PSA closing in on deal to buy Vauxhall/Opel from GM

The PSA Group, which makes Citroen, DS and Peugeot cars, is closing in on a deal to purchase Vauxhall/Opel from parent company General Motors.

According to reports on Bloomberg and Reuters, the two companies are intensifying talks and a deal could be struck as early as next week.

A key topic in the negotiations is GM's pension liability deficit. The company is said to be about £7.5 billion (Rs 73,822 crore) short of what's required to pay retired Opel and Vauxhall retirees. If the deal goes ahead, reports suggest PSA wants GM to retain some of the responsibility.

Prime Minister Theresa May has asked PSA to protect British jobs should the deal go through. In talks late last month, May spoke with PSA boss Carlos Tavares (pictured below) about future plans for Vauxhall's UK plants. The future of certain sites have already been called into question.

PSA financial success
PSA has shown increasing interest in a purchase of Opel/Vauxhall and also the ailing Proton brand following an 18% jump in profits, which further underlined its revival in recent years. Its operating income rose to 3.24 billion euros (Rs 24,766 crore) in 2016 from 2.73 billion euros (Rs 20,868 crore) a year before. This includes a loss of 280 million euros (Rs 2,140 crore) from currency swings in the wake of Brexit.

Automotive operating profit widened to from 5% to 6%, it reported; The Volkswagen Group's operating profit is around 6.5%, but buoyed by the wider margins of Audi and Skoda; Volkswagen itself operates at closer to a 2% margin.

"These results demonstrate our ability to consistently deliver an excellent performance in an adverse environment," PSA CEO Carlos Tavares said in a statement. "The group is building the conditions for profitable and sustainable growth."

The results come with the PSA Group having sold fewer – but more lucrative – cars in the past year.

PSA's chief financial officer Jean-Baptiste de Chatillon added that PSA's 6.8 billion euros (Rs 51,979 crore) in net cash equips the company to make "profitable investments in the interest of our shareholders.” However, he added: "At this stage, there can be no certainty as to the outcome of these talks."

Three years ago, PSA had to be bailed out by the French state and Chinese automaker Dongfeng Motor following heavy losses.

At the latest announcement, Tavares also promised “an electric car blitz,” saying that 80% of the PSA's vehicles will be sold with a form of electrification by 2023. He also pledged that its first fully electric car would be on sale by 2019. It is likely to be developed in-house, although the potential GM deal raises the possibility of this technology being shared with the Chevrolet Bolt.

Tavares didn't elaborate on the proposed Vauxhall/Opel beyond decribing it as a "nice to have, not must-have". No timeline for a deal was given, although most analysts continue to predict an arrangement will be reached before mid-March if a deal is to be done.