General Motors is selling Opel, its European division, to the PSA Group.
The automakers announced the sale on Monday. The deal will total $2.3 billion (2.2 billion euros) and consist of GM’s sales of its unit containing Opel and Vauxhall for $1.3 billion and its European GM Financial arm for $1 billion.
“We are proud to join forces with Opel/Vauxhall and are deeply committed to continuing to develop this great company and accelerating its turnaround,” Carlos Tavares, the chairman of the managing board of PSA, said in a statement.
“Having already created together winning products for the European market, we know that Opel/Vauxhall is the right partner. We see this as a natural extension of our relationship and are eager to take it to the next level.”
The deal had been speculated on for several weeks and occurred relatively rapidly. It will make the PSA Group the second-largest carmaker in Europe, after the Volkswagen Group.
GM will shed its European division after controlling it since before World War II. The US automaking giant flirted with selling Opel in the aftermath of its 2009 bankruptcy but backed out of that deal. Since then, GM has struggled to make Opel profitable in the challenging mass market for vehicles in Europe.
“For GM, this represents another major step in the ongoing work that is driving our improved performance and accelerating our momentum,” GM CEO Mary Barra said in a statement.
“We believe this new chapter puts Opel and Vauxhall in an even stronger position for the long term, and we look forward to our participation in the future success and strong value-creation potential of PSA through our economic interest and continued collaboration on current and exciting new projects.”
According to PSA, the goal is for “Opel/Vauxhall to reach a recurring operating margin of 2% by 2020 and 6% by 2026, and to generate a positive operational free cash flow by 2020.”
For GM, the struggle of its European unit to break even ran counter to the company’s strategy of maximizing its return on capital.
Unloading Opel and Vauxhall and the European part of the financing greatly improves GM’s balance sheet, allowing investments in growing markets such as China and India and freeing up capital for further expansion into ride- and car-sharing and autonomous vehicles.
At a press conference in Paris after the deal was announced, Barra said that the decision to sell Opel and Vauxhall had been difficult for GM but that the carmaker’s core strategic pillars had demanded that the automaker seek the best use of its resources. She said Opel would have achieved breakeven results in 2016 had it not been for the Brexit vote. (The new arrangement creates a culturally complicated automaker, joining the German Opel, the French PSA, and the British Vauxhall.)
Barra said the deal would unlock $2 billion in capital that would enable the company to accelerate share repurchases. The automaker has been aggressively repurchasing shares for the past two years.
The Opel deal continues a business theme for GM. Earlier, the company had pulled out of Russia and discontinued its Chevrolet brand in Europe. It had also ended auto manufacturing in Australia.
Barra said the electoral victory of the Trump administration did not affect the decision to sell Opel. At the same press conference, GM’s president, Dan Ammann, stressed that the changing market conditions in Europe, as well as an evolving regulator situation, contributed to GM’s decision. Lack of commonality between GM and Opel vehicles sold worldwide, he said, drove the “industrial logic” of the deal.
“Opel/Vauxhall was a profit-losing puzzle no one at GM could solve for decades, and outside forces such as Brexit and an increasingly complex regulatory environment did not help the situation,” said Rebecca Lindland, an auto analyst at Kelley Blue Book.
Certain GM vehicles sold worldwide will continue to use Opel engineering platforms, and GM is retaining its pension obligations to Opel and Vauxhall employees, with some exceptions.
In response to media questions, Tavares said it would not be necessary to close any of the combined automakers’ factories, of which there will be 19. He added that Opel’s head, Karl-Thomas Neumann, would stay on.
He also commented on two Brexit scenarios, which he characterized as “soft” and “hard.” For a soft Brexit, he said PSA would be able to execute on its existing strategies, with Europe continuing to function as a somewhat combined market. For a hard Brexit, he said PSA could pursue a more localized supplier model in the UK, alleviating some of the issues that having dual currencies now impose.
GM isn’t fully stepping away from over 90 years of Opel and Vauxhall ownership, as the US carmaker will continue to partner with PSA on the development of several new vehicles: two crossover SUVs and a light commercial vehicle.
GM shares had closed up slightly on Friday, at $38.