Big news in Europe this week as France’s PSA Groupe (formerly Peugeot-Citroën) agreed to buy Vauxhall-Opel, General Motors’ struggling European arm, for €2.2 billion. The deal still has regulatory hurdles to clear but is expected to close in Q4 2017. The combined company will be Europe’s second-largest carmaker, behind Volkswagen, churning out some 2.5 million units each year.
PSA Groupe has itself only recently returned to profitability following a dramatic turnaround by CEO Carlos Tavares since 2014. The company was bailed out that year by the French government and Dongfeng, the Chinese state-owned car firm, after it lost €7.3 billion in two years; in 2017 it posted net income of €2.1 billion.
It seems that such was the success of PSA’s recent turnaround it is confident it can repeat the trick with Vauxhall-Opel.
PSA’s recent success has been built on its platform approach to auto design and manufacturing. In an automobile context, “platform” means a single set of major components — engine, chassis, drivetrain, etc. — that can support a diverse range of car models. The approach allows for much greater efficiency and flexibility in manufacturing, and thus larger profit margins. Indeed, in 2016, margins increased to 6% from 5% in 2015.
The platform approach will be rolled out to Vauxhall and Opel. Their cars will retain their branding, but now fitted over PSA’s engineering. Vauxhall-Opel sold around 1 million cars in 2016, not far off PSA’s total of 1.4 million.
The main obstacle in the way of PSA is how strongly job cuts are resisted by British and German unions. PSA cut automotive jobs by 14% to 95,669 in the three years to 2015, so it is reasonable to assume similar cuts will be enacted on Vauxhall-Opel.
Malcolm Gledhill is Dun & Bradstreet’s expert on the European marketplace. Malcolm joined Dun & Bradstreet’s Macro Market Insight team in 2014 before moving to the Company team in 2016, and has a BA from the University of Southampton.