Industry Trend Analysis - PSA-Opel Deal: Q&A - SEPT 2017

Following the EU competition committee's approval of PSA Group's bid to acquire the Opel/Vauxhall division of General Motors Company (GM), we highlight here some of the questions we have been most frequently asked by clients. We also reiterate the initial thoughts we published when the deal was first announced ( see 'PSA-GM Deal: Initial Thoughts ' , February 16).

Opel has been losing GM money for years, why does PSA want it?

One of the main reasons is scale. PSA's strategy in recent years has centred around cost cutting and expanding. Economies of scale in terms of purchasing and R&D will help with the costs, while the addition of the Opel and Vauxhall brands will help with expansion.

PSA CEO Carlos Tavares has spoken of the opportunity to export Opel outside of its current markets and also enter markets where French brands don't have a foothold. Despite the highly globalised nature of vehicle production, consumers will still often relate to brands on the basis of their nationality and so the group can benefit from the variety that the deal will bring.

There will be some restrictions to this in the short term, however. The deal includes a 'non-compete' clause, which means that Opel cannot enter markets where GM is present while it is still selling models designed by GM. This means serious expansion will have to wait until there are Opel/Vauxhall models designed and built on PSA platforms. One of the first could be the next generation Astra which has been delayed to 2020 so that it can be moved to a PSA platform.

A Long-Time Drag On Profits
GM Europe EBIT (USDbn)
Note: *Jan 1-Jul 9 = Old GM, Jul 10-Dec 31 = GM. Source: BMI

What does this mean for jobs, particularly at Vauxhall?

The deal creates the second biggest autos group in Europe behind Volkswagen and with that comes a bigger workforce and production capacity. As overcapacity has been an issue in the European autos sector for some time already, it is likely that some cutbacks will be needed, particularly with big cost-saving targets in place.

Tavares has said that the group will honour the commitments that GM made to its Vauxhall employees, which should allay some fears in the short term. However, he has also mentioned the need for the British plants to be competitive and we expect changes to the way the facilities operate to be inevitable in the longer term, particularly when new model cycles are due.

What effect could Brexit have?

It is true that the possibility of losing access to the European single market is a threat to UK autos manufacturing, and that the future of Vauxhall's plants in Luton and Ellesmere Port have been under scrutiny since the EU referendum. However, Tavares has spoken positively of the options that UK facilities would provide the newly combined group in the event of a 'hard Brexit'.

The Vauxhall plants would enable the group to produce for the UK market in the UK and so avoid foreign exchange and tariff issues. This could involve rearranging the product mix currently being produced in the UK to meet local market needs. This is dependent on the UK supply chain being developed to the point of being able to support totally domestic production, however, and much still hangs on the outcome of Brexit deal negotiations.

Will this mean lots of new interesting models?

A key feature of the deal is that PSA will gain access to electric vehicle technology through the Opel Ampera-e which certainly adds to the R&D savings it is looking for. A bigger area of focus for the group will be light commercial vehicles, which we expect to be a growth area in Europe in the coming years and is part of PSA's 'Push to Pass' strategy. With a plan to launch eight new LCVs by 2021, Opel and Vauxhall's expertise in the segment will be valuable.