As Matthew posted, the French automaker Peugeot (also known as the PSA group) has been examining the prospect of purchasing two European subsidiaries of General Motors (Opel and Vauxhall). In fact, PSA is set to make the deal this Monday. Both Opel and Vauxhall have been financially draining for GM, so there is understandably some confusion as to why Peugeot would seek to acquire the companies. As Professor Smitka has said in class, two money-losing companies do not create a profitable company, but one larger money-losing company.
PSA only recently began to profit-the company’s 1.2 billion euro profit in 2015 was the companies first profitable year since 2011.
|Income Statement (mil)||2015||2014||2013||2012||2011|
Along with this profit, PSA reported a 5.7% surge in sales. For comparison, in 2014, PSA posted a 555 million euro loss. The company took a major hit during the global financial crisis, and as a result was bailed out by the French state and Dongfeng Motor Corp. Both entities took a 14% stake in the company. After some restructuring, PSA began to make the proverbial climb back to a profitable future.
PSA CEO Carlos Tavares has commented on the purchase of Opel and Vauxhall, saying that he believes acquiring both companies would be a strategic purchase for PSA. Tavares believes that, based on the past financial performance of PSA, his company has the expertise to advise the current staff at Opel in a way that will positively affect profits. Tavares also believes that PSA would profit in terms of shared technology and purchasing power. The vehicles produced by PSA and Opel/Vauxhall share underlying technological platforms, which could result in significant cost savings for all the companies. PSA believes that a joint company consisting of PSA, Opel, and Vauxhall could sell more than 5 million cars annually, and improve the geographic range of each individual company in terms of where cars are sold.
Additionally, PSA, Opel, and Vauxhall are based in separate countries, which creates the potential for a “European car champion”, as Tavares termed it. However, the three countries are all intent on jobs remaining within their borders, especially the UK post Brexit.
In summary, PSA would acquire Opel and Vauxhall in order to combine engineering platforms and therefore realize cost savings, as well as to gain purchasing power and geographic sales range. Only time will tell if this “strategic” purchase pays off.