Can PSA Group gain where GM loses?

What does Peaguot SA know that so far has eluded General Motors in Europe? It remains to be seen. But, if you’re gonna buy something, you sure as hell gotta make it work.

It certainly remains to be seen just how long the GM van plant in Luton, UK can continue to make product if the deal gives through whereby General Motors sells its European operation to Peugeot SA. It also remains to be seen how the PSA Group will finance the deal.

Peugeot does not have a good record of car production in the United Kingdom, having stuttered its plant at Ryton, just outside Coventry, in 2006 with the loss of some 2,000 jobs. A former Rootes Group plantit became the focus of attention in 1963 for the Press launch of the Hillman Imp 'mini car' with its aluminium rear-mounted engine.
General Motors too has viewed the UK with some disdain of late having quit the proving ground at Millbrook, Bedfordshire in favour of venture capitalist, Rutland Partners, which then sold it on to to Spectris for a cool £122 million.

GM also shuttered its car plant in Luton making Vectra and since the van plant is on the same former site it must be earmarked as a possible casualty of the impending takeover, the more so as the plant is quite old and managers struggle with the antiquated nature of the plant's layout.

It has not been the fault of the workforce if the plant is shuttered. Plant managers have come and gone, each one growing in stature as a result of their experience with the plant. One of these was a woman from one of GM's US transmissions plants. With production on two floors, manufacture of bulky vans is never going to be easy no matter how many robots are thrown at the plant to boost cycle times and reducing hours per man per van.

Plant managers have benchmarked it against other van plants in Europe, most notably in Barcelona. But the result is always the same. You can’t compare apples with oranges. A van plant on two floors is still a van plant on two floors when comparing it with a level playing field.
Last year, the Luton, Bedfordshire plant built 73,622 vans using a workforce of 1,500 employees. Based on 35 hours a week and 48 weeks a year this is equivalent to 34 hours per van, but it discounts engine and transmission and other bought in parts. In contrast, Ellesmere Port in Cheshire built 118,113 Astra models from a workforce of 1,900. Ellesmere Port has many more industrial robots than Luton and the flowline is quite smooth and uninterrupted. The grand total of 191,735 Vauxhall units was 25 per cent up on the previous year.

And so it remains to be seen what happens, especially as both Peugeot and Citroen have van products not dissimilar from the Vivaro van produced at Luton by GM through a joint deal with Renault. And what about Ellesemere Port? Can that plant survive a French attack?

And why stop at car and van plants? GM has component plants too – and an engine technical centre. Perhaps here’s little point owning parts plants if you are not building vehicles.

Meanwhile, behind the scenes, GM executives continue their talks to sell its European arm Opel, which includes the UK’s Vauxhall, to Peugeot SA. Branding Brexit a ‘speed bump’ that was slowing efforts to turn the loss-making division around, GM executives in Detroit are not looking down the same telescope as President Donald Trump.

GM and France’s PSA Group, which also owns Citroën, claim to be discussing “numerous strategic initiatives ... including a potential acquisition of Opel”.

The admission inevitably prompted calls for GM to clarify the future of its Vauxhall plants in Luton and Ellesmere Port in Cheshire, which together employ around 4,500 staff.

Justin Madders, MP for Ellesmere Port and Neston, said: “We need to stress, if there are to be new owners, that we have very efficient operations over here in the UK. They have proved themselves to be excellent in comparison to other European plants.”

Madders stressed that if PSA buys Opel, it should not forget that the UK is the second-largest car market in Europe, but warned that whoever owns Vauxhall would need to be protected in Brexit negotiations.

“We want to get to a point where whatever deal is agreed is one that doesn’t introduce any barriers of tariffs to the car industry.”

In a letter to staff, GM offered few details but said it would “seek to ensure any transaction would serve the best interests of all our respective important stakeholders”.

It also urged staff not to let the possibility of a sale become a “distraction”. In other words: ”Keep working hard, chaps. Don’t let a little matter of a takeover bother you.”

GM, the world’s third-largest carmaker and the biggest in the US, has suffered more than $15bn of losses at Opel since 2000.

It nearly sold the division after going bankrupt in 2009 but reversed the decision in a bid to maintain a foothold in the potentially lucrative European market.

It had hoped to break even by now, but posted an annual loss of $257 million (£206 million) for 2016 earlier this month.

                         Taking whatever action is necessary

Chuck Stevens, GM’s chief financial officer, warned last year that the company was “prepared to take whatever action is necessary” to get its European business back on track.

GM described the UK referendum result as a “speed bump on our path to where we want to take the business” and warned that it would write down the value of GM Europe by $400m because of the fall in the value of the pound.

Talks over a sale are likely to reawaken concerns over the future of Opel’s UK operations, just four years after its Ellesmere Port plant came perilously close to closing.

GM kept the plant open only after Vince Cable, then business secretary, travelled to Detroit to agree a deal and reassure the firm about the government’s commitment to the industry. But since then, there has been an effective change of UK government; one aimed at implementing Brexit.

Is GM looking for the same kind of assurances that Nissan Motor Company received from UK government? And what were those assurances anyhow? They have never been disclosed. But some kind of deal must have been stitched up. Is GM looking for a similar deal to ‘save’ its UK operations and thus compensate it for the effects of Brexit?

As far as the ‘Cable agreement’ is concerned, presumably any change in the ownership of Opel could render the agreement worthless, particularly in the light of oversupply in the European car market.

Auto industry analysts estimate there remains excess capacity in Europe; an issue that has been discussed for years.

Analysts ponder that in light of Brexit, GM has to examine its European operations and assess business prospects. If the prospects of turning losses into profits anytime soon are low then it may decide that now, sooner than later, is the time to back bags and run.

Some analysts see a strategic alliance on the horizon as a kind of face-saving deal; one similar that between Renault and Nissan.

But a dollar in the back pocket is better than two in the bush, so a sale would see Peugeot-Citroën-Opel brands overtake Renault to become Europe’s second-largest car firm after Volkswagen AG.

In a statement on the company’s website, GM said: “Since 2012, General Motors and PSA Group have been implementing an alliance covering, to date, three projects in Europe and generating substantial synergies for the two groups. Within this framework, General Motors and PSA Group regularly examine additional expansion and cooperation possibilities, as well. PSA Group and General Motors confirm they are exploring numerous strategic initiatives aiming at improving profitability and operational efficiency, including a potential acquisition of Opel Vauxhall by PSA. There can be no assurance that an agreement will be reached.”