GM to sell Opel, Vauxhall brands

PSA Groupe to pay $2.2B as U.S. automaker exits Europe

Workers inspect Opel Astra vehicles during quality control checks at the end of the production line at the Opel automobile plant in Gliwice, Poland, on Monday. The maker of Peugeot and Citroen cars will pay $2.2 billion for GM’s Opel unit and its U.K. sister brand Vauxhall.
Workers inspect Opel Astra vehicles during quality control checks at the end of the production line at the Opel automobile plant in Gliwice, Poland, on Monday. The maker of Peugeot and Citroen cars will pay $2.2 billion for GM’s Opel unit and its U.K. sister brand Vauxhall.

DETROIT -- General Motors is saying goodbye to its Opel and Vauxhall brands and ending its presence as a major automotive manufacturer in Europe after nearly 90 years there.

photo

AP

GM Chief Executive Officer Mary Barra (from left), PSA Groupe Chairman Carlos Tavares and Opel CEO Karl-Thomas Neumann pose for photographers after addressing reporters in Paris on Monday.

GM said Monday it has reached a deal to sell its European operations to French automaker PSA Groupe for $2.2 billion, a decision that shakes up the automotive landscape in Europe and could lead to more consolidation in the global automotive industry.

The deal instantly vaults PSA into second place in Europe with 17 percent market share, second only to Volkswagen AG. PSA Groupe has ambitions to become an even larger player by capitalizing on the national identities of four automotive brands -- Peugeot, Citroen, Opel and Vauxhall.

"We want to create a European automotive champion," PSA Groupe Chairman Carlos Tavares said. "We will totally unleash the potential of the Opel and Vauxhall brands."

Selling Opel and Vauxhall frees GM from a division that has bled money for 16 consecutive years, allowing the Detroit automaker to spend more time and money on the development of self-driving cars and on developing cars and trucks in North America and China, where it is earning most of its profits.

"This was a difficult decision for General Motors," GM Chief Executive Officer Mary Barra said. "But we are unified in our belief that it is the right one."

Barra said GM's European unit would have met its goal of not losing any money in 2016 had it not been for additional currency costs caused by Britain's exit from the European Union. Barra said GM executives came to realize that the exit, combined with Europe's tough regulatory environment, would continue to make it difficult for GM to earn profits in Europe.

By selling Opel and Vauxhall to Peugeot, Barra said GM is giving its European workers a better shot at a successful future.

"What we really saw was an opportunity to strengthen the business," Barra said. "It became really clear to us that scale was important."

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. The move covers approximately 40,000 employees.

PSA Groupe said it is forming a 50-50 joint venture with French bank BNP Paribas to purchase and operate GM's car financing division.

GM will retain its engineering center in Turin, Italy, and will have the right to buy stock in PSA Groupe valued at over the next nine years.

GM also said it will record a noncash special charge of $4-4.5 billion after the transaction closes later this year.

Still, selling Opel and Vauxhall lowers the amount of cash GM must keep on hand by nearly $2 billion. GM said it plans to use that money to repurchase shares and other investments.

GM shares fell 32 cents to close Monday at $37.91.

"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," Rebecca Lindland, executive analyst at Kelley Blue Book, said in an email.

Lindland said unloading Opel and Vauxhall allows GM to invest in growing markets such as China and India and frees up capital for further expansion into ride- and car-sharing and autonomous vehicles.

Barra, a lifelong GM executive, has been saying for some time that she has been working to change the automaker's culture from a slow, plodding bureaucratic automaker into a nimble, customer-centric company focused on profits.

While there have been skeptics, the decision to exit Europe -- on the heels of the automaker's decision to discontinue sales of mainstream Chevrolet models in Europe in 2015, to exit Russia in 2015 and end manufacturing in Australia in 2016 -- certainly sends GM into a new direction.

"The key to our future momentum is agility and speed," Barra said. "This requires prioritization about where we put resources."

For PSA Groupe, the deal creates an automaker with a larger presence in Europe, giving it greater buying power with suppliers.

Tavares said the goal is growth -- not retrenchment. Tavares has pulled the French automaker back from brink of bankruptcy over the past four years and now will try to use that same turnaround magic to do what GM couldn't do for nearly two decades -- make Opel and Vauxhall profitable.

The combined automaker will not seek to change the identity of its brands, even if some of its models compete with models sold by the company's other brands.

"There is no need to change it. ... You have the French brands and you have the German brands," Tavares said. "Some customers are just looking for French brands, some customers are looking for German brands.

Business on 03/07/2017

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