06 Mar 2017

General Motors Out of Europe

Big News for the Auto Industry

The top business news of the week is the deal between General Motors and PSA Group for the sale of the GM’s European division, producers of both Opel and Vauxhall. The deal was sealed over $2.2 billion and it marks the end of 90 years of European manufacturing for the American automobile giant.

According to the experts, Detroit made the right move move – stopping the “money bleeding” from the European division. Only last year, the company announced $257 million loss which adds up to $15 billion of losses the last 16 years. “For GM, this represents another major step in the ongoing work that is driving our improved performance and accelerating our momentum,” GM CEO Mary Barra said. In other words, by getting rid of the European appendix American giant will now have the resources to concentrate on reforming its home division and put more efforts and funds in developing the Chine brand which in the last years turned into the main profit provider for the company.

On the other side, PSA Groupe is one of the biggest European automakers, producing well-known brands like Peugeot and Citroën. The GM deal takes PSA Groupe to second place in Europe (17% market share) just after Volkswagen AG.

What about the people?

Of course, the main question following the deal is what will happen to the workforce hired in both Opel and Vauxhall divisions. Currently 45,000 people work for Opel all across Europe including 19,000 in Germany and 4,500 in the UK. The rumours about the upcoming deal were circling for a month and many union leaders are worried that PSA Groupe will start firing employees.

Similar concerns were expressed by the people in the UK division. At the moment, 4,500 employees work in the Vauxhall factory in Luton with another 30,000 all over the country engaged in retail, support and different level of supply chain. Carlos Tavares, current Vauxhall boss tried to relax the tension a bit by pointing out that UK is still second biggest car market in Europe and his company has “certain commitments to keep manufacturing in the UK for the next few years.”

Still, the Unions aren’t confident: “While initial discussions with the PSA Group have been relatively positive, our priority now is to ensure a long-term future for our plants and the tens of thousands of workers depending on them.” Len McCluskey, general secretary of Unite commented. He also refers to the last weeks prior to deal as “nerve wracking” to the people in Vauxhall.

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Additionally, the ghost of Brexit has also appeared on the scene and the complications after triggering Article 50 remain unpredictable, but experts foresee higher costs of production and extra trade tariffs.  Earlier this year, both Theresa May and French Prime Minister Bernard Cazeneuve, raised the question of the Vauxhall deal with the  president. Cazeneuve didn’t comment until the deal was confirmed, and in his official statement this morning, he said: “Business ethics means that entering this deal, any agreement existing in the Opel Vauxhall company, especially all the deals with the unions, will be respected. This is not tactical, this is ethics. If there is an agreement, we respect it.”

Only the future can say how far his words roll with the new car company.

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