France’s PSA Group — maker of Peugeot and Citroen vehicles — said it is exploring a possible takeover of Opel, General Motors Co’s (GM) money-losing European business.
PSA Group said in a statement on Tuesday that it was considering “numerous strategic initiatives” that would expand the existing cooperation and that a takeover of Opel was one of them.
PSA Group and GM are already involved in several joint projects in Europe.
“There can be no assurance that an agreement will be reached,” GM said.
Detroit-based GM is weary of having to report losses in Europe, where it last made a full-year profit in 1999 on a pre-tax basis.
An outright sale would eliminate the losses, but GM relies on Opel for design work and uses Opel models as the basis for GM models in other markets.
“Opel has been hemorrhaging money for the last 16 years, so hard decisions are on the table in [CEO] Mary Barra’s version of a profitable GM,” Kelley Blue Book executive analyst Rebecca Lindland said.
Lindland said that untangling Opel from GM would not be easy, but that “even if GM sells Opel to PSA, I can see a world where both companies continue with existing joint projects long into the future, as these types of engineering collaborations provide vital economies of scale on a local and global basis.”
Combining PSA Group with Opel and its British brand Vauxhall would create the second-largest automaker by market share in Europe, with 16.6 percent of sales according to last year figures.
The combination would be second only to Volkswagen AG, with 23.9 percent, and would vault ahead of the Renault SA and Nissan Motor Co alliance, which had 13.9 percent.
Being bigger can in theory bring per-vehicle cost advantages by spreading fixed costs such as investment in plants and equipment over a larger number of vehicles.
“Deeper integration or partnership is more likely in our view than an outright sale” of Opel, CFRA Research analyst Efraim Levy said.
GM and PSA Group formed an alliance in 2012 in an attempt to make production more efficient. In late 2013, GM announced it was selling its stake, although the two companies continued working on joint vehicle projects. For instance, GM is to make Citroen’s forthcoming subcompact crossover vehicle beginning later this year at a plant in Zaragoza, Spain.
Since leaving bankruptcy protection in 2009, GM has lost US$5.88 billion before taxes on European operations, according to government regulatory filings.
It had hoped to reach break-even in Europe by now, but last year posted a loss of US$257 million despite selling 1.1 million vehicles, and even as GM as a whole turned in a robust profit of US$9.4 billion.
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