This week it became apparent that PSA Peugeot-Citroën and General Motors are having talks about the possible takeover of GM’s European division by the French automaker. This includes the Opel and Vauxhall brands, which have been a decade-long money drain on General Motors. The two automakers have been working together closely on the development of a handful of models and are looking for opportunities to boost each company’s profitability, which includes a sale of the two brands. GM has had a stake in PSA until 2013 when it became apparent that projected savings from their cooperation and platform sharing would fall short of expectations. After this breakup, the French company had to be bailed out by the French government and its Chinese partner Dongfeng Motor, which each control 14% of the shares.
Would a new, more intense cooperation bring the promised synergies? And does this mark the start of a much-needed wave of consolidations in the European car market? Or will it only cause PSA to lose focus on its own financial recovery and resurrection of its brands? Let’s look a the pros and cons for both parties involved:
From PSA perspective: pro
Combining the brands Peugeot, Citroën, DS, Opel and Vauxhall would create a manufacturer with a share of 16,3% of the European car market (per 2016), which would be the region’s second-biggest auto group after Volkswagen Group (24%) and ahead of Renault-Nissan (13,8%). According to FCA chairman Sergio Marchionne no automaker can be sustainably profitable at an annual production of fewer than 6 million units. PSA is currently at half that volume worldwide and Opel/Vauxhall would add an extra million to that. This scale is needed to gain substantial savings in product development, joint purchasing and overhead expenses.
According to sources close to the negotiations, PSA is also looking to get access to Opel’s engineering expertise, OnStar connectivity technology and its electric-car technology. However, I find it hard to believe the latter two will be included in a possible deal, as these are not exclusive to Opel/Vauxhall and are part of GM’s competitive advantage. The electric vehicle technology is largely developed by Chevrolet for its Bolt EV, while OnStar is a stand-alone subsidiary of General Motors and has been used in the company’s American models for over 20 years but has only recently made its way across the Atlantic into Opel/Vauxhall models.
From PSA perspective: con
PSA is already too dependent on the European car market compared to other automakers. In recent years, the company has attempted to reduce this dependency by investing in emerging markets like North Africa, Iran and most recently India, where it also bought the rights to the Ambassador brand and has invested in localized production. It’s also in takeover talks with Malaysia’s Proton, which would give it better access to the South-East Asian countries and a modern production facility in that fast-growing ASEAN region. However, these are long term investments and it will take years before they start paying off with significant volume. Besides that, they’ve been far offset by reduced volumes for PSA in China, Russia and South America, which means the automaker still sells more than 60% of its production volume in Europe, more than any other large automaker. Opel/Vauxhall have virtually no presence outside of Europe since GM pulled the brand from the Russian and Chinese car markets in 2015, which means the dependency on Europe of the combined brands would be increased beyond 70% after the takeover. This could form a risk when this market faces another downturn.
Besides that, both Peugeot, Citroën and Opel/Vauxhall are players in the struggling mainstream market in Europe, whose consumers are drifting away from mainstream brands in favor of low-cost or premium brands. Also, all 3 brands have struggled with their brand images in the last decade or longer, suffering from low quality (PSA), uninspiring styling (Opel/Vauxhall) and a lack of new products (all three). Also, both companies have suffered from chronic overcapacity in Europe. Sure, all of these issues have been in the process of getting fixed in recent years but I think there are too many resemblances in the three brands’ struggles, and a merger would only make them weaker instead of stronger. There are simply too many mainstream brands with too little distinction between them, and that means it’s better for everyone if one or more brands would just disappear altogether, just like it’s happened in the US with Pontiac, Saturn, Scion and Suzuki.
Lastly, there remains the question if the aqcuisition of Opel/Vauxhall won’t stretch PSA’s resources too far, since the company had to be bailed out not long ago? I mean not only in terms of capital resources, but also in terms of management focus: all attention aimed at merging the brands and cutting costs is not aimed at expanding its sales outside of Europe, or finally refinding Citroën’s mojo. Nor do I expect DS to get the attention it deserves and needs in order to build it into a global luxury player. And if the takeover of Proton also materializes, its resources will be stretched even thinner. Then again, Chinese Volvo owner Geely appears to have an edge over PSA in this bid, which is expected to be decided in April.
From GM perspective: pro
GM has lost about $20 billion in Europe since 1999 and just when it was expected to break even for the first time in decades, the Brexit vote weighed in on the British Pound and GM Europe’s profits, increasing the pressure to cut its lossmaking subsidiary. As General Motors has failed to understand the specific needs and desires of the European car buyer, selling Opel/Vauxhall would give it a painless exit from Europe so it can focus on its more profitable markets and brands. The post-bankruptcy GM has shown it’s not afraid to cut loss-making divisions or pull out of markets as China, Russia, Australia and Europe (with Chevrolet) can attest. The global behemoth just doesn’t have the scale in Europe to make money in this mature and stagnating market.
GM finally has brought Opel/Vauxhall on the right track when it comes to product, quality and design, and the division would have been profitable in 2016 if it weren’t for the exchange rate hit taken after the Brexit vote. This gives arguments to both sides: some would say this is a good moment to get a good price for the brands, while others would prefer to hold on and reap the benefits of profitability. However, the fact remains that long-term profitability for a relatively small brand like Opel/Vauxhall is almost impossible to achieve, so the timing would indeed be right considering this is one of the few moments there’s a positive outlook for the brand.
From GM perspective: con
I think GM had better sold Opel/Vauxhall in 2009 when it had the chance, perhaps at BMW which was rumored to have had an interest in the division at that time, or even Canadian/Austrian automotive supplier Magna, which both would have had more financial power and more clout to restructure the brand. An alternative option would be to fully integrate Opel/Vauxhall with Buick and Holden (and perhaps GM Korea) to reach a global scale for their combined brands and models. Currently it has been a half-assed attempt with some product sharing but no real vision for the European brand. A sale of the European division would mean Buick would lose the Regal midsized sedan (known as Insignia in Europe) and the low-volume but image-building Cascada convertible, and cut economies of scale on the Encore crossover (sold in Europe as the Mokka), as well as the Chevrolet Spark (Opel Karl/Vauxhall Viva), and the Buick Excelle GS in China. Besides that, the European R&D centers also developed a lot of technology for other GM brands and markets, so GM will lose important engineers and know-how with the sale.
Even though GM has lost money in Europe for almost 20 years, if the sale goes through as planned it would all but lose touch with this mature but still very significant market, leaving only a handful of Cadillac models and the Corvette and Camaro sports cars, for total annual sales barely in four figures. This means the mighty General Motors, one of the world’s top-3 best selling automakers, would sell fewer cars in Europe than Ferrari and less than a tenth of Tesla’s volume.
What do you think?
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Pedro says
I don’t think Peugeot and Citroen fish in the same pond. They are managing to create solid differentiation between the two brands with Citroen being placed as lower cost and quirky design while Peugeot is more mature and well-built cars.
But where does that leave Opel? Unfortunately I don’t think that Opel fits well in the group, unless they plan to use Opel in markets external to Europe.
Fokker says
Correct me if I’m wrong, but I think Opel has got virtually no presence outside of Europe.
Lucky says
There is one field that is growing fast since years in the car industrie in Europe and worlwide, it is the lower budget cars market. See how successful are Skoda, Hyundai or Dacia.
I would manage the brands like that:
Citroën: lower budget but very modern and fun design ==> target: Korean brands, open minded customers
Opel / Vauxhall: lower budget but very mainstreem design ==> target: Skoda, customers looking for safe value, no risk
Peugeot: mid priced cars, classical but sporty latin design ==> target: mid priced car market (VW, Toyota, Nissan, Mazda, Renault…)
DS: Premium brand, classical outside design with inside design with French fashion influence ==> target: premium brands.
An Opel brand based on this would probably be very successful outside of Europe thanks to the “made in Germany” image. They could use the PSA dealers in South America, the PSA factory and dealers in Russia, and go back to China through a JV with Dongfeng, like PSA.
Stephen Higley says
I agree with the article I read in Automotive News that concluded that the merger would be the death of Vauxhall. The British workers at Port Ellesmere will be out of their jobs. It serves them right…. they voted massively to leave the EU. They’re as stupid as the West Virginia coal miners that think Drumpf will wave a magic wand and the coal industry will spring back to life. There are consequences for voting for ignorant Conservatives and Republicans that lie to you and then take your jobs away.
Fokker says
Do you have a credible source claiming Vauxhall workers voting in favour of leave?
Martin C says
Does that mean Ford will leave PSA completely? BMW did last time PSA and Opel started their relationship.
d3ns says
I have to admit I really don’t see the real advantages of this takeover.
PSA still has to redynamize its Citroen & DS brands. I am really not sure they can sustain a 3rd ill and declining mainstream brand on the same positioning.
And on the GM point of view, Opel has a strong Engineering center that fills the entire Buick & Holden lineups. What’s next for these brands ?
And concerning technology, PSA would get access under license to the GM’s EV program such as the Bolt. That’s short termed vision… PSA needs their own engineers to develop this.
albert says
The only manufacturer that could have a real interest in Opel would be a Chinese brand, would be the best way to enter without having to work hard to create a credible brand. And some Chinese brands have enough scale to make it profitable. I bet on Geely, who already has experience in the European market. That Peugeot / Citroen buy Opel looks like stupid to me the size of Saturn, they make similar models of the same price !. And GM to leave Europe with what it costs to enter this huge market … is understandable by losses, but rare.
Teeb says
They can make this work, if PSA will stick to it’s plan: Citroen will produce cheap and fun cars, Peugeot will sell modern family cars and they can find a new role for Opel. If there weren’t for DS, Opel could have been their new luxury brand.
In my opinion they should stop forcing DS in Europe, since nobody wants it. Instead of new showrooms for DS, invest the money in Opel and make it the PSA premium brand. Then keep DS for China and build models specific for the Chinese market.
d3ns says
Opel has never been a premium brand… And repositioning the brand like this is a suicide against BMW / Audi and Mercedes. Let’s see how will behave DS with their new incoming models, beginning with the new DS7 SUV this year.
Diego says
I don’t think there’s criticism that you can throw at Opel that doesn’t apply to other carmakers like Volkswagen. That they’re boring, insipid, uninspired to drive? Well… Every VW, let’s face it, looks about the same. I know they make good cars, but so does Opel, so I think people are being a little unfair there.
Now, I’m not sure that the merge would work, specially since you’re combining a loss making maker with another that barely profits, buuuuut I think PSA might have the expertise that Opel needs. PSA did a good job turning around both Peugeot and Citroen with cars people actually want to buy, so it could be a good match. If not PSA, maybe FCA? I could see that also.
Rick M says
As a side issue: What happened to Citroen Chinese January sales??? Vanished!! A demolished brand!
Rick M says
In many countries Renault AND Nissan AND Dacia have substantial sales.
Skoda, Seat and Audi too.
Brands-under-the-same-roof can easily co-exist.
Its in the purchasing and CAPEX area the real bottom-line benefits become clear.
I am sure the cunning racer Carlos Tavares has run through the strategy and numbers often enough to make a sound M&A move.
federico / milano says
The union of two weaknesses has never made a strength , says an old Italian proverb.
To increase one’s size and gain a good place on the world market the following is needed
– an interesting product range ( family cars, all-terrain models, sport cars, luxury products )
– a consequent sales outlets range on the main markets
– a number of plants around the world
– and finally a brand image on the market, for each product segment, that can appeal to number of customers
I believe the union PSA-OPEL has got none of the above
Rick M says
@Frederico/Milano: Guess that’s a very unfitting old Italian proverb.
Apparently you’re unaware of PSA’s strenghts and a slew of beneficial aspects of the acquisition.
* PSA is the most profitable general manufacturer in Europe with a 6% oper. margin (VW 1,5%)
* This despite the oldest model range / a model range at the lowest point of the cycle.
* This despite a huge sales DEcrease in China! (unbelievable)
* The modestly paid PSA CEO/racer Carlos T. realized a turn-around in less than 2 years
* PSA yielded 6 bn profit in the last 3 years
* GM reached out to PSA.
* As such, PSA was in a strong position during the negotiations.
* PSA has secured E17,7 billion in Opel revenue’s for a petty E1,7 bn. Talking of a discount!
* GM will cover the E10 bn deficit in GM EU’s pension liabilities.
* Opel would have been profitable were there not the GAAP (US) vs IFRS (EU) accounting practice.
* Tavares will hand Russelheim his PSA Recovery Template – bodes well for a quick turn around at Opel.
* PSA adds 1 mln cars to it’s volume – image the cost savings!
* Opel/Vauxhall is 3 times stronger than PSA in EU’s largest markets UK and Germany.
* Airbus shows French and German companies can peacefully co-exist.
* PSA and Opel both are managed by sensible managers – no destructive VW AG-like powerbattles.
In conclusion: 1+1 = 2,5. 😉
Etc.
federico / milano says
I was not talking about the financial side of this operation, rather about the future developments.
My meaning is they have approximately the same product range, midsize/small family cars … while attempting to enter the profitable SUV market where they have no tradition … sales decrease in China says a lot !
No sport car range, no luxury limousine models … to me they will just end up keeping the same customers as they had before, while more and more customers are shifting to Cross-road/SUV models, midsize minivans, sport cars.
In comparison, and keeping in account their cash limits, I believe FCA is in a much better position … since sporting a full list of world-famous brands ( Ferrari-Maserati-Alfa Romeo-Jeep-Fiat-Chrysler ).
Mr Marchionne is fixing existing problems in one brand after another, while shifting the group image towards an higher quality of perceived quality … looking to cost saving is not everything … repositioning your ptoducts on the market is sometimes a more effective strategy.
i do not know if he will succeed, certainly I admire his determination in chasing into the market of BMW; Porsche and Audi.
Time will say …
Junior Z says
OK, I’m late to this party.
Sorry for that.
Look at the histories of Peugeot and Citroën.
Citro was a luxury and innovative brand that also sold vans and dirt cheap cars like the 2CV and the Dyane and the Visa. They also TWICE reinvented the automobile, once in the 30’s with the Traction and 20 years later with the original DS.
Peugeot was always a middle of the road company, very much in the mainstream and also sold vans.
If it were up to me, here’s what would happen…
Citro would be the luxury brand again. No more vans, no more C1-C2-C3 type cars. The cars would be nicely equipped with the lowest Citro trim being equal to the second Peug trim on shared platforms. And some equipment would be exclusive to it. They would also build a new DS that was worthy of the name in the luxury market. And a wagon/estate car would be in the mix, even for the largest models. Sporting would go out the window and left to Peug and even something I will reveal to you later on. In other words, it would be playing against the upper VW range and the middle of the Audi range, price and equipment wise.
Peug would be the everyday brand, pretty much as it is now but a notch ot two below Citro. And it could also be the sporting brand and the quirky personality brand
Opel??
Hold onto your hats, folks!!!!!!!
That would become…….wait for it…….SIMCA as soon as all existing Opel designs are on PSA platforms. It would be cheap and cheerful like Dacia but with more options available. The cars would be no more than compacts. And they could make a smaller range of vans different from Peug. Better yet, Peug owns the SIMCA name.
Stay Fine As A Porcupine!!!!!!!