Early this morning, General Motors has officially announced that it has struck a deal to sell its loss-making European Opel-Vauxhall operations to French automaker PSA Group. Since the transaction is quite complex and has various facets, we have decided to bring you a simple summary of the deal right here:
What GM Gets
- €2.2 billion, comprised of:
- €1.3 billion for Opel-Vauxhall
- €0.9 billion for GM Financial Europe
- Ability to make €0.65 billion more from PSA stock
What GM Gives Up
- Opel brand
- Vauxhall brand
- GM Financial European operations
- Six assembly and five component-manufacturing facilities across Europe
- One engineering center in Rüsselsheim, Germany
- Approximately 40,000 employees
- €3.0 billion for full settlement of Opel-Vauxhall pension obligations
- €6.5 billion in retained pension obligations
Other Impacts
The transaction also carries a few other impacts on GM, including:
- Immediate improvements to GM’s financial performance on the income statement, including EBIT-adjusted, EBIT-adjusted margins and adjusted automotive free cash flow
- Immediate improvements to GM’s financial health on the balance sheet, enabling it to lower the cash balance requirement under its capital allocation framework by $2 billion (from $20 billion to $18 billion). GM says that it intends to use the cash “to accelerate share repurchases, subject to market conditions.”
- GM will enter a primarily non-cash special charge (loss) on its books of $4.0-4.5 billion for carry-forward losses related to the transaction.
So, there you have it: everything we know about the sale at this point. Stay tuned to GM Authority as we learn more.
Comments
Not mentioned above is that GM remains responsible for 6.5 billion pension liabilities, with no automotive assets left to back this up…
Forbes has a good analysis of the financial deal, which is worth reading. Some quotes:
– “General Motors’ deal to sell its European operations is stunning in its lack of financial compensation”,
– “GM management’s obfuscation on the true cash impact of the deal is disappointing, to say the least”,
– “GM crafted a deal that is is value-destructive from a cash flow perspective”,
– and “GM is shrinking not growing”.
See: https://www.forbes.com/sites/greatspeculations/2017/03/06/general-motors-is-actually-paying-peugeot-to-take-opel-off-its-hands/
In today’s world smaller and financially secure is better than larger and financially insecure.
Yes it is disappointing they did not get more for the deal but who else would have even paid this much? So much baggage to go with this.
GM will be much better off and if they chose to return to Europe it can be with a clean slate and not having two divisions competing with each other internally.
Europe is a hostile market and the risk are difficult and the rewards are minimal.
GM today in America is a much stronger and sold company with out the other divisions that took so much capital in development cost and just created much in internal competition.
One can use many big words to confuse some but the bottom line is the return was nil here and in the future it was not looking much better. Fixed cost. Labor cost and over capacity in a market that is not growing but retracting.
Yes I saw your post about the east but the growth there is not worth the risk or effort with the economy not being all that great over there. Besides the Albanians may just steal your car there anyways.
One thing folks have missed here is the opening of Cadillac’s pop-up retail space in Soho NY. Do y’all know how much freakn Profit Ferrari makes out of branding? How much do you think Caddy can make out of the same concept when Ferrari is all small-boy testosterone, and Cadillac is gender-neutral grown-up chic worldwide?
Cadillac-brand clothes, accessories, fashion, events, resorts, etc etc, are going to earn GM way more than Opel/Vauxhall ever could have, ever.
Also, now I get why Lutz’s brilliant idea of keeping Holden engineering going after closing Holden manufacturing happened. Russelsheim’s days were numbered even back then…
Yes Scott, and then not to mention all the non mentioned strings that the European labor unions have with their pensions, including COLA and the profit sharing, and bonuses. I’m sure that there’s a lot more that isn’t listed that, makes up a more serious picture. I think that they made a list of pluses and misuses of keeping it, and they, over all, determined that it just wasn’t worth keeping. Does it make sense from the info we see? No, but we don’t know everything either. There’s probably way more between the lines than we’re aware of.
GM is only responsible for 3 billion in Opel pension liabilities… what’s this about 6.5 billion?
Hi Silent,
Total underfunded pension liabilities in Europe were 9.5 billion. From that, PSA is taking over 3 billion, which GM pays to PSA. The remaining 6.5 billion stay with GM, but the underlying assets are gone.
Mike — thank you for bringing this to our attention. We’ve updated the article accordingly and are in contact with GM surrounding the details of this element of the transaction.
The assets are not “gone”. The pension fund has assets, but the pension liabilities exceed the assets by 6.5bn. Primarily because of very low (or negative) discount rates due to historically low interest rates in Europe. Once those interest rates go back up, the liabilities shrink. GM had been paying off this deficit even before this deal and will continue to do so at the same pace as before. No change..
Will Holden have to pay GM or PSA for the Commodore manufacturing and royalties?
GM keeps the rights to all Opel-Vauxhall vehicles designed under its ownership, so no one will be paying PSA, but rather PSA will be paying GM (which is part of the €0.9 billion listed above). That’s for a certain period of time… if PSA wants to keep certain vehicles longer, than it will pay more in royalties to GM.
So, Holden will “pay” GM… not PSA.
Why do people down-vote for just bringing facts mentioned in an article of Forbes? It’s not that I’m happy with this, I am a GM fan. But I’ll stop posting reactions. Thanks to Alex en Scott3 for all the interesting reactions they gave to me.
You’ll get down-voted for all kinds of reasons; I know I get down-voted for my profile picture (sarcasm) 🙂 Best thing to do is not worry about that.
You have no reason to stop posting your reactions. Indeed, thoughtful commentary is what we truly welcome here in the comments.
Hope to see you back here.
Alex
Mike – please keep posting, your comments are great. I get downvoted well in excess of rare upvotes all the time – for existing, for saying the Z28 will have a 4-cam 32-v engine which GM leaked already, for quoting Lawrence R Gustin’s biography of Durant, for saying 3800lbs is too heavy, for saying Corvette tires aquaplane more easily than the prius tires on my FR-S, etc etc etc.
My smarmy attitude about truth winning every time probably gets me a few extra down votes, but you Mike don’t even have the attitude, you just write very straight about factual truth and reference your points precisely, but still the downvoters stroke their keyboards from their dressing gowns against you.
One problem is that brains focus more on negative emotions in present moments, and more on positive emotions in the long-term memory. Folks worry about right now, and nostalgize about back-in-the-day. So any reader who doesn’t like your words downvotes you right now, and readers who like you will remember your words in the days and weeks ahead, but probably won’t remember to come back to this article to upvote you, sorry. Look for the work of John Cacioppo at Ohio State and University of Chicago.
However, your call for respect in this particular comment rightly earned you lots of upvotes which you deserve!
Thank you Alex and Old Trombone for your kind words. I guess I overreacted ;).
Mike – Forbes aren’t the only ones, there are no reputable financial institutions that have given a positive reaction to the GM side of this deal, which to most people is blindingly obvious anyway.
Uhhh…what about the fact that the new 2018 Buick Regal, and Holden Commodore was being built by Opel? They just shut down their Australian manufacturing, so now Holden will depend on imports from the US, I assume.
There’s agreements tucked into the paperwork that guarantees the models presently built by Opel and sold through other GM channels to remain in production at present, and to continue to be supplied to GM for the remainder of their planned product life.
Afterwards, PSA makes their own replacements for Opels platforms, and may or may not supply GM.
How does this affect the 2018 Buick Regal redesign?
Good question. I was wondering the same thing. My theory is that PSA will build the Buicks for a while, as long as GM has intellectual property rights, which they do on the current platforms until PSA designs new ones. Also, GM takes in some PSA stock, so there appears to be a partnership on its way.
The Buick will last its entire run. Same for Holden. Nothing changes there.
As scott3 mentioned, every Buick (and Holden) vehicle based on an Opel design will run its entire lifecycle.
GM will end up building Buicks and Holdens. The real question is where… but China and North America are looking real good right now. There is a chance that a PSA-owned Opel plant in Germany builds Buicks or Holdens… but I have yet to see or hear anything about this.
Also, a “partnership” is not on its way. GM received the chance to buy PSA shares (roughly 5 percent) as additional compensation in this transaction. The shares are not intended to be held on to (as a partnership would imply), but are specifically written into the deal as warrants to provide guaranteed short/medium term compensation from PSA to GM. Furthermore, GM has to buy the PSA stock at its strike price and then sell it within a certain time period (35 days). This is a financial instrument, nothing more.
Full details on this can be found in the Terms of the Agreement section at the end of this article:
http://gmauthority.com/blog/2017/03/officially-official-general-motors-sells-opel-vauxhall-to-psa-groupe/
GM made the current generation Regal the first year in Germany, then afterwards in Oshawa, Canada. Current plans are the same and will stay the same for the 2018-2019 model year. The bigger question is longer term what will GM do to replace the E2XX platform when the time comes for the Regal and the Malibu in the USA? While both are either just redesigned or about to be launched as a redesign, after a midlife refreshing after four years and a maximum of 7 or 8 years, GM will need a new midsize platform (Opel provided the previous well regarded Epsilon and Epsilon II for all GM mid size cars before the E2XX).
It will be interesting to see if GM’s quality declines after the gains they made with Opel’s solid platforms the last decade or so. That seems to be a risk of this deal which although will save them a fortune, it puts their mid sized cars up for sizeable changes
It doesn’t. GM still has an agreement on a short term basis with the ability to get into a long term relationship. The deal also allows GM to by Shares in PSA to hold some sort of ownership
While that is true, PSA is not known for its quality control – it is known for its lack of it. It is probably also GMs concern because they are only in a guaranteed short term relationship – to use the new E2XX platform as it is currently designed. The CEO of PSA is known for cost cutting and making their company cheap – if he does the same thing to Opel in the short term it will make some money and make stockholders happy. In the long term it will make their products lousy and consumers will run. That is why it is a “wait and see” move for GM on the future platforms developed and if they have interest in building off of that their new cars in 4-8 years. Otherwise GM will have to start from scratch and use another engineering division in Korea, China, or the USA to develop a new mid-size platform offering or buy it from someone else.
So if I get this straight, GM gets some PSA Peugoet Citroën stock in return. It sounds like they are entering a loose partnership in Europe. It reminds me of the proposed deal back in 2012 between the two companies. I have a feeling Peugoet-Citroën will be building Buicks for a while. Remember, they are also supposed to return to the US in 2020 with their luxury DS marque.
This is more “Round 2” to the possible hook up of GM and PSA from back in 2012, and now it seems the game is pretty much over.
Kris — please see my comment above about the stock warrants in this deal.
In all, there isn’t a loose partnership in play here. There is this transaction, and then there’s the possibility of GM collaborating with PSA on EVs, autonomous vehicles, and fuel cells. Not sure that will actually pan out, though.
I heard Mary Berra speak of future collaboration in her presentation at the press conference in Paris.
Technical collaboration, as far as I remember. But without naming concrete projects.
It’s all part of the sugar-coating of this deal. There is nothing concrete in place. I imagine that the dialogue went something like this:
GM: “So €2.2 billion, all in, ok?”
PSA: “Sounds good, but can we also be friends after the deal?”
GM rolls eyes: “Sure, if you want to”.
But something tells me that in this case, GM doesn’t actually want to… since it has nothing to gain from PSA in any kind of technical collaboration projects.
I think that is the key to this question about future collaboration. They have successfully collaborated on parts sharing (ordering parts from the same supplier, getting volume discounts by combining purchasing for example) but sharing engineering is a whole other level. I wonder how far that will actually go… but GM is going to get someone developing the next generation mid-size car, that is for sure even if it is not PSA/Opel. Either themselves or someone else.
The EU, and the Euro, are only user friendly for European based Auto Companies. A weak Euro helps Mercedes,BMW and VW with exports as well as with USA assembly plant profits, which get converted back to weak Euros.
Once the EU rolled out the new Euro currency, GM’s profits ended around the same time, and German car maker profits got much better in short order!
Even though I do like it, it is the right thing to do. Opel was a money pit; in fact most of Europe is a money pit. Only luxury brands and far east imports make money there. Actually, if GM has any brains and is allowed to, they should continue with the Icon models, but also start sending pickups, cuvs, and a couple of cars from the far east. A competitively priced Thai Cruze or a Vietnamese Spark would sell and bring in a profit. And Trailblazer and Colorado would make good money.
Considering GM is practically paying to give Opel to PSA due to the pension obligations. Why didn’t GM just spin off Opel instead? Or would that somehow cost more to GM then straight off selling them? Can someone enlighten me on that?
It would be nigh impossible to successfully spin off a firm that has not turned a profit for 16 years, and which by itself (without GM or PSA) lacks scale to turn a profit going forward.
Ironically, Tesla has also yet to turn a (yearly) profit… but it’s nascent compared to the century-old (or more) Opel.
PSA own chassis will be under future opel and Vauxhall models.
I hear over the years Europe management most of time didn’t agree with U.S. management on tooling. I know a person that had dealings with both. Most countries cater to their own manufacturers except for Americans. Its crazy how GM stock has reacted to the news.
The stock price isn’t crazy it just accurately reflects what a crap deal this was for GM
GM gives up one engineering center in Rüsselsheim, Germany. so, GM keeps the Italian engine labs. But is the R&D of Opel and GM Europe only in Rüsselsheim??
Yes. Only in Rüsselsheim. It is GM’s second largest tech center.
I wonder if there not too many people working for a company producing 4.4 million cars per year.
Opel was a burden, GM is strong in 2 important markets. North America and Asia (China).
General Motors also has a fairly strong presence in South America.
GM is only strong in 2 markets now, and in South America it is losing money.
The problem with GM is that GM never managed to transform the more or less independent “divisions” continue their life as if they had not been merged into GM — which went well as long as the automobile industry and the US world domination were on the rise, but the oil crisis starting 1973 and the victory of Vietnam over the USA should have served as a wake up call.
By the latest after the bankruptcy of GM caused by the big crises of 2008, the reorganisation should have been done.
It was OK for the company to give up a number of brands, but they did it the wrong way and kept too much of the old “division” problem.
I think that GM would better have established four lines: a premium brand, a basic brand also perceived as a quality brand, a brand with an exquisite design, and a cheopo brand.
I think they should not have kept Buick in the USA, but there only Cadillac, Chevrolet and Pontiac, and align Chevrolet as the basic brand with Buick-China, Holden in Oceania, Vauxhall in Britain and Opel in Europe and surroundings in the same way as Vauxhall is aligned with Opel, i.e. as the very same car, with just a different brand name on it. Of course, with slight differences due to regulatory differences between and various countries, and also tastes of the car buying public (e.g. those having the means to buy a car in India, I heard, don’t drive themselves, but employ a chauffeur). But no effort to make them look different as if they were a different brand. Mind you that Buick was introduced in China with a rebadged Daewoo Lacetti and a rebadged Daewoo Matiz.
Cadillac is, of course, the global premium and luxury brand, and Pontiac might have been kept as the brand with the extravagant design, also marketed worldwide — in principle. Daewoo should have kept as the cheapo brand, instead of putting the Chevy logo on their cars, i.e. using the brand as Renault is using the Dacia brand.