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The possible sale of the General Motors subsidiary to the French group is going to require a lot of left hand to arrive in good port

Last February 14, the penultimate earthquake in the motor industry was unleashed. Two automakers including PSA and General Motors admitted in a statement that they were studying “new forms of collaboration”, which included a hypothetical sale of GM’s European subsidiary to France, which owns Peugeot, Citroën and DS. The European subsidiary of the American is none other than Opel (and its British sister, Vauxhall) and that so established brand will change hands after 90 years in American ownership shocked the sector and the markets.

What can PSA or GM need to exchange Opel? Difficult question, especially if you consider that Opel is a complex asset. It was the sixth best seller in Europe in 2016, with 979,427 units sold. It invoiced around 17,600 million euros and nevertheless, registered losses of 257 million. It is not an isolated event, has accumulated losses of 15,000 million euros since 2000 and the longed for budget balance, planned for this year, has been removed because of Brexit.
Analysts like Nomura understand that General Motors wants to get rid of this subsidiary because it would allow it to “make a clean exit from a mature market with limited long-term potential.” It would eliminate the impact of Brexit from its accounts by removing a subsidiary that does not know how to manage strategically. Opel competes in mid-range vehicles, a very disputed business in Europe, with a lot of supply and prices that leave very little profit margin. Its own product portfolio prevents it from climbing towards the high end or lowering the quality for a lower cost public. It is gripped and without a clear goal. For General Motors, it would be interesting as well, on paper, to sell it and forget Europe.

And yet, that forgetting also condemns it to leave the podium. It would lose one million units a year and one of the strongest markets in the world. It would be irrevocably removed from third place in the standings, behind Volkswagen and Toyota, which sell 10 million cars a year. A blow that can be difficult to assimilate.

What is the sense for PSA to stick with such a pearl? The answer lies in the fact that the French does not aspire to be a great automotive world. He wants to win Europe. PSA is a strong but relatively small company in the global sector as a whole, with sales of three million vehicles in 2016 and a turnover of 17,683 million. However, on the continent it holds a market share of 9.9% and sales of more than 1.5 million vehicles. It is the third in line and can grow.

Analysts like Nomura understand that General Motors wants to get rid of this subsidiary because it would allow it “to make a clean exit from a mature market”

The automobile has risen from its ashes thanks to the leadership of Carlos Tavares, its current CEO, who exceeded the multi-million dollar losses of 2012 (5,000 million) and 2013 (2,227 million). In that year, the French state and China’s Dong Feng each acquired 14% of the capital and lifted it. The strategy of cutting costs, efficiency and profitability achieved profits of 899 million euros in 2015. This year has doubled profits and believes that it is “prepared.” The markets are in good economic moment to accept these operations, as the company has cash and has a clear strategy, based on high efficiency in factories and concentrating on profitable models, reducing the number of versions available.

Tavares himself responded last Thursday at the presentation of economic results in Paris, to voices who say the Opel, Peugeot and Citroën models compete with each other. “They are complementary guides in Europe,” he says. The adviser noted that the GM subsidiary “is strong in markets such as Germany or the United Kingdom, where PSA is not.” With Opel, in addition, PSA accesses the electric vehicle technology under license from GM, a field in which it has not had investment capacity until now.

For the company, the “excessive dependence of Europe” that the analysts hoist does not seem a problem. On the contrary, strengthening on the continent will guarantee economies of scale and specific weight that you would not achieve with your own muscle. But why does PSA want a strong subsidiary in the UK in full Brexit?

The acquisition is complex, with many details that could wreck him. It is not a hostile opa, where they enter with cavalry and checkbook, among other things because the initial valuation of 2,000 million euros does not seem a pitfall. It is a precision surgery where each fringe is examined and valued, with so many pros and cons, so it could fail at any point. In addition, their strong link with Europe obliges them to negotiate with governments, unions with a lot of power and a broad base of workers. Tavares has already advanced that Opel will remain, in any case, as an independent company. But how do you carry out your efficiency plans by adding ten factories to your umbrella? In the operating room of the offices this high-risk merger is studied, without it being possible to anticipate where it will end.

Madrid 26 FEB 2017 – EL PAÍS

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