sale of Opel brings to an end a loss making enterprise which has totalled $9 billion dollars since 2009 alone. PSA has calculated it will save money in the long term by spreading and sharing costs attributed to developing new cars.
However whenever such huge deals are made you have to read between the lines. When savings are mentioned what this really translates into is cost cutting, in other words PSA will close unprofitable divisions of Opel/Vauxhall which will result in the loss of jobs.
Germany, France and the UK are likely to see redundancies as PSA looks to secure it’s long term strategic investment. Under the terms of the deal GM has the option to buy back shares and or purchase shares in PSA.
GM and PSA also agreed to continue to supply it’s Australian unit, Holden, including certain models from it’s Buick brand. Both companies will also share development of current and future fuel cell technology.
This deal marks the beginning of a turn around for the PSA Group after it nearly fell into bankruptcy in 2014. PSA had to be bailed out by a joint deal with the French state and China’s Dongfeng Motor Corp.
PSA CEO (and former Renault/Nissan executive) Carlos Tavares has led the turn around by implementing cost cutting measures. Peugeot / Citroen now operates at a profit and the acquisition of Opel nets PSA 16 percent of the European market.
PSA and GM have previously been linked in a joint development initiative but the project didn’t meet to expectations and prompted GM to sell its 7 percent shareholding in PSA in 2013.
The lasting effects of the the deal did net Opel a new compact SUV and later this year a larger SUV with both models using PSA underpinnings and to be built at a PSA factory in France.