PSA becomes Europe's No. 2 carmaker after Opel/Vauxhall buy

General Motors and PSA Group today confirmed and announced an agreement under which GM’s Opel/Vauxhall subsidiary and GM Financial’s European operations will join the PSA Group, which makes Peugeot, Citroen and DS cars.

The transaction values Opel/Vauxhall at 1.3 billion and GM Financial’s European operations at 0.9 billion euros. The total deal is valued at 2.2 billion euros (Rs 16,816 crore). With the addition of Opel/Vauxhall, which generated revenue of €17.7 billion (Rs 135,298 crore) in 2016, PSA will become the second-largest automotive company in Europe, after Volkswagen, with a 17% market share.

In a press release confirming the purchase, “We are proud to join forces with Opel/Vauxhall and are deeply committed to continuing to develop this great company and accelerating its turnaround,” said Carlos Tavares, chairman of the Managing Board of PSA. “We respect all that Opel/Vauxhall’s talented people have achieved as well as the company’s fine brands and strong heritage. We intend to manage PSA and Opel/Vauxhall capitalising on their respective brand identities. Having already created together winning products for the European market, we know that Opel/Vauxhall is the right partner. We see this as a natural extension of our relationship and are eager to take it to the next level.”

“We are confident that the Opel/Vauxhall turnaround will significantly accelerate with our support,” added Tavares.

“We are very pleased that together, GM, our colleagues at Opel/Vauxhall and PSA have created a new opportunity to enhance the long-term performance of our respective companies by building on the success of our prior alliance,” said Mary T Barra, GM chairman and CEO.

“For GM, this represents another major step in the ongoing work that is driving our improved performance and accelerating our momentum. We are reshaping our company and delivering consistent, record results for our owners through disciplined capital allocation to our higher-return investments in our core automotive business and in new technologies that are enabling us to lead the future of personal mobility.

“We believe this new chapter puts Opel and Vauxhall in an even stronger position for the long term and we look forward to our participation in the future success and strong value-creation potential of PSA through our economic interest and continued collaboration on current and exciting new projects,” Ms. Barra concluded.

Collaboration between the two firms is likely to include use of electrification technologies and existing supply agreements for Holden and certain Buick models. PSA may also source fuel cell systems from the GM/Honda joint venture.

Gunning for synergies and Opel/Vauxhall turnaround
The transaction will allow substantial economies of scale and synergies in purchasing, manufacturing and R&D. Annual synergies of €1.7 billion (Rs 12,994 crore) are expected by 2026 – of which a significant part is expected to be delivered by 2020, accelerating Opel/Vauxhall’s turnaround.

Leveraging the successful partnership with GM, PSA expects Opel/Vauxhall to reach a recurring operating margin of 2% by 2020 and 6% by 2026, and to generate a positive operational free cash flow by 2020.

PSA, together with BNP Paribas, will also acquire all of GM Financial’s European operations through a newly formed 50%/50% joint venture that will retain GM Financial’s current European platform and team.