United States General Motors is dropping its unprofitable European car business to the French maker of Peugeot, marking the American company's retreat from a major market and raising concerns of job cuts in the region.
With the 2.2 billion euro (US$2.33 billion) deal announced on Monday, GM is giving up brands, Opel in Germany and Vauxhall in Britain, that have given it a foothold in the world's third-largest auto market since the 1920s. They have not, however, made a combined profit in 18 years despite multiple turnaround efforts.
For the once-struggling PSA Group, which makes Peugeot and Citroen cars and has just recently reshaped its own business, the acquisition will turn it into Europe's No. 2 automaker after Volkswagen.
Carlos Tavares, the CEO of PSA, said the deal was a game-changer for PSA.
GM Chairman and CEO Mary Barra said it was a win for both sides. This was a difficult decision for General Motors but we are united in belief that it is the right one, she told reporters in Paris.
Britain's vote to leave the European Union, which caused a plunge in the pound, weighed on the decision. Without Brexit, we would have reached the breakeven goal at last in 2016 for the European business, Barra said.
PSA will join with French bank BNP Paribas in the purchase, which foresees taking over 12 manufacturing facilities that employ about 40,000 people, according to a joint statement by the companies.
Executives insisted that no job cuts are currently foreseen, and that PSA will respect all existing agreements with workers.
General Motors Co. will keep its manufacturing center in Turin, Italy. GM and PSA will continue to collaborate on electric car technologies and maintain existing supply agreements on some Buick models.
The purchase marks a major turnaround for PSA, bailed out just three years ago by Chinese investors and the French state. CEO Tavares, recalling PSA's near-death experience, said he hopes to parlay his success to similar savings at Opel, cutting costs through scale and better use of factory capacity.
Western Europe is the No. 3 auto sales market, behind China and the U.S. Opel and Vauxhall last year sold just under 1.2 million vehicles, amounting to only 5.6 percent of the market, according to GM. GM has recently shown a willingness to pull out of unprofitable regions — it abandoned Russia in 2015 as that country's economy fell into recession.
The move will see PSA make 5 million cars a year and would give it access to technology and a larger scale to spread out engineering and other costs. The companies said they expect annual savings of 1.7 billion Euros by 2026 — and Tavares repeatedly insisted that those savings would not necessarily depend on job cuts.