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04Mar17

G.M. Near Deal to Sell Opel to Peugeot Maker, PSA

The French maker of Peugeot and Citroën cars is expected to announce on Monday that it will acquire General Motors' Opel unit, in what amounts to a high-risk bet on the sluggish European market at a moment of acute political uncertainty.

A General Motors official, who was not authorized to speak publicly about the deal, confirmed the sale on Saturday. Earlier, PSA Group, the parent company of Peugeot and Citroën, said that it would hold a joint news conference with G.M. on Monday morning in Paris. The two companies said last month that they were in talks for PSA to acquire Opel, G.M.'s European unit.

The deal would vault the combined company into second place in Europe behind Volkswagen, which makes the most cars in the region. And it would allow General Motors to shed a perennially money-losing division.

Both PSA and Opel are focused heavily on Europe, where car sales peaked almost two decades ago and where populist movements are threatening to dismantle the single market.

In addition, both companies make cars aimed at essentially the same middle-class buyers, and neither is considered a leader in new technologies like electric vehicles.

For the deal to make any sense, Carlos Tavares, PSA's ambitious chief executive, will have to find a way to cut costs in countries where unions, political leaders and labor laws make layoffs and plant closures extremely difficult.

Mr. Tavares has managed to haul PSA out of an existential crisis since taking charge three years ago, returning the company to profit in 2015 after closing a factory in France and cutting the automotive work force by more than a quarter. But the company's car sales have shrunk, and an effort to establish a foothold in China has stalled.

Opel has also struggled to cut costs and has closed a factory in Bochum, Germany. Labor representatives, having already made major concessions, will most likely put up bitter resistance to further cuts.

The biggest beneficiary of the deal may be G.M. Opel has not made a profit since the 1990s and has been a chronic headache for its parent, which has owned the carmaker based in Germany since 1929.

Selling off Opel is a watershed event in G.M.'s steady comeback from the last recession. The company tried to sell Opel in 2009, when G.M. filed for bankruptcy and needed a $49.5 billion government bailout to survive.

But the deal collapsed, and since then, G.M. has repeatedly restructured Opel in an effort to reverse years of losses. Despite a succession of new senior executives, the business has failed to break even -- at the same time G.M. has flourished in North America and China and begun to devote more resources to its self-driving vehicle program.

With G.M.'s stock price languishing despite strong profits and revenues, analysts said the company was feeling pressure from investors to cut Opel loose.

"Selling Opel is another sign of G.M.'s interest in healthy financials over volume or market reach," said Karl Brauer, an analyst with the auto-research firm Kelley Blue Book.

Combined, PSA and Opel depend on Europe for 70 percent of their sales, according to calculations by Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany.

"The takeover of Opel increases the already very high dependence on Europe," Professor Dudenhöffer said in a written analysis of the deal Friday. "It was precisely this dependence that led PSA into crisis."

The European market has been in long-term decline. Car sales have been rebounding from a severe crisis in 2013, but total passenger car sales of 14 million last year were still well below the peak of 15 million in 1999.

Opel and PSA have been losing ground in the market, in part because high-end carmakers like BMW and Daimler's Mercedes unit have been encroaching on their turf by selling more affordable cars.

At the same time, the free trade that has prevailed in Europe since World War II is under attack. Britain, where Opels are sold under the Vauxhall brand, is one of the few markets where Opel is a leader. But Britain has voted to leave the European Union. Marine Le Pen is campaigning to be president of France on an anti-European Union platform and is given an outside chance of success.

Opel and PSA would be able to operate more efficiently by combining operations like purchasing and design, and by sharing components like engines. They already cooperate and were expected to show a jointly designed sport-utility vehicle at the Geneva International Motor Show next week.

But ultimately, the combined company will need to produce vehicles that are more attractive than those made by its competitors, something the companies have struggled to do separately.

[Source: By Jack Ewing, The New York Times, Frankfurt, 04Mar17]
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