GM Looks to Sell European Unit to PSA
General Motors had a deal to unload its money-losing European division in 2009 before backing out at the last minute, saying its prospects there had improved.
In the seven years since, Europe has drained an additional $8 billion out of GM’s coffers. After warning last week of more losses there in 2017, the automaker again is looking for a way out, today confirming talks with PSA Group that it said could lead to a sale of Opel, Automotive News reported.
“What we are trying to do is fish where the fish are, or do business where the money is,” GM President Dan Ammann told investors in January. “We will continue to be ruthless in our decisions, not pursue lines of business or markets or opportunities that we don’t think can make a compelling return for us down the road.”
GM hasn’t turned a profit in Europe since 1999. Executives previously said they hoped to break even in 2016 and that the division was on track to do just that until the United Kingdom’s surprising vote to leave the European Union in June.
GM cut its losses in Europe by two-thirds last year, but CFO Chuck Stevens said Feb. 7 that the next chance to break even would be 2018. But instead, the third-largest global automaker—which for decades sought to dominate every market it could—is continuing its transformation under CEO Mary Barra into a company dedicated to maximizing profit margins in North America and China.
The talks with PSA follow GM’s pull-out from Russia and Australia because it no longer saw those countries producing adequate returns on its investment. Meanwhile, GM earned a record $12 billion profit in North America last year.
In a statement GM said its ongoing alliance with PSA has generated “substantial synergies” for both companies.
“Within this framework, General Motors and PSA Group regularly examine additional expansion and cooperation possibilities, as well,” the statement said. PSA Group and General Motors confirm they are exploring numerous strategic initiatives aiming at improving profitability and operational efficiency, including a potential acquisition of Opel Vauxhall by PSA.
“There can be no assurance that an agreement will be reached.”
Efraim Levy, an equity analyst with CFRA Research who rates GM shares as a “strong buy,” said GM’s exploration of a sale is “somewhat surprising,” given the reduced losses there and the fact that 11% of GM’s 2016 revenue is tied to technology linked to its European operations.
“However, given lagging profitability there relative to US and China operations, GM may prefer to focus on larger, profitable regions,” Levy wrote. “Deeper integration or partnership is more likely in our view than an outright sale.”