THE ACTORS INVOLVED
General Motors company is an American multinational company that designs, produces, markets and distributes cars, car parts but also financial services related to cars. GM global headquarters are located in the United States (Detroit, Michigan) but the company’s cars are manufactured in other 35 countries. In the graph above we can the number of sales volume in the USA and its variance between each year.
GM cars and other related mechanical parts are not sold under a single company’s brand but instead under various and different brands. Currently, the company owns six car brands which are Buick, Cadillac, Chevrolet, GMC, Holden and Wuling.
General Motors was founded on September 16, 1908 as a holding company controlled by William C. Durant, owner of Buick. The same year, Durant also acquired Oldsmobile, whereas, in 1909, GM bought other three car companies, namely Cadillac, Elmore and Oakland.
Before the 2000s, General Motors continued to acquire new car brands and to increase its capacity but in the 2005 Standard & Poors decreased the rating of GM considering the company stock as junk bonds.
On June 1, 2009, following heavy losses, GM went bankrupt, and therefore stockholders lost all their investments. Because of the gravity of the situation, on June 20, 2009 the US government gave General Motors the opportunity to reorganize the corporation thanks to the Chapter 11 of the United States Bankruptcy Code which regulates corporations’ reorganization under the bankruptcy laws of the United States.
Figure 1: Data from “mediaOnline”, retrieved from Wikipedia
Following the bankruptcy, General Motors was forced to close the European division, namely General Motors Europe, with headquarter in Zurich. At that time, the most important car brands owned were the following:
- Opel with headquarter in Germany
- SAAB with headquarter in Sweden
PSA Group is a French multinational manufacturer of cars and motorcycles with headquarters in the 16th arrondissement in Paris; it is currently the third-largest Europe car company in the world. Compare to General Motors, PSA group holds less car brands, since it owns only three brand divisions: Peugeot, Citroen and DS Automobiles.
In 1974 Peugeot S.A. acquired 38,2% share of Citroen and later, in 1976, the two companies created the PSA Group. In 1978 PSA tried to increase the group by buying the failing Chrysler Europe for a nominal USD $1.00 and at the same time taking his debt. All the investments made during these years caused financial losses to PSA Group, indeed in the years from 1980 to 1985 the group continued to lose money.
An important step in the PSA history that is worth mentioning concerns the global strategic alliance that was signed by both PSA Group and GM on February 29, 2012; thanks to this agreement, the two big companies started sharing vehicle platforms and components and the focus was about small and medium size cars. This alliance had another important and positive impact: in fact, the two companies are reducing their costs due to economies of scale, PSA and GM are creating a new global purchasing joint venture. In 2014 PSA Group started a rapid expansion and implemented various cost-cutting measures to reduce the debt of the group with the purpose of making profit again. Finally, in 2015, the Group hired a new CEO, Carlos Tavares, thanks to whom the corporation created a new brand: DS Automobiles.
On February 10, 2017 PSA Group announced that it was negotiating with General Motors on the acquisition of Opel and Vauxhall Motors. Following some days of negotiations between the two companies, on March 6, 2017 General Motors announced that it would sell its European division to PSA Group for €2.2 billion. This deal would allow the European brands – namely Opel and Vauxhall, to join Peugeot and Citroen inside the PSA Group, but also to increase PSA total value, so that becoming the second largest Europe-based automaker. Based on the statement of PSA Group, the acquisition will cover both Opel and Vauxhall for an overall value of €1.3 billion, as well as some financial European operations regarding General Motors which are currently valued €900 million.
Generally speaking, it is common to think of business acquisitions in terms of advantages for one party and disadvantages for the other. However, in my opinion, the deal in question could bring advantages for both PSA Group and General Motors, this is what also GM’s CEO Mary Barra told his staff in February.
Concerning PSA Group, the acquisition of the money-losing Opel brand could be a great opportunity for the company since this brand extension could be a growth driver with potential expansion beyond its home region, a possibility that GM hadn’t had in the past. Taking Opel and Vauxhall from GM, valued €1.3 billion, PSA Group ranks second in the region’s car market, only behind Volkswagen. Increasing its volume of production, PSA can now spread the cost of developing autonomous cars – a current trend among most of the automobile manufacturers –, and cleaner engines across a larger number of vehicles.
The graph above shows the European facilities of both Opel (black square) and SPA Group (white square). Their integration, made possible thanks to the deal between the two corporations, could certainly increase PSA’s competitiveness abroad.
Figure 2: Data from Bloomberg, retrieved from Bloomberg
Regarding General Motors, instead, the situation was not as positive as it was for SPA Group. In fact, the company decided to sell its European division mainly because 2016 was the 16th consecutive year of that division’s financial losses, for a total value of €14 million. As previously mentioned, the reason why General Motors sold its European division lies in the fact that it wants to increase its profit margins, putting the group entirely out of Europe after 90 years in that market.
Automotive news (Automotive News is the leading source of news about the global automotive industry) that General Motors is now targeting North America cars more than European cars, as well as international markets as potential spots for cost reduction. However, the major focus on the North America market will reduced the company’s footprint on other markets, such as Russia, Australia, Indonesia, Thailand and India.
Furthermore, this website has also written that GM could probably increase the size of its small and full-size cars in favor of more profitable SUVs and trucks.
In conclusion, this acquisition could be a strategic choice for both GM and PSA Group. In the next few years we could see, on the one hand, the PSA Group entering the hybrid car market or even the electric cars market, while, on the other hand, General Motors completely changing its strategic plan focusing more on the North America market.