GM to sell Opel, Vauxhall to PSA Groupe for $2.2 billion

General Motors is saying goodbye to its Opel and Vauxhall brands, ending its presence in Europe as a major automotive manufacturer after nearly 90 years of history there.

GM said Monday it has reached a deal to sell its European operations to French automaker PSA Groupe for $2.2 billion, a decision that shakes up the automotive landscape in Europe and could lead to additional consolidation in the global automotive industry.

Related: Key dates, history of Opel and Vauxhall

The deal instantly vaults French automaker PSA Groupe into second place in Europe with 17% market share, second only to Volkswagen AG. PSA Groupe has ambitions to become an even larger player by capitalizing on the national identities of four automotive brands -- Peugeot, Citroen, Opel and Vauxhall.

"We want to create a European automotive champion,"  said PSA Groupe Chairman Carlos Tavares. "We will totally unleash the potential of the Opel and Vauxhall brands."

Selling Opel and Vauxhall frees GM from a division that has bled money for 16 consecutive years, allowing the Detroit automaker to spend more time and money developing cars and trucks in North America and China where it is earning most of its profits and on the development off self-driving cars.

"This was a difficult decision for General Motors," GM CEO Mary Barra said. "But we are unified in our belief that it is the right one."

Barra said its European unit would have met its goal of not losing any money in 2016 without the impact of Brexit -- the additional currency costs caused by Britain's exit from the European Union. Barra said GM executives came to realize that Brexit combined with Europe's tough regulatory environment would continue to make it difficult for GM to earn profits in Europe.

By selling Opel and Vauxhall to Peugeot, Barra said GM is giving its European workers a better shot at a successful future.

"What we really saw was an opportunity to strengthen the business," Barra said. "It became really clear to us that scale was important."

The sale includes all of Opel and Vauxhall’s automotive operations, including the brands, six assembly and five component-manufacturing plants an engineering center in Rüsselsheim, Germany and approximately 40,000 employees.

PSA Groupe said it is forming a 50/50 joint venture French bank BNP Paribas to purchase and operate GM's car financing division.

GM will retain its engineering center in Torino, Italy and will have the right to buy stock in PSA Groupe valued at $689 billion (.65 billion euro) over the next nine years. Based on a reference price of 17.34 euro the stock rights correspond to about 39.7 million shares of PSA Groupe, 4.2% of the French automaker's total shares.

The Detroit automaker also said it will record non-cash special charge of $4.0 billion to $4.5 billion after the transaction closes later this year related to the transaction.

Still, selling Opel and Vauxhall lowers the amount of cash GM must keep on hand by nearly $2 billion. GM said it plans to use that money to repurchase shares and other investments.

So far, Barra's bold move is being greeted with enthusiasm on Wall Street. GM's stock price has risen $2.71 per share, or 7.6%, to $38.23 since the since Feb. 13, the day before GM and PSA Groupe confirmed they were in discussions.

"Opel/Vauxhall was a profit losing puzzle no one at GM could solve for decades, and outside forces such as Brexit and an increasingly complex regulatory environment did not help the situation," Rebecca Lindland, executive analyst at Kelley Blue Book said in an email.

Lindland said unloading Opel/Vauxhall allows GM to invest in growing markets such as China and India and frees up capital for further expansion into ride and car sharing and autonomous vehicles

Barra, a lifelong GM executive, has been saying for some time that she has been working to change the automaker's culture from a slow, plodding bureaucratic automaker into a nimble, customer centric company focused on profits.

While there have been skeptics, the decision exit Europe -- on the heels of the automaker's decision to discontinue sales of mainstream Chevrolet models in Europe in 2015, to exit Russia in 2015 and end manufacturing in Australia in 2016 -- definitively sends GM into new direction.

"The key to our future momentum is agility and speed," Barra said. "This requries prioritization about where we put resources."

For PSA Groupe, the deal creates an automaker with a larger presence in Europe, giving it greater buying power with suppliers.

Tavares said the goal is growth -- not retrenchment. Tavares has pulled the French automaker back from brink of bankruptcy over the past four years and now will try to use that same turnaround magic to do what GM couldn't do for nearly two decades -- make Opel and Vauxhall profitable.

The combined automaker will not seek to change the identity of its brands, even if some of its models compete with models sold by the company's other brands.

"There is no need to change it...You have the French brands and you have the German brands," he said. "Some customers are just looking for French brands, some customers are looking for German brands.

To pave the way for the deal, Tavares had to make promises to politicians and union leaders in Germany, Britain and Spain that the combined company would preserve jobs and honor existing labor contracts.

"It is indeed quite striking...everybody is asking the same question," Tavares said about possible job cuts and plant closures. "How are we going to accelerate the turnaround? Buy bringing together two European companies."

Tavares said he saved Peugeot from going bankrupt by placing trust in the company's employees. Now, he said Opel and Vauxhall employees must realize their fate is in their own hands.

"For a company that had a near death experience four years ago, we understand that the only thing that ensures success is performance," Tavares said. We give people a chance, because they are good. They are talented…they are creative. What we are going to offer them is a European benchmark."

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely.

© 2017 Detroit Free Press


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