Why GM Wants to Sell Opel After Nearly 90 Years: QuickTake Q&A

Peugeot Maker Exploring Deal for GM's European Division

PSA Group, the maker of Peugeot and Citroen cars, is exploring an acquisition of General Motors Co.’s European business, Opel. A deal would transform the European market, creating the region’s second-largest automaker by unit sales.

1. Why would GM want to get out of Europe?

GM has struggled for years to turn around Opel, with losses totaling more than $20 billion since 1999. Future prospects remain challenging, given that Opel is a volume carmaker with low profit margins producing vehicles in countries with high labor costs, including Germany, Spain and the U.K. The market is also saturated with overcapacity.

2. Didn’t GM almost sell Opel during the financial crisis?

At the 11th hour, GM’s board backed out of a 2009 plan to sell most of Opel to Magna International Inc. and OAO Sberbank. The move infuriated German Chancellor Angela Merkel’s government, which had thrown its support behind the sale and was unaware of the about-face. GM figured at the time that it could turn the unit around. It first bought a stake in Opel in 1929, when the automaker was the biggest in Germany.

3. Don’t GM and Peugeot have a history here?

GM owned a 7 percent stake in PSA for a bit more than a year, dumping the holding at the end of 2013 when a strategic alliance the two were working on failed to materialize. The idea back then was for Opel and Peugeot to deeply integrate their operations, but the plan never took off due to internal squabbles. The two did agree to share costs on three joint vehicle projects.

4. What’s been GM’s strategy with Opel?

In recent years, GM has focused Opel solely on Europe, withdrawing the brand from the Russian and Chinese markets. It also pulled Chevrolet out of Europe in 2013, so a sale of Opel would essentially spell the end of GM in the region and its ambition of being an automaker with operations in all regions of the world. GM also closed a factory in Bochum, Germany, a few years ago, the first shuttering of an auto assembly plant in the country since the end of World War II. The site had employed 3,200 people.

5. Why would Peugeot find Opel attractive?

Taking over Opel would give Peugeot more scale in Europe, giving the combined companies a 16 percent market share in the region. Getting bigger would help the French automaker spread development costs across a larger number of vehicles. Given that the two compete in similar segments of the market, one option for reducing costs would be to cut the total number of models they offer and reduce the size of the workforce.

6. What’s involved in combining the carmakers?

Bringing Opel into PSA will affect five brands, including the German business’s sister U.K. marque Vauxhall and the French manufacturer’s new, upscale nameplate DS, with a total of 28 vehicle or parts plants across nine European countries. Any deal will need some level of sign-off from labor representatives, particularly in France and Germany, where corporate law gives workers a say in major decisions. Government officials in the nations affected are pushing to preserve production sites and jobs. The French state has the most direct role, because it’s a shareholder in PSA following a rescue in 2014.

7. Does this have anything to do with Brexit?

The U.K.’s planned exit from the European Union has thrown GM’s turnaround plans in Europe into question. After the U.K.’s Brexit vote, the company postponed a target to return Opel to break-even. The company cited costs associated with the exit, particularly at Vauxhall. GM’s European operations had a loss of $257 million in 2016, narrower than the $813 million shortfall the previous year.

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