French carmaker PSA’s acquisition of Opel-Vauxhall, and General Motors’ subsequent departure, will remake the European automotive market.
With the $2.3 billion acquisition of GM’s troubled European operations, PSA will surpass French rival Renault in Europe in terms of sales, with a 16% market share second only to market leader VW’s 24%. Combined, PSA and GM Europe recorded €72 billion in revenue and 4.3 million vehicle deliveries last year.
PSA Chief Executive Carlos Tavares is optimistic about the future of Opel, despite 16 consecutive full-year losses. “We’re confident that the Opel-Vauxhall turnaround will significantly accelerate with our support”, he said. In returning the German Opel and British Vauxhall brands to profit, Tavares is “targeting an operating margin of 2% within three years and 6% by 2026 underpinned by 1.7 billion euros in joint cost savings”, Reuters reports. Savings are expected to come from purchasing and R&D as PSA redevelops the cars with its own technology and vehicle architectures.
PSA has proven its ability to recover from hard times, particularly under the leadership of Tavares. When the former Renault executive was appointed CEO in 2014, he pulled the company back from the brink of bankruptcy, in part by selling 14% stakes to the French state and China's Dongfeng. PSA’s recovery over the past two years has been remarkable. However it has included cutting about 3,000 assembly line jobs each year to bring labour costs down from 15% to 11% of revenue.
Not surprisingly, the Opel acquisition has raised concerns over possible job cuts. PSA has said the company will continue to be run as a distinct German subsidiary, and that it will honour existing job guarantees. In the UK, Brexit poses further complications for Vauxhall plants. “Tavares wants to create healthy competition between the plants”, an individual involved in the deal commented. “They will be competing for workload.” Given Europe’s automotive market is near a peak, some analysts expect PSA will close two or three plants within the next five years.
For GM the deal marks an exit from Europe, along with a shift in strategy. Under investor pressure to offload its loss-generating European business and raise profitability, the American car giant is turning away from global expansion. In North America, it is prospering as a smaller, more focused company.
