PSA Group to acquire GM Europe

PSA Group, the French company which owns Peugeot and Citroen, has made a deal with General Motors to buy its European unit for 2.2 billion euros.

Once it owns GM’s Opel and Vauxhall operations, PSA Group will be the second largest manufacturer in Europe, and the company has stated that it will make the brands profitable again. Carlos Tavares, Chairman of PSA’s Managing Board, said in a statement: “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.”

The industry is now fearing that the deal with involve significant job cuts, especially considering GM Europe has not made a profit since 1999. Christian Stadler, a Professor of Strategic Management at Warwick Business School, researches the automotive industry and offered the following expert comment:

"I would expect job cuts. PSA has done it before and there is no other way to realistically achieve the cost savings they have in mind, which might possibly mean plant closures as well. Whether this is a Vauxhaul/Opel plant or a Peugeot plant is hard to say at the moment.

"The UK is definitely in a bad position as Brexit makes it less competitive than Germany and the unions are stronger in Germany. GM has been losing money in Europe since 2000. Last year they would have made a profit but the devaluation of the pound following Brexit caused another loss.

"GM considered a deal with Magna (backed by Sberbank) in 2009 but pulled back as it considered Opel important for its small car technology. This has changed, though, firstly because small cars don’t sell well in the US at the moment and secondly the joint venture with Shanghai Automotive Industry Corporation in China also facilitates small car technology development.

"GM can now concentrate on the US and Asian markets – which is sensible. While PSA can now become number two in Europe with a 17 percent market share. Scale matters, particularly for mass market producers. It means that PSA can spread its R&D costs over a larger group and this should be helpful considering the substantial shifts the industry is experiencing in such areas as e-vehicles and self-driving cars.

"PSA has a track record of turning around loss-making mass market producers and its margins above 6 percent are impressive for a mass market producer. It expects to make savings of 1.7 billion euros, though it pays to be cautious about such figures as they tend to be too optimistic at deal time.

"PSA, however, has been a successful cost-cutter in the past and, unlike GM, the PSA management has a good sense of how to deal with European unions."

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