GENEVA/NEW YORK -- General Motors' move to sell off its German subsidiary Opel virtually ends the U.S. automaker's European operations, and also removes it from the world's top three automakers in sales volume.
Under the 2.2 billion euros ($2.32 billion) deal announced Monday by PSA, the French automaker group will pay 1.3 billion euros for the core business, including the Vauxhall brand in Britain, and join with French global bank BNP Paribas to purchase the financial business for 900 million euros.
GM's move is the first withdrawal from the European market by a major company following the June 2016 British vote to leave the European Union. The Detroit giant is unloading the Opel brand after holding onto it for nearly nine decades.
At a joint news conference at his headquarters in Paris, CEO Carlos Tavares said PSA's know-how will be put to use to "revive" Opel. GM CEO Mary Barra admitted it was a difficult decision but would be a positive for GM.
With Opel, PSA's sales will top 70 billion euros, with unit sales rising to 4.3 million a year -- and it will be No. 2 in Europe, trailing only Volkswagen. PSA will retain the Opel brand and position it alongside DS, Peugeot and Citroen.
Brexit gave a fatal push
Opel has been bleeding losses continuously since 1999. GM's European loss shrank last year by nearly $600 million to $257 million. Unit sales rose 5.3% to 996,800 for the Opel and the Vauxhall brands combined, but the operations still did not turn a profit. Brexit-related costs of $300 million dragged down the earnings, as the weaker sterling raised costs of parts procurement from across Europe.
Opel's sales have been declining since peaking at 1.63 million units in 2007. Its market share shrank to below 7% from 10%, pushing its European ranking to No. 6 from No. 4.
GM has long known its European subsidiary as a headache, and agreed in 2009 to sell it to a consortium of Canadian auto parts makers, only to pull out of the arrangement. Opel's cumulative loss since 2010 has topped $8 billion.
Opel has taken steps to economize like closing a western Germany plant in 2014, but still could not resolve an annual surplus capacity of 1.6 million units. Then came Brexit.
The direct impact is still limited. But with British Prime Minister Theresa May intent on withdrawing from the single market, Opel, which has factories in the U.K., Germany, Spain and elsewhere, faces risks of tariffs. And the advent of the Trump administration clouds the prospects for the Transatlantic Trade and Investment Partnership coming to fruition after years of negotiations between the EU and United States.
Leverage over scale
For GM, which achieved sales of 10 million units for the first time in 2016, letting go of Opel is a significant scale-down. This will make the Nissan Motor-Renault-Mitsubishi Motors alliance the global No. 3, trailing Volkswagen and Toyota Motor. GM will slide down to fourth place.
CEO Barra, entrusted with rebuilding the company following its bankruptcy, is focusing on profitability. Under her watch, GM decided in 2015 to leave Indonesia and other markets where its sales were sluggish. In early 2016, it cut sales for rental car companies in the U.S.
PSA aims for a 2% operating margin and a positive cash flow for Opel by 2020. But it plans to keep Opel's workers and factories for the time being, which will limit ways to boost profit. Nevertheless, Tavares expressed confidence in rebuilding Opel, pointing to his earlier experience of turning PSA around in three years with no staff cuts after becoming CEO. The French group is looking toward joint development, procurement and production, as well as standardizations to reap synergies. It expects cost reductions of 1.7 billion euros a year.