PSA: Acquisition of Opel from GM boosts PSA to second place in the European market

Brexit triggers GM's sale of Opel as part of its strategy to focus on growth areas

2017/06/07

Overview

Carlos Tavares, CEO of PSA, and Mary Barra, CEO of GM
Carlos Tavares, CEO of PSA, and Mary Barra, CEO of GM, agreeing to the sales of GM's European operations to PSA (Photo: GM/PSA)

  In March 2017 PSA reached an agreement with GM to acquire its European operations (Opel/Vauxhall, hereafter referred to as Opel). Once the acquisition is complete, the new PSA will have global vehicle sales of around 4.3 million and have the second largest share (17.1%) in the European market. Through shared platforms and joint purchasing, the OEM announced it will create a synergistic effect of EUR 1.7 billion annually by 2026, and increase the operating margin of Opel's automotive division to 2% by 2020 and 6% by 2026. Furthermore, PSA will strengthen its operations in Europe, where its HQ is located, in order to further expand to growing markets around the world.

  In March 2016 GM announced it would make its European operations profitable in 2016 after 16 years of losses. However, after the U.K. chose to leave the E.U. in a referendum in June 2016, GM decided to sell its European operations. The U.K. is Opel's largest market by nation, with sales of 290,000 vehicles and production of 200,000 in 2016. The depreciation of the British Pound has caused the price of parts needed for production in the U.K. to increase, and sales of exported vehicles from Continental Europe to the U.K. has decreased due to the Euro exchange rates, leading Opel to experience a loss of USD 257 million in 2016. When the U.K. officially leaves the EU, tariffs will be placed on imports and exports and this will result in complex customs clearance procedures.

  Since coming under the control of CEO Mary Barra and President Dan Ammann in January 2014, GM has made clear its stance on either withdrawing from or reducing investments in projects with no future prospects, and focusing investments in growth areas such as the SUV/pickup truck business in North America, Chinese operations, autonomous driving, and new mobility. The OEM has already reduced investments in Russia, Thailand, India, Indonesia, and Australia. GM decided to sell its European operations as part of its strategy to focus on profitability rather than size.

  PSA and Opel both have excess production capacity and closing plants will be a focal point in the rationalization of the OEM's production systems. The U.K. plant faces profitability issues due to Brexit and it is thought that it is highly likely to be closed.


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LMCA Client Alert: Analysis of the proposed acquisition of Opel by PSA (February 2017)