While the world was still reeling from the horrors of Brexit, the GM has announced that it is bidding adieu to it’s European brands because they haven’t made any profit in about 20 years!
GM Is Pulling the Plug?
Opel and Vauxhall have not earned a profit for nearly 20 years!
General Motors will sell the European brands, Opel and Vauxhall, to French car maker Peugeot. It will be sold for $2.3 billion. Opel and Vauxhall have lost $18B in the last few years. It does not make sense to hold on to these brands any longer. The financial operations will be acquired by BNP Paribas SA and Peugeot for nearly $955 million. Anything that General Motors has ever done is Europe has only returned losses. Investment in cleaners and new model designs, attempts to make factories efficient, and wages paid to employee are a few examples of efforts that resulted in absolutely nothing but losses and failures.
The deal will be finalised by the end of this year. This deal will increase Peugeot’s share of the European car market, making them Europe’s second largest car makers after Volkswagen. Peugeot is confident that it will be able to make the situation better.
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Only 20% pf the European portfolio overlapped with the rest of GM. It was not possible to achieve economies of scales in emissions technology.
GM’s Situation
GM hopes to improve profitability and cashflow by parting ways with Europe. The excess $2B of cash will give them resources to help their share buyback program. They will also be able to save $1.1B every year.
Win Win for GM?
GM said they if it had not spent $2B on Opel last year, and used it to buy back stock instead, earning per share would have increased by 5 percent.
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Business in North America is booming. GM wants to take advantage of this by investing in news trucks and SUVs. They must also invest in technology to meet fuel economy targets.
GM is eyeing China for growth. Their brand in China, Buick, outsold Vauxhall and Opel last year. Their other brand, Wuling, did the same. Wuling is built in partnership with Shanghai Automotive Industry Corp.
China is the largest auto market in the world. Around 28 million vehicles were sold in China last year. According to forecasts, even more will be sold in the future. That’s why GM is eyeing China.
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Rest of the Deal
Things are not as rosy and as straight forward as they look. There are still a few loose ends that must be dealt with. GM will have to raise around $3B for the current pension funds. Peugeot will be responsible for future pension funds. GM will pay Peugeot $400m million annually for the next 15 years to clear this debt.
Do you think it is a wise move by General Motors? What’s up with everyone leaving Europe? Share your thoughts about all this below!
