For $2.2 billion General Motors will sell its European operations, Opel, and its British based Vauxhall brand to PSA Group, the two companies announced this morning.
It is expected the two auto makers will close the deal by year’s end if necessary regulatory hurdles are cleared.
PSA chief Carlos Tavares has a track record for turning money losing operations around and now will focus on Opel, a company that has been in the red since 1999.
“For GM, this represents another major step in the ongoing work that is driving our improved performance and accelerating our momentum. We are reshaping our company and delivering consistent, record results for our owners through disciplined capital allocation to our higher-return investments in our core automotive business and in new technologies that are enabling us to lead the future of personal mobility,” said GM Chairman and CEO Mary Barra.
“We are confident that the Opel/Vauxhall turnaround will significantly accelerate with our support, while respecting the commitments made by GM to the Opel/Vauxhall employees,” said Tavares.
Once the deal is completed PSA Group will become Europe’s second largest automaker behind VW.
It will face many hurdles to turning Opel/Vauxhall around including the fact the two companies make duplicate automobiles. There is also concern in Germany and Great Britain about possible job cuts down the road.
The transaction will allow substantial economies of scale and synergies in purchasing, manufacturing and R&D. GM predicts Opel/Vauxhall will generate a positive operational free cash flow by 2020.
GM said the deal will strengthen its core business, support its continued deployment of resources to higher-return opportunities including in advanced technologies driving the future, and unlock significant value for shareholders.
And the General will continue selling Chevrolet and Cadillac vehicles in Europe.
Pictured are Carlos Tavares, chairman of the Managing Board of PSA, and Mary Barra, GM chairman and chief executive officer, at this morning’s press conference in Paris.
It will be interesting to see if this sets off a new round of rumors about additional auto industry mergers.
An announcement may come as early as Tuesday on a plan to reduce the requirement that automakers produce a fleet wide fuel economy rating of 54 miles per gallon by 2015, the New York Times reported. This would reflect consumer demand for larger trucks and SUV’s in monthly sales reports. Exactly what the rollback in fuel economy and emissions might entail is not clear this morning. Meeting the current standard would cost the industry $200 billion according to a trade group report. Those who support the 54 mpg target said it would save consumers trillions of dollars in fuel costs and they argue the standard is achievable.
When it comes to how auto companies deal with customer inquiries received over the internet, Porsche leads the pact for the second year in a row, according to Pied Piper, an automotive mystery shopping company. For 2016 dealers responded to half of the customer inquiries within 30 minutes, but one customer in eleven failed to receive a response of any type within 24 hours. Among the largest manufacturers in the 2016 study, Ford was ranked highest, with Toyota, Honda and Nissan close behind, all above the industry average.