Carlos Tavares, the head of French auto group PSA, which owns Peugeot and Citroën, won a significant victory last week when he secured the backing of the German, British, Polish and French governments as well as his Chinese partner Dongfeng for his plan to purchase GM’s European operations Opel and Vauxhall.
He also managed to get the Peugeot family shareholders on his side and managed to allay at least some of the concerns of German trade unions during a visit to Frankfurt.
In short, he appears to have cleared away most of the obstacles to purchasing German automaker Opel and its British affiliate Vauxhall.
“We expect a meeting of the supervisory board at the end of this or beginning of next week to approve the takeover,” said Thomas Baudouin of PSA’s works council.
But Mr. Tavares hasn’t fully convinced employee representatives. To be sure, he gave assurances to refrain from job cuts at Opel until the end of 2018 and to honor GM’s agreed investments in Opel’s plants up to 2020. But one representative of German engineering union IG Metall said: “In truth everyone knows that periods of two or three years are like the blink of an eye in the auto industry.” The planning for auto plants tends to cover 5 to 10 years, the official added.
Mr. Tavares doesn’t want to address this issue, even though the productivity of auto plants is the core of his strategy.
The high cost of developing highly-efficient conventional engines is said to be one of the reasons GM is ready to sell Opel.
Christine Virassamy, responsible for PSA at the French union CFDT, said: “If Tavares sees overlap between plants he immediately lifts the synergy.”
The 58-year-old auto manager has an almost physical aversion to inefficiency. Last week, addressing German journalists, he repeated his creed: “Every factory has idle capacity and waste that one can remove.”
Now workers in both Germany and France fear that they may fall into the “idle capacity” category. Opel may have to sacrifice its engine production because PSA’s engines are already more efficient. An average PSA vehicle emits just 105.8 grams of carbon dioxide per kilometer. That compares with 128 grams at Opel.
Trade union sources said Mr. Tavares will likely be taking a very close look at the Opel engine factory in Kaiserslautern, southwestern Germany. But the French plants may not be the ones to profit from his efficiency drive. “The winners could be working in Poland, Slovakia and in Morocco,” said Ms. Virassamy of the French union CFDT. She said “thousands of jobs” could be at stake.
It’s not an unjustified fear. Mr. Tavares has been developing the plants in Trnava in Slovakia and Kenitra in Morocco. In both factories, the engine output capacity is being increased from zero to 200,000 by 2019 under PSA’s strategy before the Opel takeover plan. That capacity may now be increased further.
In addition, PSA will in future produce power trains locally in Iran rather than importing them. At the end of 2016 he was talking about 360,000 units. Even if none of them is exported, stepping up local production in Iran will reduce the capacity utilization of PSA’s French plants, the biggest of which is in Douvrin in northern France. It produces particularly efficient gasoline engines and will in future also make engines for hybrids.
Electric engines will be built in PSA’s plant in Tréméry near the city of Metz. The investment has already been launched and PSA is developing its electric car, which is to go into series production in 2019, in cooperation with China’s Dongfeng. Mr. Tavares is certain to look at GM’s electric car technology but he won’t need production capacity in Germany for that. That’s a further reason why Kaiserslautern, with its 2,100 employees, could be right at the top of Mr. Tavares’ list of potential synergy cases.
Opel’s development center in Rüsselsheim near Frankfurt could fare better. German politicians regard the plant as a crown jewel that must be protected because it accounts for more than 7,000 well-paid jobs.
At present, Rüsselsheim works on behalf of GM Global Technology Operations, a unit of the U.S. parent. It created the flexible GM platform D2XX, the basis for the new version of the Opel Astra small family car and for the Chevrolet Cruze, the Buick Verano for the Chinese market and for the half-electric Chevrolet Volt.
GM invested €220 million, or $234 million, in the development and holds the patents. The extent to which Opel will remain entitled to use those patents remains a key part of negotiations between GM and PSA, said sources close to Opel’s supervisory board.
The second focus of research isn’t safe either, said analysts. GM opened a new development center for engines in Rüsselsheim just a few months ago. “Rüsselsheim is our center for the development of small and medium-sized gasoline engines,” said Steven Kiefer, head of the GM Powertrain organization, during the groundbreaking ceremony.
But the high cost of developing highly efficient conventional engines is said to be one of the reasons GM is ready to sell Opel, said financial sources. Every gram less of CO2 requires millions of euros in investment that GM is no longer willing to pay. It’s unlikely the French will want to do so either.
Nevertheless, French trade unions fear Opel’s development center. “According to our information it’s very modern. If he gets that, why should Tavares hold on to three further centers in France?” said Ms. Virassamy.
Mr. Tavares has been heaping praise on the Germans’ know-how. He could use freed-up capacity at Rüsselsheim for new areas of development, especially as PSA has been rather reticent in research and development in recent years. In 2016 its R&D spending fell by €51 million.
A further consideration for the French and Germans is how GM will behave without Opel. One option for GM boss Mary Barra could be to acquire Fiat-Chrysler, whose chief executive, Sergio Marchionne, has long been keen on combining America’s third-biggest automaker with the market leader.
GM has so far resisted the idea but may take another look if it sells Opel and Vauxhall. At least, that’s what stock market players think. Fiat-Chrysler’s share price has been increasing of late. There would be a certain logic to the deal. Fiat-Chrysler has a market share of around 15 percent in Europe with brands such as Fiat and Alfa Romeo, while PSA and Opel together would have 16.4 percent. But Ms. Barra is interested in profit rather than production volumes and market share. And FCA’s profit is well below GM’s.
Lukas Bay is an editor with Handelsblatt's companies and markets desk. Thomas Hanke is Handelsblatt's correspondent in Paris. Frank Specht is based at Handelsblatt's Berlin bureau, where he focuses on the German labor market and trade unions. To contact the authors: [email protected], [email protected] and [email protected]