FRANKFURT, Germany — France’s PSA Group, maker of Peugeot and Citroen cars, says it’s exploring a takeover of Opel, General Motors’ money-losing European business.
Cutting Opel loose could mean a solution to GM’s long-running drama over losses in Europe – but the Detroit automaker cautioned that a deal wasn’t a sure thing.
PSA Group said in a statement Tuesday that it was considering “numerous strategic initiatives” that would expand the existing cooperation between the two companies, and that a takeover of Opel was one of them.
PSA Group and GM are already involved in several joint projects in Europe. The Detroit-based automaker acknowledged the talks and cautioned that “there can be no assurance that an agreement will be reached.”
For PSA Group, acquiring Opel would make it the second-largest carmaker by market share in Europe, with 16.6 percent of sales according to 2016 figures. It would be second only to Volkswagen, with 23.9 percent, and would vault ahead of the Renault-Nissan alliance with 13.9 percent.
But GM has endured years of losses at the European business, which makes cars under the Opel and Vauxhall brands. Since leaving bankruptcy protection in 2009, GM has lost $5.88 billion before taxes on European operations, according to government regulatory filings.
It had hoped to reach break-even by now, but last year posted a loss of $257 million for the year even as GM as a whole turned in a robust profit of $9.4 billion. The company’s earnings in Europe took a $300 million hit from the British vote to leave the European Union. The resulting plunge in the British pound shrinks the dollar value of earnings from its Vauxhall models in that market.
GM CEO Mary Barra has underlined the company’s commitment to Opel several times in recent years. But the unexpected loss last year has increased pressure on the company to find a solution in Europe, and Barra expressed dissatisfaction with the situation there after the company’s most recent earnings report.
Barra said on a conference call that “without the negative impact of Brexit we would have achieved break-even in 2016.”
“We aren’t satisfied with these results,” she said, “and the team is focused on mitigating the effect through further cost efficiencies” and new models.
GM Chief Financial Officer Chuck Stevens said the company expected only a “relatively flat performance” in Europe this year.
Opel has struggled to control costs due to stronger worker protections in Europe that make it harder to adjust production capacity to demand than in the U.S. or other locations. Opel and Vauxhall also face tough competition for sales of less profitable mass-market vehicles.
Opel has had success with models such as the Mokka small SUV, and sales rose 4 percent last year. Its mainstay Astra hatchback, which competes with the Volkswagen Golf and the Ford Focus, won the European Car of the Year award.
But it lacks larger SUV models that would bring fatter profits.
In 2009, GM agreed on a sale of a majority stake in Opel to Canadian car parts firm Magna International and Russian lender Sberbank but called the deal off as the GM’s fortunes improved following its bankruptcy restructuring.
GM and PSA Group formed an alliance in 2012 in an attempt to make production more efficient by combining purchasing power and larger scale. But in late 2013 GM announced it was selling its stake, although the two companies continued working on joint vehicle projects. For instance, General Motors will make Citroen’s forthcoming subcompact crossover vehicle beginning later this year at its plant in Zaragoza, Spain.
Opel started out making sewing machines in 1862 in Ruesselsheim, Germany, where its headquarters is still located. It added bicycles and then autos in 1899. General Motors bought it in 1929.
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