Peugeot Gearing up for Acquisition of GM European Unit
On Tuesday (February 14th) it was revealed that Peugeot (formally PSA Group) is in advanced talks to buy GM’s European Unit. For most of us that is Opel/Vauxhall. To give some context to the deal; Peugeot has been in varying alliances since 1992. They have been liaised with BMW, Toyota, Dongfeng (a Chinese company) and Mitsubishi. In regards to GM, a joint venture began in 2012; collaboration was meant to happen on chassis, vehicle design and engines with cost savings of up to $2bn by 2018. However, Peugeot continued to struggle, requiring a cash injection which meant that GM sold its 7% stake in Peugeot in 2012. This made room for Dongfeng to invest in the company, and allowed for greater synergies between the two companies. As Peugeot had failed to jump on the emerging market bandwagon, the Dongfeng cash injection and collaboration tried to get it to catch up.
The relationship between Peugeot and GM however, continued to develop. As mentioned, they are in advanced talks now to spin off the GM European Unit. Peugeot has posted a loss from 2012-2014, while GM Europe just posted a loss of $257mil in 2016 and has posted a loss since 1999. Peugeot at least, has been restructuring since 2014 with CEO Carlos Tavares cutting costs continuously and trying to lower the breakeven point. Naturally, with all Opel and Vauxhall works being based in Europe, the synergies should be significantly larger than under GMs roof. It seems to be Tavares radical cost-cutting approach will help to bring Opel to profitability. However, both the German and the UK government have expressed that they are insisting that no jobs will be cut. Given that GM wanted to write down the value of the European Unit by $400mil, following the decline of the pound from Brexit, it would be a major political loss to lose workplaces and subsequent employed workers. Similarly, there are German elections in several months, making this acquisition a lot more political than it should be.
The cost cutting approach will however most likely start in the UK. The Vauxhall work in Ellesmere Port was due to be closed in 2013 before the talks began, and so will most likely be a natural place to start cutting costs. Given that assurances have been made to the business secretary, but not the Union Leader even though they attended the same meeting, is cause for concern about the politicised nature of the deal. If the stock market is anything to go by this has been taken as great news. On the day, Peugeot shares jumped 6.5% from its highest to lowest and GM jumped 3.5% but finished the day up 5.28%. After the news had been digested properly, most of the gains of Peugeot were wiped out after investors realised that the cost savings would have to be significantly bigger than projected to make the acquisition worthwhile. Most likely, jobs will have to be cut somewhere and it will be a push and pull from politicians that it does not happen in their country.
By Tim Knickmann