General Motors (NYSE:GM) has announced that it is selling its Opel business to France’s PSA Group for about 2.2 billion euros. PSA is also buying the Vauxhall brand and the European arm of GM’s financial division. The total transaction is valued at about $2.3 billion.
According to a statement by the companies, the transaction includes 11 manufacturing facilities and one engineering center that employ about 40,000 people collectively. The operations being sold are responsible for one-tenth of GM’s global sales and 18 percent of its workforce. GM will keep an engineering center in Torino, Italy and its OnStar brand in Europe, a GM spokesman said.
GM says that it will incur a non-cash accounting charge of $4 billion to $4.5 billion as a result of the sale. GM will keep most Opel/Vauxhall pension plans and $6.5 billion in unfunded pension liabilities. The company will pay PSA about $3.18 billion to settle transferred pension obligations.
PSA will also gain the intellectual property licenses for Opel/Vauxhall until its vehicles convert to PSA platforms in the future. Carlos Tavares, chairman of PSA, announced the deal as “a game-changer for PSA.” PSA expects annual savings of $1.8 billion by 2026 from the deal.
The deal would create a new European car giant better suited to challenge market leader Volkswagen. With the two additional brands, PSA Group will have about 17 percent market share in Europe. Opel/Vauxhall sold 1.16 million vehicles in Europe last year. Closing the deal would make PSA the second-largest automaker in Europe. The deal is expected to close by the end of the year
The move pretty much removes General Motors from the world’s third-largest auto market, where the company has struggled to turn a profit for nearly two decades. The company has been working since 1999 to bring the Opel/Vauxhall subsidiary back into the black. It has lost nearly $20 billion in the region during that time. GM as a whole has seen record financial performance in recent years, but experts are predicting little to no growth in the U.S. and European markets for the next several years.
The companies had been talking about a possible sale for several months. Chief executive Mary Barra said in a statement that the decision to sell Opel/Vauxhall was difficult “but we are united in belief that it is the right one.” Barra said that the transaction will allow GM to invest in “our core automotive business and in new technologies that are enabling us to lead the future of personal mobility.” The deal must receive regulatory approval before it can be closed.