Peugeot Citroen owner PSA Groupe has agreed to buy General Motors’ (GM’s) Opel and Vauxhall European brands for $2.33 billion – $1.38 billion for the automotive assets and $0.95 billion for the financing wing of GM Europe. Following regulatory review, company executives at GM and PSA expect the deal to close by year’s end, allowing GM to exit the European market following nearly 90 years of business there.
While the biggest impacts of that deal will be on the European auto market, where PSA will become a strong No. 2 to Volkswagen’s market-leading position, the deal will have many ripple effects for GM’s operations in North America and possibly reshape the competitive landscape in the United States as well.
Many of GM’s Buick cars were designed by Opel’s team in Germany, and the Buick Cascada convertible car is made by Opel in Poland. The sale agreement calls PSA to continue supplying vehicles to Buick and Holden, GM’s Australian brand. Eventually, GM will have to take over design and engineering of Buick Regal and La Crosse sedans (lightly altered versions of the Opel Insignia) if it plans to keep them.
Though the bulk of GM’s design and manufacturing expertise is housed at its tech center in Warren, Michigan, the automaker has gotten a lot of critical engineering work out of Opel’s German operations. When asked repeatedly how GM will get along without the German brand’s engine, transmission, and vehicle engineering work, executives said only 20% of the projects its Opel engineers are facing apply to GM’s North American division or Asian business. With GM focusing on profitable truck, SUV, and crossover platforms in North America, 80% of Opel’s work won’t be missed.
PSA in the US
Prior to the purchase agreement, PSA CEO Carlos Tavares said PSA wants to use Opel/Vauxhall plants in Europe to produce vehicles to be sold in North America and other markets. Nothing in the sales deal prevents them from doing so in the long term. During a conference call with analysts, GM President Dan Amman said, “Once they migrate to PSA vehicle architectures over time, PSA is free to market them anywhere they choose.”
So, PSA won’t be able to sell Opel- derived vehicles in the U.S., but as it designs and builds new vehicle platforms, those are fair game. GM CEO Mary Barra said the companies plan to work together on vehicle platforms and technologies with PSA showing interest in the electrification systems used in the Chevy Bolt EV and Volt plug-in hybrids and interest in the hydrogen fuel-cell system that GM is developing with Honda.
In Europe, GM will continue to sell Chevy Corvette and Camaro vehicles and some Cadillac models. However, Amman says the company won’t be returning to the mass market any time soon.
While GM is getting out of its money-losing European business, its financial obligations won’t end. The automaker has $9.8 billion of pension obligations to European employees but only $3.3 billion in assets to fund them. GM agreed to keep those obligations, putting the company on the hook for $6.5 billion in benefits. GM may not have to fund them with operating cash. If assets within those pension funds gain value, the gap between obligations and assets could shrink. Executives said they expect to spend about $300 million per year shoring up the European funds for the foreseeable future.
Even without the pension obligations and changes for Buick, the sale of Opel/Vauxhall is an important indicator of GM’s corporate priorities for the future. During presentations to reporters and analysts, executives discussed where GM is strong or expects to grow, and what portions it expects to downplay in the coming years.
Opel/Vauxhall, along with Chevrolet operations in Russia and Europe that GM had already abandoned, were money-losing segments where GM is weak. Also in that category – GM’s North American car business.
Barra and other executives said profitable areas where GM is strong include trucks/SUVs, sales in China, financial operations, and autonomous vehicles/transportation-as-a-service offerings. Effectively, GM is arguing that selling Opel/Vauxhall will allow it to further transform itself into a mobility/technology company instead of an automobile manufacturer. www.gm.com; www.groupe-psa.com
Ford invests $1B in artificial intelligence company Argo AI for self-driving technology
Ford Motor Co. is investing $1 billion during the next five years in Pittsburgh, Pennsylvania-based Argo AI, an artificial intelligence company, to develop a virtual driver system for the automaker’s autonomous vehicle coming in 2021 – and for potential license to other companies. Argo AI’s founders, CEO Bryan Salesky and COO Peter Rander, are the former leaders on the self-driving car teams of Google and Uber.
“The next decade will be defined by the automation of the automobile, and autonomous vehicles will have as significant an impact on society as Ford’s moving assembly line did 100 years ago,” Ford President and CEO Mark Fields said. “We believe that investing in Argo AI will create significant value for our shareholders by strengthening Ford’s leadership in bringing self-driving vehicles to market in the near term.”
Salesky added, “We are at an inflection point in using artificial intelligence in a wide range of applications, and the successful deployment of self-driving cars will fundamentally change how people and goods move.”
By the end of this year, Argo AI expects to have more than 200 team members, based in the company’s headquarters and at major sites in Southeastern Michigan and the Bay Area of California. Argo AI’s initial focus will be to support Ford’s autonomous vehicle development and production. In the future, Argo AI could license its technology to other companies and sectors looking for autonomous capability. www.corporate.ford.com; www.argo.ai