Why did PSA buy Opel

Peugeot buys Opel and receives billions in dowry

PSA Peugeot Citroen takes over the loss-making automaker Opel. In order to make the bride pretty, the US mother General Motors has to transfer three billion euros to PSA for the settlement of pension obligations.

Separation under pain: General Motors sells its loss-making European subsidiary Opel to the French group PSA Peugeot Citroen and gives it a billion sum as a dowry. PSA pays the Americans 1.3 billion euros for the Rüsselsheim-based automaker and its British sister company Vauxhall. GM will receive a further 900 million euros for the European business of the car bank GM Financial, which Peugeot is taking over together with the French bank BNP Paribas. In order to make the bride pretty, however, the US mother has to transfer three billion euros to PSA for the settlement of pension obligations. The bottom line is that the deal for the Detroit company is negative.

"That's the way it is when you want to get rid of a problem. You usually have to pay extra," said Arndt Ellinghorst of the London investment advisor Evercore ISI. GM boss Mary Barra wanted to sell Opel and PSA boss Carlos Tavares wanted the company. This is an opportunity for the people of Rüsselsheim. "Because with a European partner they will be able to travel much better than with an American one." The US mother had kept Opel on a short leash and banned the daughter from selling cars in the US and China. However, Ellinghorst also sees risks for the future of the car marriage: The car market in Europe is currently in good shape. However, should a recession develop, Peugeot-Opel would be a "cluster risk".

Investors celebrated the wedding anyway: The shares of the French car manufacturer rose in Paris with above-average sales at times by more than five percent and at 20.06 euros were as expensive as last five and a half years ago. GM's papers had already risen above average in the past week in anticipation of the looming deal. With the sale of Opel, General Motors withdraws from the loss-making European business and thus largely cuts the connection after 88 years.

What's coming after 2018?

"We are confident that the turnaround of Opel / Vauxhall will be significantly accelerated with our support," said PSA boss Tavares. "At the same time, we respect the commitments that GM has made towards Opel / Vauxhall employees." However, the guarantees only relate to the commitments and agreements already made by General Motors. The more than 19,000 Opel employees in Germany are protected against redundancies for operational reasons until the end of 2018. For the locations in Rüsselsheim, Kaiserslautern and Eisenach, GM has also agreed to invest and produce in collective agreements until 2020. More than 38,000 people work for the GM subsidiary across Europe.

Last year, Opel missed its goal of returning to profit for the first time in 17. The company cited currency turbulence as the reason after the British decision to leave the European Union. Still, Peugeot sees Vauxhall's UK plants as an advantage of the alliance. Given the UK's imminent exit from the EU, there is an opportunity to have factories in the UK "in case there is a hard Brexit," the PSA chairman told analysts and investors.

The federal government and the three federal states with Opel locations welcomed the signing of the contracts as a first step "to get a European global player ... on the way". A statement said it was good that PSA had promised to preserve the existing contracts for locations, employment and investments and to continue Opel and its British sister company Vauxhall as an independent brand. However, it must be ensured that the European Opel / Vauxhall management as well as the employee representatives would be fully involved in the upcoming talks.

Works council wants future plan

The works council called for a future plan to ensure the independence of the Opel and Vauxhall brands. The existing collective agreements only secure the locations and jobs for a transitional phase, explained the chairman of the general works council, Wolfgang Schäfer-Klug. He also insists that codetermination should be retained even after the sale.

From the merger with Opel, Peugeot expects cost advantages of 1.7 billion euros per year, primarily through the merging of purchasing, manufacturing and research and development. A substantial part of this should be realized by 2020 and enable Opel to return to profits. Peugeot announced an initial operating return of two percent for Opel and Vauxhall, which is expected to climb to six percent by 2026. With Peugeot, Tavares demonstrated that he can turn a company into a profit within a few years. Analysts trust him to be able to do the same at Opel. Together with Opel, Peugeot overtook French rivals Renault in Europe and moved up to second place behind Volkswagen.

Opel will continue to be able to use GM's patents until the vehicles are gradually built on PSA platforms in the coming years. Most of Opel / Vauxhall's European and UK pension plans will remain with GM, with only the German Actives Plan being transferred to PSA. For the full settlement of transferred pension obligations, GM is paying the French three billion euros. In addition, there are four to 4.5 billion dollars in investments that General Motors has to ignore.

Overall, however, outweigh the advantages for the Detroit group, which can now free itself from a burden in order to invest more in future areas such as electromobility and mobility services. The Americans will participate in the hoped-for success of Peugeot-Opel through warrants for the acquisition of PSA shares, which should sweeten the separation somewhat.

Peugeot and Opel at a glance


RESULT: The German carmaker did not come out of the red in 2016 either. The US parent General Motors posted an annual loss of $ 257 million in its European business, which corresponds to an improvement of around $ 600 million over 2015. When presenting the figures, Opel pointed out that without the Brexit vote and the crash of the British pound, a positive annual result would have been achieved. The turnover of the Opel / Vauxhall business was 17.7 billion euros last year.

SALES: The brand with the lightning bolt sells around one million cars a year. In 2016, the manufacturer achieved a market share of 6.6 percent in Western Europe with sales of almost 997,000 vehicles. According to its own information, Opel is in the largest model offensive in its history: The Rüsselsheim-based company wants to bring a total of 29 new vehicles and 17 new engines onto the market by 2020.

EMPLOYEES: Opel employs a good 38,000 people. More than 19,000 of them work in Germany, mainly in Rüsselsheim, Kaiserslautern and Eisenach.


RESULT: Thanks to radical restructuring, the French carmaker almost doubled its net profit in 2016 to 1.7 billion euros. Savings were made in purchasing, production and administration, and higher prices also contributed to the increase. Sales fell by one percent to 54 billion euros last year.


The French sold more than three million vehicles of their three brands Peugeot, Citroen and DS worldwide in 2016. In Western Europe, where they achieve around half of their sales with almost 1.5 million cars, the group has a market share of 9.7 percent. This put them in third place in 2016 behind top dog Volkswagen with 24.1 percent and French competitor Renault with 10.1 percent. Together with Opel, PSA wants to forge the second largest car manufacturer in Europe after the VW group and achieve a market share of 17 percent. Peugeot has announced that it will launch 28 new models in Europe by 2021.

EMPLOYEES: With 184,000 employees worldwide, the PSA Group is significantly larger than Opel.

Marriage with ups and downs

General Motors draws a line after 88 years and separates from Opel. An overview of Opel's eventful history:

- 1863: Adam Opel moves his sewing machine workshop into a former cowshed in Rüsselsheim. The production of bicycles is added later.

- 1895: After the death of their father, Opel's sons take over the company and buy a car factory in 1899. The first car is built in Rüsselsheim that same year.

- In the mid-1920s, Opel entered the mass market with assembly line production. With a market share of 37.5 percent, Opel claims to be the largest German car manufacturer in 1928.

- In 1929 General Motors took over the German manufacturer.

- After the Nazis came to power, Opel and GM parted ways temporarily. After the main factory in Rüsselsheim was half destroyed in the Second World War, Opel did not resume car production until 1947. After the currency reform, General Motors took over management again.

- The plant in Bochum is opened in 1962, followed by further plants in Kaiserslautern and, after the fall of the Wall, in Eisenach.

- In 1972 Opel still had a market share of 20.4 percent in Germany.

- In 1998 the new company headquarters in Rüsselsheim is inaugurated.

- After the turn of the millennium, GM cut 12,000 jobs in Europe as part of a renovation - the majority of them in Germany.

- Opel's market share has decreased significantly over the years.

- 2008: Due to a failed model policy and the effects of the financial crisis, the parent company GM is threatened with a liquidity shortage. In November, Opel asks the federal government for government support due to the impending bankruptcy of GM.

- 2009: GM is considering a partial separation from Opel during the crisis and is ready to "negotiate partnerships and investments with third parties". The Canadian supplier Magna, Fiat, the financial investor RHJ International and the Chinese car manufacturer BAIC have shown interest. Shortly before the filing of bankruptcy proceedings at GM, the board of directors of the US automaker approves the separation from Opel. The German company is placed under the aegis of a trust. The federal government and GM basically agree on the auto supplier Magna as the buyer. The federal and state governments are taking on a 1.5 billion euro guarantee. The sale to Magna does not take place because GM surprisingly decides to keep Opel.

- 2011: Opel ushered in the turning point after years of crisis. With an austerity program, the Rüsselsheim-based company is laying the foundation for massive investments by the US parent company GM in new models from the European subsidiary.

- 2012: General Motors and Peugeot agree a broad alliance. You want to use vehicle architectures together in the future and decide to go shopping together. GM has a seven percent stake in the French partner.

- April 2013: The parent company GM announced that it intends to invest the equivalent of four billion euros in the German and European locations of Opel and Vauxhall by 2016. The money is to be used for 23 new models and 13 new engines. Former VW manager Karl-Thomas Neumann is the new Opel boss.

- December 2013: GM leaves Peugeot as a shareholder, clearing the field for the Chinese state-owned company Dongfeng.

- December 2014: Opel closes the plant in Bochum with more than 3000 employees after months of negotiations against the massive protests of the workforce.

- March 2015: Opel decides to withdraw from the local market due to the economic crisis in Russia.

- August 2016: Opel announces short-time work for the Rüsselsheim and Eisenach plants after the Brexit vote. Great Britain is the largest market for the Insignia and Corsa models.

- February 2017: Opel is preparing for another year in the red. The company missed the promised return to profitability in 2016, mainly because of the Brexit vote. The goal of returning to the black for the first time since 1999 is now to be achieved in 2018.

- Peugeot and GM confirmed on February 14th that talks about a merger are in progress. A day later, GM boss Mary Barra informed the Opel workforce in Rüsselsheim. Peugeot wants to keep the commitments made by GM a few years ago for the Opel employees. PSA boss Carlos Tavares urges the takeover talks to be rushed. The Peugeot renovator wants to leverage synergies from the merger with Opel as quickly as possible.

- March 6: GM sells its European business to Peugeot. The French pay 1.3 billion euros for Opel and its British sister company Vauxhall. GM will receive a further 900 million euros for the European business of the car bank GM Financial, which Peugeot is taking over together with the French bank BNP Paribas.

(Laurence Frost and Jan Schwartz / Reuters)