General Motors (GM) confirmed that it has finalized a $2.3 billion deal to sell Opel and Vauxhall brands of the company to Peugeot. Effectively, this means that GM is getting out of the European market willfully. The CEO Mary Barra has taken the most courageous step to get rid of the perennial loser for GM. The 109-year old company was selling its cars to every market without considering the consequences. The new move to sell the European brands has helped the company to focus on revenue generation.
Analysts are happy with this decision that tells the investors that GM now wants to focus on areas that generate better returns in long term. The Opel and Vauxhall brands in Europe has not generated any profit for GM in the past two decades. In fact, several experts consistently questioned the measures GM took to stay in the European market despite evident failure. The $2.3 billion deal is profitable for GM as it can target its audience and produce cars for those who want. The parent company of Peugeot and Citroen, PSA is operated by the French government with 14% shares.
While the move to exit the European market is a great idea by GM, it has consequences as well. By leaving Europe, GM is effectively losing its market share. Just in last year, 1.2 million GM cars were sold in Europe. The headquarters of Opel is in Germany, which is adored by car manufacturers for the endless possibilities of innovation and design engineering.
The car sales in Europe has helped GM to take care of the investment cost of car manufacture in other parts. North American Cruze is modeled after European products. Europe is undeniably one of the biggest markets for car sales and GM is potentially losing it all with this deal.
The stock price of GM has been low ever since Barr took her office in 2014. The shares were priced at $40 in 2014, but it has gone down to $37. Barr tries hard to increase the share price of GM stocks, but it continues to stay well below the $40. The business profile of GM undergoes an overhaul with this deal. The company is hoping to provide better returns for the shareholders by cutting out the losses.
GM requested and obtained federal bailout in 2009 as the company was approaching bankruptcy. The bailout was granted because the collapse of the largest US car manufacturer would result in another Great depression. The sales in North America and China are sufficient to keep the business afloat.
The Europeans prefer Ford over GM because they aren’t interested in SUVs and pickup trucks. By taking $4 billion charges on the sale of Opel, GM will have the cash flow to buy back its stocks. The representative said that the company will purchase $4 billion stocks in the upcoming months. GM is now focused on developing electric cars such as Chevrolet Bolt and has also invested $500 million in Lyft service.