Opel turns into a plaything again

As soon as the news broke on Tuesday that General Motors (GM) was in talks to sell its European business, Opel, to France's PSA, German politicians were quick off the mark to issue statements urging against plant closures and calling for the protection of jobs.

Malu Dreyer, premier for the state of Rhineland-Palatinate, expressed concern over the future of Opel's plant in Kaiserslautern, while her counterpart in the state of Hessen, Volker Bouffier, worried about the fate of Rüsselsheim, which has hosted Opel's headquarters since it was founded 155 years ago.

Anxiety is palpable, however, not only in the German states where Opel has its plants. Even in the capital Berlin, many are concerned. Brigitte Zypries, currently Germany's economy minister, criticized the merger talks on Tuesday, saying that it was "unacceptable" that PSA and Opel had not consulted the German government, unions or the Opel works council before going ahead with the talks.

But it has to be noted that there is no obligation for any company to divulge information upfront when it's mulling to spin off one of its subsidiaries.

The more objectionable aspect of the GM-PSA talks, however, is that even Opel CEO Karl-Thomas Neumann was not informed about the negotiations until this week. It exemplifies the soured relationship between GM and its unloved subsidiary Opel.

Long story, little joy

So let's recap a bit of the alliance's history. After Opel became a joint stock company nearly 90 years ago, in 1929, General Motors bought a majority stake in it and then two years later assumed full control of the firm.

After initially facing bad times (the Great Depression, World War II), better times followed (the German economic miracle) and Opel went from strength to strength, to the joy of its Detroit-based parent. But starting from the early 1980s, Opel's fortunes reversed, morphing it into a problem child for GM.

In the ensuing years, it did not get any better and in the aftermath of the 2007-08 global financial crisis, even GM's business suffered, prompting the company to look for ways to get rid of Opel. Even at that time, it sparked alarm in Berlin's corridors of power, with policymakers scrambling to find a solution to save the embattled brand.

Following a series of talks, the parties managed to agree on a complicated compromise arrangement involving Canadian automotive supplier Magna and Russia's Sberbank. But GM later decided to call off the deal and hold on to Opel. 

The decision calmed the nerves of Opel's anxious employees, who had been worried about losing their jobs for over a year and a half. Nevertheless, there hasn't been any change in terms of Opel's appeal to GM.

The reason for this apparent disinterest could lie in the fact that Opel has failed to make a profit since 1999. And as soon as things seemed to improve recently, bad news followed in the form of Western sanctions against Russia on account of the Ukraine crisis and the British vote to leave the European Union. Opel had previously been hoping to score big on the Russian market and in the UK, its sister brand Vauxhall has been battered by the weaker pound in the wake of the Brexit vote.

Becoming Europe's number two

Against this backdrop, GM executives might have felt it was time to look for a better partner for Opel, perhaps from France, where the PSA Group has already been collaborating with Opel for the past five years.

The CEO of PSA, Carlos Tavares, harbors ambitious plans and has earned the reputation of being an efficient manager, by turning the once ailing French automotive firm on the verge of bankruptcy into a profitable entity within a span of three years.   

Tavares is particularly focused on size, which he deems important for a manufacturer of so-called volume models. Furthermore, the fact that PSA - which sells cars under the brands Peugeot and Citroën - has fallen behind its domestic rival Renault immensely annoys him.

At the same time, the possibility of becoming the second-biggest automaker in Europe, behind VW, is deeply enticing for Tavares. To achieve that goal, Opel is the ideal target to acquire.

However, the problem here lies in the fact that a merger between two sick firms (even if PSA is currently in a better shape) would not transpire into a healthy entity. There is significant overlap in the product offerings of both Opel and PSA.

And any potential deal between the two should ring alarm bells in Opel's production units in Germany. That's because a takeover by PSA might lead to an across-the-board restructuring of Opel's costs and production, probably resulting in factory closures and putting thousands of jobs at stake.  

This shakeup would also come at a time when the automotive sector is on the cusp of undergoing a major upheaval, owing to advances in electromobility and autonomous driving. 

Executives at Volkswagen, meanwhile, can breathe a sigh of relief for now, as Opel is once again likely to dominate the negative headlines in the coming weeks. 

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