Opel-Peugeot Deal Go Hard or Go Home

To ensure the already controversial deal between French automaker PSA and GM-owned Opel a success, the author argues executives need to think big. If they do, they could change the entire European car market.
Quelle: dpa
A deal between Opel and Peugeot-Citroën has the potential to change the European auto industry.
(Source: dpa)

The news came as a surprise even to management at Opel’s head office in Rüsselsheim. Apparently board members were only told about it on Tuesday morning. And shortly thereafter, news agencies put the word out: The French automaker PSA, producer of Citroën and Peugeot vehicles among others, was interested in buying Opel.

Apparently negotiations were already well underway between Opel’s owners at General Motors and PSA on any and all possible forms of collaboration. That included selling Opel, although this was not a sure thing.

The news surprised many market observers because the logic behind the deal isn’t apparent. At least, not at first.

A marriage without a dowry will help neither Opel or PSA.

PSA has just come through a restructuring program. Chief executive Carlos Tavares imposed tough austerity measures and returned the company to profitability. But the Peugeot and Citroën brands already struggle to differentiate themselves in Europe, the company’s premium brand DS is stalled and the French still sell 85 percent of their cars in Europe.

So why should PSA take over a brand like Opel, that is also concentrated on the European market, involved in similar segments and has been incurring losses for years? It makes no sense.

Nor does the deal fit Mr. Tavares’ general strategy. Up to now, the Portuguese manager has focused on returns rather than market share. Which means he should not go half-heartedly into these negotiations with General Motors. His slogan must be: Go hard or go home.

A marriage without a dowry will help neither Opel or PSA. In order to be rid of the unprofitable European business, GM’s chief executive Mary Barra will have to bring along a gift. That would be access to the U.S. market, where PSA wants in. A solution would be reciprocal stakes in the two companies. This would allow the French to increase their presence in the U.S. market all at once, and GM could revamp its ailing European operations in cooperation with PSA. But this would also require stakes of a magnitude that would allow each partner a voice in the affairs of the other.

Additionally, significant political opposition against that kind of cooperation can be expected on both sides of the Atlantic. A French stake in a large U.S. automaker contradicts the nationalistic plans being propagated by new U.S. president Donald Trump. And the French would have to readjust the delicate balance between the Chinese stakeholder in PSA,  the Dongfeng Motor Corporation, the owner family and the French state. Furthermore, this could start a substantial industrial conflict between Germany and France.

Opel is one of the largest employers in Germany. If PSA takes over management in Rüsselsheim, significant savings would have to be achieved. But where? As the purchaser, PSA would have more power. Mr. Tavares would hardly be able to push through factory closures during the French electoral campaign. But it’s going to be tricky to do anything like that in Germany – there are elections there soon, too.

A sale would be dangerous for Opel employees. For example, the recently-opened research center in Rüsselsheim, where new diesel motors are being developed, could become superfluous because PSA has sufficient competence in the diesel area. Prospects would also be grim for the factories in Eisenach and Kaiserslautern. Promises made to employees before any takeover may not be valid after.

Workers’ opposition to the plans is still quite muted. That’s probably because they are in a state of shock. But the situation is unlikely to stay that way for long. If the German-French alliance can be established despite opposition, the European car market would change significantly.

There would be an automaker to challenge market leader Volkswagen. Pressure on other manufacturers to cooperate more closely would also increase. No other car market in the world boasts as many independent brands as Europe, at least for now.

But slim returns indicate a lot of overcapacity and that problem will only be exacerbated by the transition toward electromobility. Even more factories will become surplus to requirements.

It is not for nothing that the chief executive of Fiat, Sergio Marchionne, has been looking for possible partners for years, albeit without much success. And German luxury giants, BMW and Daimler, are supposedly intending to deepen their cooperation in coming years, in preparation for bigger challenges.

It is clear that the negotiations between Opel and PSA are only the start of a sea change in the entire auto industry. If auto industry executives are not thinking big – like Opel and PSA should be – they will quickly be cut down to size.

 

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