GM sells European brands to France's Peugeot

General Motors is selling its unprofitable European car business to the French maker of Peugeot, marking the American company's retreat from a major market and raising concerns of job cuts in the region.

With the 2.2 billion euro (USD 2.33 billion) deal announced today, GM is giving up brands Opel in Germany and Vauxhall in Britain that have given it a foothold in the world's third-largest auto market since the 1920s. They have not, however, made a combined profit in the past 18 years despite multiple turnaround efforts.

For the once-struggling PSA Group, which makes Peugeot and Citroen cars and has just recently reshaped its own business, the acquisition will turn it into Europe's No. 2 automaker after Volkswagen.
 

Carlos Tavares, the CEO of the French company, said the deal was "a game-changer for PSA."

GM Chairman and CEO Mary Barra told reporters in Paris: "This was a difficult decision for General Motors but we are united in belief that it is the right one."

Britain's vote to leave the European Union, which caused a plunge in the pound, weighed on the decision. "Without Brexit, we would have reached the breakeven goal" at last in 2016 for the European business, Barra said.

PSA will join with French bank BNP Paribas in the purchase, which foresees taking over 12 manufacturing facilities that employ about 40,000 people, according to a joint statement by the companies.

Executives insisted that no job cuts are currently foreseen, but analysts say they're inevitable over the long term.

GM will keep its manufacturing center in Turin, Italy. GM and PSA will continue to collaborate on electric car technologies and maintain existing supply agreements on some Buick models.

Shares in General Motors Co. Were down 1.9 per cent in premarket trading at USD 37.49, while PSA's were up 3.4 per cent at 19.46 euros, suggesting investors find the terms of the deal broadly advantageous for the French company.

The purchase marks a major turnaround for PSA, bailed out just three years ago by Chinese investors and the French state. CEO Tavares, recalling PSA's "near-death experience," said he hopes to parlay his success to similar savings at Opel, cutting costs through scale and better use of factory capacity.

For GM, the agreement indicates that Barra decided to focus on profits over market share.

Asked whether the arrival of the Trump administration played a role in GM's decision to sell, Barra said GM looked at "the changing landscape from a regulatory, a geopolitical and customer preference standpoint" before making a decision.

Western Europe is the No. 3 auto sales market, behind China and the U.S. Opel and Vauxhall last year sold just under 1.2 million vehicles, amounting to only 5.6 percent of the market, according to GM.

"Unloading Opel-Vauxhall and the European part of the financing greatly improves GM's balance sheet, allowing investments in growing markets such as China and India.