General Motors Is Actually Paying Peugeot To Take Opel Off Its Hands

PSA shares jumped as much as 5.2 percent after Chief Executive Carlos Tavares said GM’s European arm could be turned around using lessons from the French group’s own recovery.

The deal will see Opel and Vauxhall get out from under GM’s umbrella to stand under PSA’s, alongside the Peugeot, Citroën, and DS brands. PSA has done it before and there is no other way to realistically achieve the cost savings they have in mind, which might possibly mean plant closures as well. He pledged to raise the operating margin of the Opel business and its Vauxhall brand to 6% over the same period.

The sale includes all of Opel and Vauxhall’s automotive operations, including the brands, six assembly and five component-manufacturing plants, and an engineering center in Russelsheim, Germany.

Under existing agreements with Vauxhall’s current owner General Motors, which PSA has pledged to recognise, Vauxhall’s Ellesmere Port plant will produce the Astra vehicle until 2021 and the Luton plant will make the Vivaro van until 2025.

Banque PSA Finance and BNP Paribas Personal Finance will each acquire 50 percent of the share capital of the company which had 9.6 billion euros of outstanding vehicle loans at the end of 2016 and had operations in 11 European countries. After streamlining operations following a 2014 bailout by the French state and Dongfeng Motor Corp, PSA CEO Tavares is shifting focus to growth.

The PSA/GM statement says that “Opel/Vauxhall will continue to benefit from intellectual property licenses from GM until its vehicles progressively convert to PSA platforms over the coming years”. GM will continue to sell Cadillacs and the Chevrolet Camaro and Corvette in Europe. That operation’s sales volumes are now tiny, but might grow in time.

The 1.32 billion euro purchase price for Opel values the German automaker at about 7% of its 2016 revenue.

“Opel has preserved its independence as part of the transaction and will work with PSA Group to ensure a smooth transition”.

Under the €2.2bn deal, PSA – which owns Citroen and Peugeot – will acquire the Opel and Vauxhall brands, along with 12 facilities across Europe and approximately 40,000 employees. This makes them one of the biggest carmakers in Europe, behind only Volkswagen. But the profit opportunity GM saw in Europe is far less than what it already is generating elsewhere, particularly in the U.S. PSA might even source fuel-cell systems from GM and Honda’s joint venture, the company said.

Nevertheless, it is hard to take issue with his assertion that, in light of Britain leaving the European Union, the French and German governments would apply political pressure on PSA to target Ellesmere Port and/or Luton for cuts or closure in the event of a decision to reduce productive capacity.