Analysts: GM's Opel move a smart one

Carlos Tavares, chairman of the managing board of PSA, and GM chairman and CEO Mary Barra. Photo credit: GM

GM’s big moves in Europe to kick off the week seem to be financially prudent ones, say analysts with Cox Automotive.

General Motors said Monday it has reached a deal with PSA Group that will move its Opel/Vauxhall unit and the European operations of GM Financial into the PSA Group.

PSA would acquire Opel/Vauxhall for 1.3 billion euros; PSA and BNP Paribas would jointly acquire GM Financial's European operations “for 0.8 times their pro forma book value at the closing of the transaction,” the automaker said in a news release. That tranlates to about 0.9 billion euro,  it said. 

“We are proud to join forces with Opel/Vauxhall and are deeply committed to continuing to develop this great company and accelerating its turnaround,” Carlos Tavares, chairman of the managing board of PSA, said in the release.  

“We respect all that Opel/Vauxhall’s talented people have achieved as well as the company’s fine brands and strong heritage. We intend to manage PSA and Opel/Vauxhall capitalizing on their respective brand identities,” he said. “Having already created together winning products for the European market, we know that Opel/Vauxhall is the right partner. We see this as a natural extension of our relationship and are eager to take it to the next level.

“We are confident that the Opel/Vauxhall turnaround will significantly accelerate with our support, while respecting the commitments made by GM to the Opel/Vauxhall employees.”

This deal would give PSA a 17-percent market share, making Europe’s second-largest auto company, GM said in the release, citing February data from IHS (which excluded Russia and Turkey).

In the same news release, GM chairman and chief executive officer Mary Barra said:  “We are very pleased that together, GM, our valued colleagues at Opel/Vauxhall and PSA have created a new opportunity to enhance the long-term performance of our respective companies by building on the success of our prior alliance.

“For GM, this represents another major step in the ongoing work that is driving our improved performance and accelerating our momentum,” she said. “We are reshaping our company and delivering consistent, record results for our owners through disciplined capital allocation to our higher-return investments in our core automotive business and in new technologies that are enabling us to lead the future of personal mobility.

“We believe this new chapter puts Opel and Vauxhall in an even stronger position for the long term and we look forward to our participation in the future success and strong value-creation potential of PSA through our economic interest and continued collaboration on current and exciting new projects.”

As for the GM Financial piece, its European operations would be acquired by PSA and BNP Paribas, which are partnering in a 50-50 joint venture. It would “retain GM Financial’s current European platform and team.”

Industry reaction

In emailed commentary provided by parent company Cox Automotive, Autotrader executive analyst Michelle Krebs said the sale gives GM more opportunity elsewhere.

“GM has long struggled to turn a profit in Europe, and it profitability became even more elusive in the new political and regulatory environment,” Krebs said. “The sale of Opel provides GM with cash for investments in product and growth opportunities in other regions.”

Kelley Blue Book executive analyst Rebecca Lindland said regulatory and political waves made a challenging situation even trickier around Opel/Vauxhall. This gives additional room for Asian expansion and tech-related growth.

“Opel/Vauxhall was a profit losing puzzle no one at GM could solve for decades, and outside forces such as Brexit and an increasingly complex regulatory environment did not help the situation,” Lindland said in the emailed commentary.

“Unloading its European operations greatly improves GM's balance sheet, allowing investments in growing markets such as China and India and frees up capital for further expansion into ride and car sharing and autonomous vehicles,” she said.

On PSA’s side, the company should see a nice lift from the deal, too. That may come with a catch, however.

“For PSA, the acquisition should provide bargaining power with its suppliers and economies of scale. But production cost savings will be challenged by the powerful labor unions of Germany, the U.K. and France,” Lindland said.

“The European Marketplace, like the U.S., is not expected to grow in the coming years. PSA and GM, like everybody else, will look to the enormous potential in both China and India for expansion. PSA has toyed with re-entering the U.S. for decades. But even with this deal, a return is not likely given the highly saturated and mature state of the U.S. market,” she said.

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