PARIS: General Motors (GM) is selling its loss-making European car business, including Germany’s Opel and British brand Vauxhall, to France’s PSA group in a deal that realigns the industry in the region.
With the €2.2 billion ($2.33 billion) deal announced Monday, GM is giving up a foothold in the world’s third-largest auto market, where it has not made a profit in 18 years despite multiple turnaround efforts.
For PSA, which already makes Peugeot and Citroen cars and has just recently reshaped its own business, the acquisition will turn it into Europe’s No. 2 automaker after Volkswagen, making 5 million cars a year.
Carlos Tavares, the CEO of PSA, said the deal was “a game-changer for PSA.” GM chief Mary Barra said it was a “win” for both sides.
PSA will join with French bank BNP Paribas in the purchase, which foresees taking over 12 manufacturing facilities that employ about 40,000 people, according to a joint statement by the companies.
Amid concerns about job losses in multiple countries, Tavares promised to keep existing GM commitments to workers.
General Motors Co. will keep its manufacturing center in Turin, Italy. GM and PSA, which have had joint activities in the past, will continue to collaborate on electric car technologies and maintain existing supply agreements on some Buick models.
The purchase marks a major turnaround for PSA, bailed out just three years ago by Chinese investors and the French state. CEO Tavares hopes to parlay his success at PSA to similar savings at Opel, cutting costs through scale and better use of factory capacity.
Shares in PSA were up 4 percent at €19.82 in early trading Monday, suggesting investors find the terms of the deal positive overall for the company.
For GM, the agreement seems to suggest that Barra decided to focus on profits over market share. GM has not turned a full-year profit in Europe since 1999.
“This was a difficult decision for General Motors but we are united in belief that it is the right one,” she told reporters in Paris.
She noted Opel-Vauxhall would have broken even in 2016 had it not been for Britain’s decision to leave the EU, which caused a plunge in the value of the pound.
Asked whether the arrival of the Trump administration played a role in GM’s decision to sell, Barra said GM looked at the overall “regulatory, geopolitical and customer” landscape before making its decision.
GM could redirect the money it has been spending in Europe toward new products and services, such as self-driving cars and ride-hailing services, as well as pension obligations and an ongoing share buyback program.
Western Europe is the No. 3 auto sales market, behind China and the US. Opel and Vauxhall last year sold just under 1.2 million vehicles, amounting to only 5.6 percent of the market, according to GM’s full-year earnings release. GM has recently shown a willingness to pull out of unprofitable regions — it abandoned Russia in 2015 as that country’s economy fell into recession.
The deal, subject to regulatory approval, is expected to be completed at the end of this year.
The move would give PSA access to technology and a larger scale to spread out engineering and other costs.
GM sells European brands to PSA
GM sells European brands to PSA
