The value of General Motors shares could climb as much as 35 percent if the automaker sells its European Opel-Vauxhall unit and focuses on more lucrative markets. That much is according to a Barron’s report released on Sunday.
Last week, General Motors confirmed that it was in talks to sell its European Opel-Vauxhall brands and operations to PSA Group, which markets the Peugeot and Citroen brands.
If successful, the deal could net GM up to $2 billion in cash as well as possible continuous licensing fees from PSA. Citing analysts, Barron’s pegs the initial cash figure to be $1 billion. The firm also indicated that the true value of the deal would come in the form of taking a money-losing business off GM’s hands, thereby allowing it to focus on operations in North America, China, and Latin America.
For the 2016 calendar year, General Motors reported a $257 operating loss from its European Opel-Vauxhall division. Besides cutting the losses, Barron’s says that GM could also gain almost $1 billion in additional annual cash flow.
In addition, the successful sell-off of Opel would indicate to investors that GM Chief Executive, Mary Barra, is not afraid to cut ties with business components that detract from the bottom line, electing to focus on those elements that generate value instead.
GM shares are trading around $37 on Monday, February 20th.
Comments
Hmmm from loosing major money annually to collecting $2 billion for Opel.
Then you take an estimated value of GM at $35-38 billion and increase it by 35%. We’ll do the math and this is the real value and more than Opel would make in a decade or more.
Soon, they will no sell more than California with this kind of thinking! If I was an investor, I should remove my money, it is a very bad sign. For me, They have left the russian market, almost the the australian market, now the europe. I wonder where that will stop…
Perhaps you are right. Or perhaps they are cleaning house and removing brand complexity in order to focus on Chevrolet in those markets. I hope that’s the case.
Does Chevrolet have good enough product to go global? Opel/Vauxhall has by far the best product.
GM simply needed one value oriented hyper brand consisting of Chevrolet, Opel, Vauxhall, and Holden.
Matching Ipel with Buick was wasteful.
At this point, Chevrolet does have good enough product to go global. But it will need to make a few changes here and there if it wants to truly succeed. The most important of these is:
1. Adding AWD as an option to compact and midsize cars (Cruze and Malibu lines)
2. Adding more features and equipment/content to its top-level trim level (Premier) such as HID/LED headlights, more interior colors, etc.
The second item is quite easy. The first item is possible (from a platform standpoint) but might need slightly more effort (in testing and production level implementation).
Another action item would be to add more body styles, such as a Cruze wagon and Malibu wagon, bit that can be done later.
Chevy as the global mainstream brand makes sense. No more headaches related to Opel. Problem solved.
When Ford, Toyota, … will go out of the european market, I think that it will be a good idea for GM but these competitors are on this market with success, unlike gm , then why not GM and Opel ? The european market is the harder market in the world if you have got some good sales here, you will succeed everywhere. The Opel’s problem is its bad reputation in reliability field, its uncomplete range and ageing Corsa on the main european’s segment. For me, these Opel’s sale off reminds me the sale of Chrysler Europe: Chrysler has never succeeded to do a european comeback….
When we know if gm sell opel
I wonder who gets the bill for the underfunded Opel pension fund?
Think you’re on to something Mr Dcar. Shed Opel, shed European plants and obligations, and import cheaper to produce Chevrolets from Korea and China. Or so they think. I think.
What’s good for GM is good for China. And there’s always India…
Just some thoughts and questions I’d like to share:
1) What will happen with the future Buick and Holden portfolio if Opel goes out of the GM stable?
2) In the previous attempt to sell Opel, the main reason why the deal did not go through (apart for the small car know-how of Opel), was the fact that many patents and IP rights were owned by Opel and that GM needed these for the global car portfolio. Does this sale mean that GM will have to pay PSA for the use of its formerly owned patents?
3) PSA has little international presence outside of Europe and Africa. Does this deal mean that PSA can now access the global markets, competing with GM with its former own products? There was a clear strategy within GM that Opel would not compete with Chevy, but that will now change.
4) Cadillac and Corvette servicing in Europe has benefited greatly from the GM presence in Opel. Does this deal now mean that a Cadillac will be serviced at a Citroen dealership (ouch!) ? Or does it mean Cadillac owners cannot have any servicing done any more?
5) What will become of the diesel technology for GM? Will GM cars have PSA diesels now? And is this in line with the “diesel strategy” Cadillac needed to increase sales in Europe? If so, I think PSA diesels are no match for MB or BMW. So this strategy will not work.
6) The US and China markets have shown good sales recently for GM. Now imagine that US sales would drop (not unlikely in the future, as predicted by all analysts), and that the US-China relations would become less friendly (or even end up in a trade war), with GM being fined by the Chinese government (China can fine businesses as they like) so that profits drop dramatically. Where does that leave GM with only those 2 markets left? A healthy EU-unit might be able to save the balance sheet. Especially as shifting the accounting rules from US GAAP to IFRS would already today bring Opel in the black ink, meaning Opel is today a viable unit (and which is exactly what PSA will do, then claim it turned around Opel).
7) Knowing that GM’s size has helped it to cut supplier costs, how will this evolve in the future? GM will drop from the world’s 3rd biggest car company to maybe number 5 or 6 by shedding off Opel and Vauxhall. How can they maintain the margins they have today? In other words, is the sale of Opel not indirectly going to raise their procurement costs in such a way that the “small loss” of Opel will translate in “equivalent extra procurement costs”?
8) Finally, FCA’s Marchionne has always stated that FCA needs more size in order to survive in the future. GM will actually shrink in size to a position in which it can itself more easily be taken over…
And then I wonder… OK GM will get 1 B$ in cash, but GM will also have to pay PSA for using its own previous technology, will have to part with the Cadillac strategy in Europe (thereby affecting its marketing worldwide due to no presence in the world’s toughest auto market), will lose its Diesel technology, will get direct competition in a few markets from Opel thus affecting sales of e.g. Chevy, will have to pay more procurement costs worldwide, and will shrink in size to the point that they can more easily be taken over. And all this for some potential short-term stock raise… so I’m far from convinced at this stage.