Backlash Over Opel Deal Talks
German politicians were caught unawares by French automaker PSA’s talks to buy General Motors' European operations, and aren’t happy about it. They know a deal may put German jobs at risk.
The possible sale of General Motors’ European operations to France’s PSA Group has hit resistance in Germany, where the government and union leaders voiced strong criticism within hours of the surprise talks becoming public.
News broke on Tuesday that GM was in talks with PSA, the maker of Peugeot and Citroen cars, on a possible sale of its German and British units, Opel and Vauxhall, which would create Europe’s second largest carmaker after Volkswagen.
Economics Minister Brigitte Zypries said it was “unacceptable” that the talks were taking place without the knowledge of the regional government of Hesse where Opel is based or the company’s employee representatives. She said the federal government hadn’t been informed either.
The talks have sparked fears of job cuts in Germany and Ms. Zypries called on GM to preserve Opel’s development center at the Rüsselsheim plant in Hesse.
PSA Chief Executive Carlos Tavares is keen to meet Chancellor Angela Merkel and Opel labor representatives in the near future to explain the French carmaker plans to form an alliance with Opel, newspaper Bild reported, citing company insiders.
Engineering union IG Metall and Opel’s works council called the talks an “unprecedented breach of all German and European co-determination rights.”
“PSA isn’t using the full capacity of its plants in France so it’s difficult to understand why it should create additional capacity by purchasing Opel.”
Thomas Baudouin, PSA works council
The governor of Hesse, Volker Bouffier, said: “It’s relatively irrelevant whether the owner is based in the U.S. or in France. All that matters is what happens here.”
Opel’s main problem is the relatively low capacity utilization of its factories, estimated at 65 percent, well below the industry average of 70 percent.
“This doesn’t bode well for the German plants,” said Ferdinand Dudenhöffer, head of the German CAR Institute at the University of Duisburg-Essen.
Opel already had to introduce short-time working at its plants in Rüsselsheim and Eisenach at the end of last year and had to offer substantial discounts to boost sales in the competitive European market, he said, adding that a takeover would cast doubt on the future of the plants in Kaiserslautern and Eisenach.
The future of the development center in Rüsselsheim was also looking uncertain. “Opel hardly does any pre-series development there, it mainly does preparations for series production,” said Mr. Dudenhöffer. Besides, the development of diesel engines was becoming less relevant, and the French were already strong in that field anyway, he added.
A further problem is that PSA and Opel are direct competitors in many markets, especially in the SUV segment where the merged group would have many models of the same price and technical standard.
“To raise synergies one would have to put as many models as possible on a common technical platform,” said Stefan Bratzel, head of the Center of Automotive Management at FHDW University in Bergisch-Gladbach. For that to pay off, PSA would need a lot of patience, he said.
In terms of regional sales, however, PSA and Opel could make a good fit, some analysts said, because PSA is strong in southern Europe while Opel and Vauxhall have strong market shares in Germany and the UK respectively.
Opel and PSA – Factories and number of employees
In light of Britain’s impending exit from the E.U., PSA may be particularly interested in the Vauxhall plants because in a post-Brexit Europe, local production in Britain would render the automaker less vulnerable to currency swings and possible tariffs.
Opel recently announced it will relocate production of its small cars Adam and Corsa from Eisenach to its plant in Saragoza, Spain, with the next model generation. In return, production of the Mokka SUV is to be based in Eisenach. It’s unclear whether that will still be the case if the deal goes through. Job guarantees for Opel’s German plants expired in 2016.
The French government said on Tuesday it supported the talks if they don’t affect jobs in France. With just two months to go to the presidential election, a company deal on such a scale is bound to be politically sensitive.
The Socialist-run government, which owns 14 percent of PSA, will likely be pressuring PSA to rule out French job losses.
“PSA isn’t using the full capacity of its plants in France so it’s difficult to understand why it should create additional capacity by purchasing Opel,” said Thomas Baudouin of PSA’s works council. PSA last year shifted some production from France to Slovakia where it has its most modern and profitable plant.
Consultancy Evercore ISI said it’s difficult to value GM’s European business because it has been struggling for years to make money. It said it wasn’t unrealistic to assume that GM may even pay to rid itself of the units.
Evercore estimates that at best, GM could get a price of $1 billion, provided that PSA doesn’t take on the units’ pension liabilities.