PSA acquires Opel

Date: 10 MAR 2017posted by Car Rentaledited by WinX

PSA Group, the maker of Peugeots and Citroens, has purchased Opel from the European operation of US's General Motors. The transaction, confirmed by both companies on March 6th, amounts to €2.2 billion ($2.35 billion USD). However, many experts would not describe Opel a prize acquisition. The current consensus between industry experts was that GM was doing itself right by selling a business that has been in the red for last 16 years straight. Opel currently has around 6% of the European market, a share that is way too small and inefficient in the kind of business where scale is key. It has been mostly confined to the European market for three reasons. The particular tastes of the region's car buyers (they produce mostly small diesel cars), tighter emissions regulations outside of Europe and GM's fear of direct competition with itself. The end result has been to isolate the automaker by itself in its niche. With the capital from the sale, GM can now redirect investments into China and America, where their profit margins are healthy. They could invest into their many projects such as technology for autonomous driving and ride-sharing business. And with President-elect expressing a potential 20 per cent tariff on products imported into the United States, more specifically the auto market, GM investing billions into the country could show the President their commitment. PSA's acquisition of Opel will propel the car maker into second place in Europe with 16% of the market. With only Volkswagen ahead of them, but they will have surpassed Renault.

However, no one quite understands why Carlos Tavares, PSA's CEO, would want to stake his reputation on a full revival of Opel. Reports from a rival European automaker suggest that revenge may be part of his motivation of acquiring Opel. Overtaking Renault may be satisfying for Tavares, since its chairman, Carlos Ghosn, sacked him as number two in 2013 after he expressed his desire to run a big automaker. Tavares has since then turned PSA from a state of near-bankruptcy to solid profitability in under four years. If he is able to repeat the feat with Opel his credentials would be flawless. However, experts also believe the cost-cutting that helped turn PSA around will be hard to repeat. Tavares has already started on the right path, the acquisition only costed € 1.3 billion ($1.4 billion USD) for Opel and less than €1 billion for its finance arm. Not only the price was in favor of PSA, GM will still be responsible for massive pension obligations. Tavares believes he can eventually save €1.7 billion ($1.8 billion USD) a year through economies of scale and other synergies. But most of the gains at PSA came from layoffs and repeating the same cuts at Opel may be harder.

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