Ditching Opel Is Next Step in GM CEO’s Profit Drive
Mary Barra, unlike many of her predecessors and industry peers, has prized profits over size
By Mike Colias and Nick Kostov Updated Feb. 14, 2017 7:08 p.m. ET
Mary Barra, CEO of General Motors, introduces the 2016 Chevrolet Cruze in Detroit in June 2015.
Mary Barra, CEO of General Motors, introduces the 2016 Chevrolet Cruze in Detroit in June 2015. Photo: Paul Sancya/Associated Press
General Motors Co. is weighing a sale of its beleaguered Opel AG unit to French car maker Peugeot, a bold retreat by Chief Executive Mary Barra from the European market and a firm reversal of the megavolume strategy that guided the auto giant for decades.
The Detroit auto maker said Tuesday it is discussing its existing partnership with Peugeot, including a possible sale of a business that hasn’t turned a profit this century. Ms. Barra has been dismantling unprofitable operations in recent years, including abandoning Russia and certain Asian markets. A sale of Opel would essentially end the company’s business in the world’s third-largest automobile market.
Shedding Opel would reduce GM’s volume by 10% and knock the No.1 U.S. auto maker out of the chase to be the top seller globally, a spot it owned until recently.
A sale likely would boost margins and free up money for improving its position in more profitable markets and pursuing future technologies, such as self-driving cars.
Auto executives have generally held that adding business breadth through consolidation could help them better allocate capital. But Ms. Barra has said margins outweigh market share and—unlike many of her peers—has shunted growth opportunities when the business case is murky.
If Peugeot, known formally as Groupe PSA SA, acquires Opel and its U.K. division Vauxhall, it would emerge as Europe’s No. 2 car maker. GM is looking for a multibillion-dollar amount for the Opel brand, but discussions could still fall apart, people familiar with the matter said.
The development comes in the wake of GM’s commitment to add more than $1 billion to its planned investments in the U.S. Executives in the domestic auto industry have faced criticism from President Donald Trump on Mexico imports, but are optimistic about his proposals regarding tax reform and regulatory relief.
GM and Peugeot have worked together since forging an alliance in February 2012 to co-develop vehicle platforms and purchase vehicle components. GM bought a 7% stake in Peugeot for $400 million in 2012, but sold its stake the following year.
Work continued behind the scenes as both auto makers recovered from the eurozone crisis and a six-year slide for the region’s auto market. Formal talks about a deeper alliance began last spring and eventually included the prospect of an Opel acquisition, according to two people familiar with the matter.
Ms. Barra has achieved a number of financial targets, but stanching Europe’s red ink eluded her. A $300 million currency headwind unleashed by the U.K.’s 2016 vote to leave the European Union led to losses last year, even as the company reported $12 billion in North American profit.
Abandoning Opel would leave GM as the only top-tier auto maker without a substantial presence in Europe. Ford Motor Co. and Fiat Chrysler Automobiles NV make money in the region, although those margins are dwarfed by profit earned in a North America where pickup trucks and sport-utility vehicles offer disproportionate returns.
GM will “fish where the fish are, or do business where the money is,” GM President Dan Ammann recently told analysts.
The company is also investing more in its aftermarket parts business and lending arm and in China.
Analysts said an Opel sale would improve GM’s bottom line and cash flow. GM shares on Tuesday rose 4.8% in New York, while PSA gained 4.3% in Paris trading.
Adding Opel could help Peugeot, which owns the Citroën brand, create a more balanced geographic footprint and would boost volume by one million vehicles, or about a third. Opel is stronger in its home market of Germany and the U.K., while Peugeot is strongest in France and Southern Europe.
One of the developments prodding GM executives to consider ditching Opel is the tougher oversight on emissions performance amid Volkswagen AG’s diesel scandal. Tougher standards could hasten a transition toward electrification as a dominant auto technology in Europe, adding significant cost.
Opel has racked up $15 billion in losses over the past decade and a half. GM came close to selling the unit in 2009 to Canadian auto supplier Magna International Inc. but backed away over concerns it would be underrepresented in Europe.
An agreement to combine Peugeot and Opel is likely to face tough scrutiny in Paris and Berlin, because both auto makers employ tens of thousands of people in their domestic markets.
The French government holds a 14% stake in Peugeot, as do the Peugeot family and Chinese firm Dongfeng Motor Group.
Together Opel and Peugeot would command nearly 17% of the European market, allowing the French firm to leapfrog domestic rival Renault SA and become the biggest participant on the continent after world leader Volkswagen.
Opel employs 34,500 people in Europe, with more than 16,500 in Germany. Peugeot employs 184,000 world-wide.
Opel’s works council and labor union IG Metall said they were surprised by “rumors about a possible sale of Opel/Vauxhall to PSA,” describing any talks as “an unprecedented infringement of all German and European rights of co-determination.” Government officials in Germany also expressed concern over the potential impact on jobs.
Ms. Barra’s apparent decision to retrench runs counter to peers espousing consolidation.
Carlos Ghosn, heading Renault’s alliance with Nissan Motor Co., has been chasing scale, even if it means taking on troubled operations. The alliance purchased a controlling stake in Mitsubishi Motors Corp., helping it vault into the industry’s top ranks for sales.
Fiat Chrysler Automobiles NV Chief Executive Sergio Marchionne reached out to Ms. Barra in recent years for a merger, arguing auto makers needed to be much bigger in order to better use capital. He was rebuffed.
It would be unconventional for GM to abandon Europe, where 15.1 million vehicles were sold last year, said Warren Browne, an independent auto consultant. Mr. Browne, a former GM executive who ran its Russian operations before retiring in 2009, said GM would be walking away from growth potential from Eastern Europe. “Europe is a mature market, but other players are making money there,” he said. “I don’t see how you walk away and still be considered a global player.”
Write to Mike Colias at
Mike.Colias@wsj.com and Nick Kostov at
Nick.Kostov@wsj.com