LMCA Client Alert: Analysis of the proposed acquisition of Opel by PSA

2017/02/24

Summary

 The reported potential acquisition of GM’s European Opel unit by PSA offers an opportunity for both parties.

 GM has been unable to stem losses in Europe, even as key European markets have recovered most of the volume lost over the 2009-2013 period and this move marks a decision to cut losses now.

 The market share within non-CIS Europe of the new group would be close to 17%, with 10.5% coming from PSA brands and 6.3% coming from Opel, based on 2016 sales. PSA-Opel would become the second largest group in these markets behind Volkswagen Group (22.4% share).

 PSA can benefit from the increased scale that was unavailable to Opel, but faces a number of years of major upheaval in order to achieve what would be defined as a success, namely, improving the financial performance and long-term viability of the enlarged group.

 The biggest challenges for PSA-Opel will be in the execution of manufacturing changes alongside management of three brands mainly operating in the same segments in the same market. Execution risks in these areas are significant so, while the strategic logic of the acquisition appears sound, proof of success will only be visible as the integration proceeds over the coming years. A further challenge for the group relates to the increased concentration, globally, of its sales within one region. PSA-Opel will rely on the region for close to 70% of its sales by volume, so its fortunes will rest heavily, at least initially, on the European market level.

 GM’s departure from Europe, albeit with some remaining presence in Russia through Chevrolet, could be seen as a retreat. However, given the financial burden of continuing as it is, the decision seems to be a logical one, and something which may ultimately strengthen the company globally.