French car maker PSA Groupe, owners of Peugeot and Citroën, is in advanced talks to buy General Motors’ lossmaking European Opel division — leading to fears of widespread job losses.
If France’s PSA buys Anglo-German and American-owned Opel-Vauxhall, job cuts won’t be far away, which explains the frantic behaviour of European politicians and union leaders seeking to make sure the bad news lands in someone else’s lap.
The possible deal comes at a difficult political time too, with the French presidential elections in late April and May, while the German general election is on September 24.
The drama unfolds at a critical time for the global car industry as it faces a revolution in technology requiring huge spending to fund research on electric cars, as well as computer driven and connected ones. There is also the industry nightmare that it will wake up one day to find cash rich hi-tech companies like Apple or Google have reinvented the automobile and bankrupted them.
So size is crucial for long-term success and that’s behind PSA’s interest in buying General Motors’ Opel-Vauxhall. At the moment PSA lags well behind industry behemoths like Toyota, Hyundai-Kia, Volkswagen, GM and Renault-Nissan.
Last week, PSA, which owns the mass-market Peugeot, Citroen, and DS wannabe upmarket brands, and General Motors (GM) whose European arm owns Opel-Vauxhall, announced they were talking merger. PSA has staged a remarkable recovery over the last three years, turning life-threatening losses into fat profits. Opel-Vauxhall has been a chronic loss-maker in the 21st century, although it has always promised that profits are just around the corner. Opel sells its cars in mainland Europe, while Vauxhall sells the same cars under its brand in Britain.
The combined PSA-Opel-Vauxhall would create a company with the second biggest market share in Western Europe – around 16% – and bring it closer to the leader Volkswagen at 23.4%.
German Chancellor Angela Merkel pledged last week to keep jobs and factories in her country safe. About two-thirds of Opel’s 38,000 workers are based in Germany. In Britain there are close to 35,000 Vauxhall workers. Britain’s Prime Minister Theresa May is set to meet PSA CEO Carlos Tavares soon. Union leaders have voiced concerns about job losses.
If the deal goes through, PSA will likely have the upper hand and will look to cut costs at Opel-Vauxhall. German labour laws make redundancies very expensive, so the UK’s Vauxhall will find an unwanted spotlight shining on it. Britain is about to enter talks to leave the EU, adding to its vulnerability.
According to Professor Ferdinand Dudenhoeffer from the University of Duisberg-Essen, Opel-Vauxhall has lost $5.2 billion (€4.9 billion) over the last 5 years.
“PSA has already closed factories in France (as part of its recovery plan) and therefore, it will hardly be possible to close down French sites politically. After all the French state is a (14 percent) shareholder in PSA,” he said.
Dudenhoeffer calculates 6,000 job cuts will be required from Opel-Vauxhall’s workforce at a cost of €750 million ($796 million).
Despite the seemingly unending losses at Opel-Vauxhall, General Motors pledged to keep it alive, although it did try and dump it in a deal with a Russian bank in 2009, and then failed to agree a merger with PSA. Cynics wonder if GM is getting cold feet over the possibility of France’s Marine Le Pen winning the election, and pulling out, as promised, of the euro. That might force Germany to return to the high-priced deutsche mark and inflict even bigger losses on Opel-Vauxhall.