GM Talking With Peugeot for Sale of GM’s European Auto Business

General Motors Co and French automaker PSA Group are in talks that could result in PSA buying GM’s European auto operations and could be a move that could shake up the global auto industry, the companies announced recently.

Vaulting it into second place in the region, ahead of French rival Renault SA and behind Germany’s Volkswagen AG, the PSA would give it a 16.3 percent share of the European passenger car market if it, the owner of the Peugeot, Citroen and DS brands, manages to acquiring GM’s Opel and Vauxhall brands.

Financial, industrial and political obstacles have to be overcome for any deal to make through. It would be an “an unprecedented breach of all German and European co-determination rights” if the companies were discussing the sale of Opel without the union’s involvement, Germany’s industrial union IG Metall said firing a warning shot. Without consulting German works councils or local government, it was totally unacceptable that talks took place on French carmaker PSA Group buying GM’s European Opel unit, German Economy Minister Brigitte Zypries said.

Sources said that the deal would help PSA reach “critical mass” and hence the French government, which owns 14 percent of PSA, could support the deal. The source said that the government will “give special attention to the impact in terms of jobs and the industrial impact of these initiatives.” A heated national election campaign is now going on in France at present.

What structure a deal could take or what price GM might want for the loss-making European business was not clear.

While shares in PSA, owner of the Peugeot and Citroen brands, were up 3.7 percent and boosting GM shares by 3.5 percent in early New York trading as investors cheered the disclosure, both companies cautioned in statements that no deal is certain.

As investors speculated that one consolidation play could lead to another, the shares in Fiat Chrysler Automobiles NV rose by 3.9 percent. To combine GM with his company, Fiat Chrysler Chief Executive Sergio Marchionne has campaigned for more than a year.

GM’s Chief Executive Mary Barra’s strategy of putting profitability and returns on invested capital ahead of market share could be best and most dramatic represented by the sale of Opel.

Last year there was a slippage of 0.3 percent in the global market share of GM. With just over 10 million vehicles delivered last year, GM is currently ranked third behind Volkswagen and Toyota Motor Corp, in the global volume and selling Opel and Vauxhall, which added almost 1 million cars to its sales, could mean abandoning the global volume race.

1999 was the last year that Opel and Vauxhall recorded a net profit and GM Europe has been a drag on the automaker’s global profitability since that year. By shutting Opel factories in Belgium and Germany and withdrawing the Saab and Chevrolet brands from sale, GM restructured its European operations over the past six years. Still, the company said last week it did not expect profits in the operation until 2018 and GM Europe failed to break even in 2016, as Barra had once promised it would.

(Adapted from Reuters)

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