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PSA Deal to Buy G.M.’s Opel and Vauxhall Faces Political Winds PSA Deal to Buy G.M.’s Opel and Vauxhall Faces Political Winds
(about 3 hours later)
FRANKFURT — Turning a French carmaker and its German rival into a global auto giant would be tough under any circumstances. But the deal by PSA Group of France on Monday to buy General Motors’ Opel and Vauxhall brands for $2.3 billion has the added complexity of politics.FRANKFURT — Turning a French carmaker and its German rival into a global auto giant would be tough under any circumstances. But the deal by PSA Group of France on Monday to buy General Motors’ Opel and Vauxhall brands for $2.3 billion has the added complexity of politics.
Political leaders, facing a rise of right-wing populism, are increasingly willing to meddle in the kind of difficult business decisions that will be necessary for the deal to pay off.Political leaders, facing a rise of right-wing populism, are increasingly willing to meddle in the kind of difficult business decisions that will be necessary for the deal to pay off.
There has been a surge in government intervention in places like Italy, where bank-rescue rules have been bent to protect middle class savers. In Britain, Theresa May, the Conservative prime minister, has been talking about “an industrial strategy” — previously the province of left-wing Labourites. There has been a surge in government intervention in places like Italy, where bank-rescue rules have been bent to protect middle class savers. In Britain, Theresa May, the Conservative prime minister, has been talking about “an industrial strategy” — previously the province of left-wing Labourites. France has blocked foreign acquisitions of its companies.
Politicians have become acutely aware of how corporate decisions can create the resentments toward immigration and globalization that fed Donald J. Trump’s rise in the United States, contributed to Britain’s vote last year to leave the European Union, and nourished far-right politicians in France and Germany.Politicians have become acutely aware of how corporate decisions can create the resentments toward immigration and globalization that fed Donald J. Trump’s rise in the United States, contributed to Britain’s vote last year to leave the European Union, and nourished far-right politicians in France and Germany.
Car companies may provide particularly fertile ground for nationalist appeals. They are often entangled with national identity. To make the deal work, PSA will have to navigate elected officials and labor leaders in three countries where it has big plants — Britain, France and Germany. Almost immediately, the focus of the deal has centered on saving jobs, with the British business secretary, Greg Clark, emphasizing the need for PSA to respect promises made to Vauxhall employees and retirees.
Opel, which has belonged to G.M. since 1929, is based in Rüsselsheim near Frankfurt and widely perceived as a German brand. PSA, the maker of Peugeot and Citroën cars, is 14 percent owned by the French government. Car companies provide particularly fertile ground for nationalist appeals. The closing of a car factory is often devastating for the surrounding community, and it can fall hardest on less-educated, lower-income workers who feel neglected by elites and victimized by global finance.
The closure of a car factory is often devastating for the surrounding community, and falls hardest on the same kind of less-educated, lower-income workers who feel neglected by elites and victimized by global finance. And car manufacturers are often entangled with national identity. Opel, which has belonged to G.M. since 1929, is based in Rüsselsheim, near Frankfurt, and it is widely perceived as a German brand. PSA, the maker of Peugeot and Citroën cars, is 14 percent owned by the French government.
“What better industry to express a view of ‘France first’ than the auto industry?” said David J. Herman, who was chief executive of Opel during the 1990s. Making the acquisition work, he said, “is going to be excruciatingly difficult.” “What better industry to express a view of ‘France first’ than the auto industry?” said David J. Herman, who was chief executive of Opel in the 1990s. Making the acquisition work, he said, “is going to be excruciatingly difficult.”
Adding to the political tension, France and Germany both have national elections this year. In France, Marine Le Pen of the National Front has an outside chance at winning the presidency in May. In Germany, which will hold elections in September, Frauke Petry and her party, the Alternative for Germany, are trying to win at least 5 percent of the vote, the threshold to seat a delegation in Parliament. Adding to the political tension, France and Germany both have national elections this year. In France, Marine Le Pen of the far-right National Front has an outside chance at winning the presidency in May. In Germany, which will hold elections in September, Frauke Petry and her Alternative for Germany party are trying to win at least 5 percent of the vote, the threshold to seat a delegation in Parliament.
Ms. Petry’s party has tried to cast the sale of Opel in nationalist terms. Last month, Paul Hampel, a member of the Alternative for Germany’s national governing board, l called the deal a “sellout of German know-how.” Ms. Petry’s party has tried to cast the sale of Opel in nationalist terms. Last month, Paul Hampel, a member of Alternative for Germany’s national governing board, called the deal a “sellout of German know-how.”
At a time when European unity is under threat, the sale of Opel to PSA could strain relations among France, Germany and Britain as they try to ensure that any pain is imposed in someone else’s backyard. PSA’s Peugeot and Citroën factories are concentrated in France, while the biggest Opel and Vauxhall factories are in Germany and Britain. At a time when European unity is under threat, the sale of Opel to PSA could strain relations among Britain, France and Germany n as they try to ensure that any pain is imposed in someone else’s backyard. PSA’s Peugeot and Citroën factories are concentrated in France, while the biggest Opel and Vauxhall factories are in Germany and Britain.
It is difficult to see how PSA’s takeover of Opel, which would create the second-largest carmaker in Europe after Volkswagen, can succeed without major job cuts and, probably, the shuttering of some factories. Opel has not been profitable since the 1990s, and both companies have more factories than they need. Unused factory space is deadly to a car company’s bottom line because it requires expensive upkeep without producing revenue. It is difficult to see how PSA’s takeover of Opel, which would create the second-largest carmaker in Europe after Volkswagen, could succeed without major job cuts and, probably, shutting some factories. Opel has not been profitable since the 1990s, and both companies have more factories than they need. Unused factory space is deadly to a car company’s bottom line because it requires expensive upkeep without producing revenue.
“The idea is that this deal makes a strong second to VW,” Mr. Herman said, “but they’ve got to make money.”“The idea is that this deal makes a strong second to VW,” Mr. Herman said, “but they’ve got to make money.”
Britain’s vote last year to leave the European Union has cast a shadow over the future of the car industry there. Vehicles exported to the European Union could face substantial duties once Britain leaves the free-trade area. The two British plants, with the Opel and Vauxhall brands, could be particularly vulnerable to political and economic forces. Britain’s vote to exit the European Union means that cars exported to the Continent could face substantial tariffs once the separation is complete.
Mrs. May, the prime minister, made as yet undisclosed concessions to persuade Nissan to agree to build two new vehicles at its factory in Sunderland. British labor unions are preparing to try to block Ford from making threatened job cuts at an engine plant at Bridgend in Wales. “Tavares is talking about saving $2 billion,” said Peter Wells, an automotive expert at Cardiff University in Wales, referring to the chairman of the managing board of PSA, Carlos Tavares. “It has to come from somewhere.”
The British government is also focusing on the steel industry, whose fortunes are closely tied to the auto industry, after years of neglect. Plans by Tata Steel to close a blast furnace at Port Talbot were canceled after unions made concessions on pensions. The pressure on automakers had made the industry a point of contention in the discussion over a so-called Brexit.
Such cases have prompted Mrs. May to speak of an industrial policy, repudiating years of Tory free-market doctrine. Mrs. May, the prime minister, made as yet undisclosed concessions to persuade Nissan to agree to build two new vehicles at its factory in Sunderland, England. British labor unions are preparing to try to block Ford from making threatened job cuts at an engine plant at Bridgend, Wales.
The French government has backed PSA’s acquisition of Opel, since it makes Peugot a European car champion. Freed of constraints imposed by G.M., Opel may be able to establish a stronger presence in Asia and South America. “The uncertainty caused by Brexit is harming the U.K. auto sector,” said Len McCluskey, general secretary of the union Unite, which represents many British autoworkers. “We need assistance from the government to give this sector a fighting chance.”
“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, chairman of the managing board of PSA, said in a statement. Such cases have prompted Mrs. May to speak of an industrial policy, repudiating years of Conservative Party free-market doctrine.
But the French government would certainly protest if there were any hints of further cuts by PSA in France. Amid huge protests, PSA closed a Peugeot and Citroën factory in Aulnay-sous-Bois, outside Paris, in 2013 at a time when the company was suffering severe losses. In January, the prime minister announced “a modern industrial strategy” as part of her plan to prepare Britain for a future outside the European Union. The government will no longer be laissez-faire, she said, but will be “stepping up to a new, active role that backs business.”
. But Mr. Wells of Cardiff University said the government’s actions have so far lacked coherence. It is doing “ad hoc, behind-the-scenes deals,” he said, “but that is not a policy.”
The French government has already demonstrated that, at least during an election year, it will intervene to protect jobs. The French government has backed PSA’s acquisition of Opel, since it makes Peugeot a European car champion. The deal is a bright spot for France in an otherwise gloomy economy, and it represents a remarkable turnaround for the automaker, which recorded a record loss just four years ago.
When Alstom tried to shut down a train factory in Belfort in eastern France, the government of François Hollande, president at the time, placed a multibillion euro order to keep the operation running. The combined companies are expected to save 1.7 billion euros, or $1.8 billion, a year within a decade, including by buying parts together or by cooperating to develop new products. Freed of constraints imposed by G.M., Opel may be able to establish a stronger presence in Asia and South America. That would help address what analysts say is an excessive reliance by Opel and PSA on the slow growing European market.
The cost of the acquisition is relatively low. In an indication that PSA is getting Opel cheaply, G.M. said it would deduct up to $4.5 billion from profit, as it books a paper loss from the deal.
“We are proud to join forces with Opel/Vauxhall and are deeply committed to continuing to develop this great company and accelerating its turnaround,” Mr. Tavares said in a statement.
But the French government would certainly balk if there were hints of further cuts by PSA in France. Amid huge protests, PSA closed a Peugeot and Citroën factory in Aulnay-sous-Bois, an economically disadvantaged suburb of Paris. The 3,000 job losses hit workers who have for the most part been unable to find work since, adding to an undercurrent of tension in the area.
It is the sort of job loss that has helped feed populist candidates. Ms. Le Pen, the far-right candidate, has sought in her campaign to capitalize on high unemployment, calling for “targeted protectionism” and “economic patriotism” for French companies.
The French government has already demonstrated that, at least during an election year, it will intervene to protect jobs. The government of President François Hollande threatened several years ago to nationalize an ailing steel plant run by ArcelorMittal to stem possible job losses, and it prevented Yahoo from taking a majority stake in a successful French company, Dailymotion.
When Alstom tried to shut down a train factory in the working-class city of Belfort in the autumn, Mr. Hollande, who had come under fire for France’s high unemployment rate, reacted with fury. Although the company vowed that the factory’s 400 jobs would be relocated to a larger site in northern France, the government insisted that the site remain open, and it then placed a multibillion-euro train order to keep the operation running.
But politics cannot defy economics forever. Absent growth, PSA will have no choice but to cut costs.