PSA and Opel - who wins, who loses?
The proposed takeover of Opel by the French owners of Peugeot and Citroen has wider ramifications for the motor industry
In some ways, PSA itself is taking a massive risk here. Opel has lost money every year since 1999, and has drained General Motors’ coffers to the tune of some €8-billion in just the last eight years.
It means the biggest auto industry merger or takeover since Fiat bought Chrysler at a knock-down price from the US government in the wake of the global recession, and it’s likely to trigger a major round of mergers and acquisitions in the car world, with smaller brands vulnerable to buyout.
More specifically, as with any competitive business process, there are going to be winners and losers in a high-stakes game of finance and engineering.
In some ways, PSA itself is taking a massive risk here. Opel has lost money every year since 1999, and has drained General Motors’ coffers to the tune of some €8-billion in just the last eight years. GM tried to sell off Opel at the height of the recession, but concerns over Russian-backed bidders gaining control of vital patents and technology eventually killed the deal. Selling to PSA is a lower risk in that sense because the two companies already share some engine and chassis technology.
Presumably, the deal - which values Opel at €2.2 billion - has been structured in a way that allows PSA to take on Opel debt-free, which would be painful for GM, but would at least free up the constant drain on its operating cash. Issues such as legacy pensions and employee care are being addressed as well, according to reports.
Juggling four brands
A much bigger issue is that PSA will then be trying to juggle four brands which all operate in the roughly the same space in the market. Peugeot and Opel especially are very closely matched, both trying to take mainstream brands and push them upmarket to meet the likes of Volkswagen, and even BMW and Audi, head-on. Citroen at least has the benefit of being a bit more quirky and occasionally avant-garde, but it too must push upmarket if it is to prosper. It’s attempt to make DS a premium player seems to reside largely in the world of marketing PowerPoint presentations so far.
Opel sold just under one million cars in 2016. Combining thsis with PSA’s 3.1 million sales would create the second biggest car maker in Europe, behind Volkswagen. However, if Opel can’t turn a profit on a million sales, then there could be trouble ahead.
The takeover means PSA does gain some very efficient factories in Germany and Spain, plus Opel’s impressive technical, research and development facilities in Russelsheim, all of which would be helpful for future model development. It also gains an extra sub-brand, Vauxhall, and this is where real trouble could lie.
Vauxhall has been kept going by General Motors because it sells well in the UK market, mostly thanks to a form of patriotism, and its factories in Luton and Ellsemere Port in Wales are efficient and cost-effective.
That will change dramatically in the coming years as Brexit bites into exchange rates and the UK, potentially, lapses into WTO tariffs on imports and exports. At a stroke that would make Vauxhall’s UK operations uneconomical and Opel-Vauxhall’s UK employees would be directly at risk.
It’s hard to see a French car maker, 14 per cent owned by the French government, stepping in to save the prospects of a post-Brexit car brand that has no relevance in Europe or the rest of the world.
When news of the potential merger first leaked out Len McCluskey, head of the Unite union said: “my priority now is to speak to General Motors to seek immediate assurances for the UK plants and this loyal workforce. I’ll also be seeking urgent conversations with the government because everything must be done to secure our world-class automotive industry.” With Brexit looming, that may be all but impossible.
PSA will gain some world-class engineering - Opel has a generally impressive lineup of models at the moment. The current Astra is genuinely class-leading in many respects, and early drives of the new Insignia seem to show that it too could take class honours. The big saloon market is a weak point for both Citroen and Peugeot at the moment, so nabbing Insignia sales would be nice, but dovetailing Astra sales with the Peugeot 308 and Citroen C4 could be tricky.
Does Opel gain anything from this? It does, hopefully, gain an owner more committed to the European car business than General Motors, but looking further down the line it could be something of a poison chalice. Clearly, if the French government lurches tot he far-right in this year’s presidential elections then there’s going to be serious friction between PSA and the Opel unions, and once again it’s hard to imagine Marine Le Pen doing much to placate matters if things turn political.
Germany’s Economy Minister Brigitte Zypries had said that it is “totally unacceptable” that PSA is even discussing buying Opel, so there may yet be some governmental spanners thrown in works. It will certainly be seen as a blow to German engineering prestige as Opel is sold to the French, never mind that we’re all Europeans now.
Politically, Donald Trump could also win from this. If GM spins the story as divesting from Europe to concentrate on American operations (even if Chinese operations are actually far more significant now) then Trump could try to take some credit for that move. Certainly, GM was stung by recent criticism that its big-budget Superbowl advert for Buick showed not US-built products, but rebadged Opels.
Oddly, Buick could be one of the big losers here. One of GM’s oldest brands, it has been hugely successful in China, largely by selling badge-engineered Opels. If the connection between Russelsheim, Detroit and Beijing is lost, then Buick could find its critical Chinese customer base eroding. It’s likely that in the short term either GM will keep sufficient Opel shareholding to keep the Buick taps open, or that PSA will earn a windfall in building cars on contract for GM. For now, GM may not care much either way as thee is a move away from compact, European-style cars in the US and back towards big trucks and SUVs. Is that a future-proofed strategy? The answer is, possibly, who cares when all anyone watches are quarterly results?
What PSA won’t gain is electric car expertise. Although Opel has the new Ampera-E 400km-range electric car coming on stream, none of the development work nor technological advancement of that car is European. It’s essentially a badge-engineered Chevrolet Bolt, which leaves both Opel and PSA Peugeot-Citroen still without a serious player in the burgeoning electric car market. Opel does have, by way of GM, some expertise in hydrogen fuel cell, but again most of the intellectual property for that resides in Detroit.
An unexpected winner could be Fiat-Chrysler. Fiat has been cozying up to GM for years as a possible investor or owner, and the hiving off of Opel could well open up a clearer opportunity for GM to invest in a Euro-centric car maker with no worries about competing with its own brands. You can bet that Fiat’s Chief Executive Officer, Sergio Marchionne, is right now turning the phone wires between his office and that of Mary Barra, boss of GM, red-hot with redialled calls.
Ultimately, how a PSA takeover of Opel will play out is still a Rumsfeldian unknown unknown. It will depend on the results of painstaking negotiations, and how serious the German and French governments are about working to secure the livelihoods of Opel employees. It will also depend on whether PSA wants another mainstream car brand, or whether its endgame here is actually to shut down a major competitor.