PSA Group acquisition of Opel and Vauxhall raises concerns about UK plants, say experts

The deal will make PSA Group the second largest car company in Europe after Volkswagen, with a 17% market share, the company said as it announced the deal.

The acquisition is likely to affect existing UK Vauxhall plants after Brexit, said employment law expert Neil Black of Pinsent Masons, the law firm behind Out-Law.com.

"While PSA has committed to existing production commitments in the UK in the near term, the bigger question and cause for concern relates to production decisions impacting new models," Black said.

"For instance, the new Astra is due for production in 2021 with a decision on where that will be produced likely to be made well in advance. A widely held view in the industry is that the newly enlarged PSA, Vauxhall and Opel business has an excess of production capacity in Europe and that rationalisation will be likely in the coming years," he said.

"The Vauxhall plants at Ellesmere Port and Luton will score well in terms of productivity but concerns about trading tariffs with Europe post-Brexit could play an important factor in any future decision the PSA group make. Anything less than free trade across the automotive industry could have grave ramifications for the long term future of the existing UK Vauxhall plants."

Competition expert Angelique Bret, also of Pinsent Masons said: "The uncertainty over tariffs in and out of the UK following Brexit means the UK plants will be at risk compared to French and German plants. A high proportion of parts are imported into the UK for assembly and then exported back out."

The acquisition will allow economies of scale and synergies in purchasing, manufacturing and R&D of €1.7bn by 2026, the company said. A "significant part" of these savings is expected by 2020, "accelerating Opel / Vauxhall's turnaround", it said.  

The group expects Opel / Vauxhall to reach a recurring operating margin of 2% by 2020 and 6% by 2026, and to generate a positive operational free cash flow by 2020.

Carlos Tavares, chairman of the PSA Group's board said: "We are proud to join forces with Opel / Vauxhall and are deeply committed to continuing to develop this great company and accelerating its turnaround. We respect all that Opel / Vauxhall’s talented people have achieved as well as the company’s fine brands and strong heritage. We intend to manage PSA and Opel / Vauxhall capitalising on their respective brand identities. Having already created together winning products for the European market, we know that Opel / Vauxhall is the right partner. We see this as a natural extension of our relationship and are eager to take it to the next level."

PSA Group will "[respect] commitments made by GM to the Opel / Vauxhall employees," he said.

The proposed deal has caused concern over job cuts in Germany, and GM chief executive Mary Barra has visited Opel's headquarters to calm fears, the Financial Times reported last month.

PSA also announced a long-term partnership in automotive finance with and BNP Paribas. The two will jointly acquire all of GM Financial’s European operations through a newly formed 50% / 50% joint venture that will retain GM Financial’s current European platform and team, it said The joint venture will be fully consolidated by BNP Paribas and accounted under the equity method by PSA.

Opel / Vauxhall’s financing operations cover 11 European countries, serving nearly 1,800 dealers and have outstanding earning assets of around €9.6bn at year-end 2016, of which about €5.8nn are financed by deposits or securitisations, PSA said.

The acquisition will be financed from existing resources of PSA and BNP Paribas and will have an impact of close to 10 bps on BNP Paribas Common Equity Tier 1 Ratio, it said.