GM sells Opel/Vauxhall to PSA: is it a win-win?

March 6, 2017

This morning, General Motors confirmed that it has sold both its Opel/Vauxhall subsidiary and its European financial arm to Paris-based PSA for a total of €2.2 billion ($2.3 billion).

Naturally, GM has pitched this as a win-win for itself and for PSA (formerly known as PSA Peugeot Citroen), but is it?

Only time will tell, but on the face of it, the deal definitely seems to be a boost for GM.

That's not just because of the company's $2.3 billion payday or the ongoing revenue GM will receive from PSA, which will license GM's patented technology for use on Opel and Vauxhall vehicles in the near future. Beyond that, the spin-off slims down GM's portfolio--a practice that, paired with a controversial restructuring, has helped the automaker recover from the Great Recession.

Perhaps most importantly, the sell-off of Opel/Vauxhall gives GM more freedom to focus on its current priorities, like electric vehicles, autonomous technology, mobility offerings, and growing auto markets like China. Whether GM is taking a risk by backing out of Europe is a matter for debate.

As for PSA, it's a slightly different story.

On the plus side, the acquisition of Opel/Vauxhall makes PSA the second-largest automaker in Europe behind Volkswagen, giving the company 17 percent of the European market. That certainly offers PSA some degree of bragging rights and an enlarged footprint. PSA will also see additional revenue from loans and leases brokered through GM's former financial services arm.

However, like the European auto market, Opel/Vauxhall is in a period of recovery and transition, and it's not much of a money-maker at the moment. PSA expects Opel/Vauxhall to achieve a profit margin of two percent by 2020 and six percent by 2026, at which point economies of scale with other PSA brands could save the company some €1.7 billion per year ($1.8 billion).

Those seem like a number of big "ifs", though, especially in light of uncertainties about growth in the economically and politically fragile European market. Add to that the trouble PSA may have in distinguishing between Peugeot, Citroen, and Opel/Vauxhall for consumers, and it seems like GM may have gotten the better deal.

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