PSA purchases Opel from General Motors, sets recovery objectives

Carlos Tavares and Mary Barra

PSA Group has agreed to purchase Opel from General Motors in a deal estimating the company at 2.2 billion euros ($2.3 billion), the company stated, developing a new regional cars and truck giant to compete market leader Volkswagen.

The maker of Peugeot and Citroen automobiles pledged to return Opel and its British Vauxhall brand to generate profit, noting an operating margin of 2 percent within 3 years and 6 percent by 2026 underpinned by 1.7 billion euros in joint cost savings.

PSA shares leapt 4 percent after CEO Carlos Tavares stated GM’s European arm could be turned around using a few of the lessons from the French group’s own recovery.

“We’re confident that the Opel-Vauxhall turnaround will considerably accelerate with our assistance,” he stated.

By obtaining Opel, PSA leapfrogs French competing Renault to become Europe’s second-ranked automaker by sales, with a 16 percent market share to Volkswagen’s 24 percent.

In 2016, PSA and GM Europe recorded a combined 72 billion euros in earnings and 4.3 million automobile deliveries.

General Motors will get 1.32 billion euros for the Opel production business – 650 million euros in money and 670 million in PSA share warrants.

An extra 900 million euros will be paid by the Paris-based automaker and BNP Paribas for Opel’s funding arm, to be run jointly and combined by the French bank.

The sale of Opel seals GM’s exit from Europe. 8 years after coming close to a sale to Canada’s Magna International, the automaker has faced renewed investor pressure to unload the business and concentrate on raising success instead of going after the worldwide sales crown presently held by Volkswagen.

After warding off 2015 merger overtures by Fiat Chrysler with assistance from her board, GM CEO Mary Barra accepted to target a 20 percent minimum return on invested capital and pay out more money to shareholders.

The two automakers, that already share some production in a current European alliance, validated last month they were working out an outright acquisition of Opel by PSA, stimulating issue over possible job cuts.

PSA stated on Monday the targeted cost savings would originate from buying and research and development – preventing plant closures – as the Opel lineup is redeveloped with PSA technology and automobile architectures.

An ambitious technical merging push will start with the Opel Corsa, Tavares indicated, as previously reported by Reuters.

The next version of the known subcompact will be postponed by a year to 2020 as it returns to the drawing board, as per presentation slides shown to experts.

“Our planning teams are already working on that,” Tavares stated when inquired about the model. By 2023, another five PSA-based Opel models will follow.

For PSA, the Opel deal caps an outstanding two-year recovery under Tavares, which prevented bankruptcy in 2014 by selling 14 percent stakes to the French state and China’s Dongfeng, to match a weakened Peugeot family holding.

Tavares has since cut about 3,000 French assembly line jobs every year through voluntary departures to lower the wage bill to 11 percent of earnings from the 15 percent level he inherited – which is where Opel’s labor expenses stand today.

PSA repeated promises to run Opel as a distinct German subsidiary and honor existing job warranties to unions, which tend to cover production plans for existing models.

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