PSA and Opel? Why, Carlos… why?

15 February 2017 | Ian Henry

Periodically the car industry goes through a burst of rationalisation, with companies closing plants and merging or creating alliances. This is typically accompanied by a flood of headlines and stories about the need for structural change, realignment in the industry and so forth. It’s happened before and it’ll happen again.

Plant closures can be rationalised (if you will forgive the pun), because most of the older car companies – especially in Europe – have legacy production networks which were established in the days of nationally focused industries. Such a structure does not fit well with the concept of a large single market in Europe and the never-ending search for optimal and cost-efficient production networks.

With President Trump trampling all over vehicle companies’ production strategies in North America and the continued flow of red ink flow in Europe (compounded by exchange rate losses following the fall in the value of sterling), GM appears to have decided to throw in the towel in Europe. Having lost hundreds of millions, billions even, in the last twenty years in Europe (GM last made a meaningful profit in the region in 1999), it is now in serious discussion with PSA about handing over Opel, and of course Vauxhall in the UK, to the French company; the French government and Chinese company Dongfeng (each with around a 14% stake in PSA) could well be looking at this somewhat askance. Ditto the Peugeot family, with its now much reduced stake, also of around 14%.

GM reportedly wants a multi-billion dollar or euro settlement for PSA to take on a production network with capacity to make close to 1.5m units a year, depending on shift patterns, but which currently only makes around 2/3 of that at best. PSA appears to want to add another struggling mid-market brand (or two as Opel and Vauxhall are separate brands) to go alongside its own three struggling brands; true, Citroen has some exciting new models on the way and Peugeot is arguably less staid than it once was, but neither of them, nor the would-be premium brand DS, are exactly tearing up the sales charts – why does it want to do this, and take on the German unions, while risking troubles with their domestic unions, who would likely see German plants as competitors (which they would be)?

The only plausible explanation is scale – in purchasing and possibly in sharing platform development costs, and ultimately sharing production facilities. But the two companies have been sharing some background purchasing functions (and logistics) for several years and three joint vehicle programmes (two of which are real joint programmes, the third being a purely rebadging exercise to give Opel a small van) are just about to start, suggesting that shared production facilities can work without a merger. If GM wanted to save on the costs of replacing the Astra it could have approached PSA about sharing the platform underpinning the 308 for example and carried on as now.

Opel CEO Karl Thomas Neumann

Opel CEO Karl Thomas Neumann

But GM wants out of Europe, despite the best efforts of Karl Thomas Neumann, formerly of VW, and the latest man charged with sorting out Opel. With the joint vehicle programmes about to start and the production network more efficiently organised in terms of model allocations to specific plants than has been the case for many years, Neumann must have thought he was on the right path, finally. And then came Mr Trump, preceded by Brexit and the parallel collapse in sterling, hitting the European operations right where it hurts, on the bottom line.

Neumann’s ultimate bosses, Mary Barra and Dan Amman, sitting in Detroit, saw their local strategies imperilled by the new US president and with the need to divert money into domestic investments and accelerate their own EV programme becoming pressing, the renewed flow of red ink in Europe was deemed unacceptable. GM has tried, and for various reasons, clearly failed to make a success of Europe. This is not a sudden failing; it has been apparent for many years. The difference is – or appears to be – that now the party’s over for GM in Europe.

For GM, getting rid of Opel and Vauxhall makes a lot of sense. For PSA, acquiring Opel and Vauxhall would bring added scale and a significant uplift in market share, at least in theory. But it will come at a cost and many will ask why and how will PSA succeed – financially – where GM has failed. When the idea of the two companies co-operating was raised some years back, and when they took cross-shareholdings in each other, one contact of mine likened it to a blind man (PSA) helping a drunk (GM) cross a busy junction in the dark. Some of PSA’s sight may well have been restored under Carlos Tavares’ clever surgery; but in the meantime, to pursue the analogy, Opel especially has had a skinful, even if GM in the US has been on the wagon. Getting across that junction has become a lot more difficult.

Tagged with: Carlos Tavares, GM, Karl Neumann, Opel, PSA