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GM sells its European business in $2.33-billion deal

GM sells its European business in $2.33-billion deal
GM chief Mary Barra, left, PSA CEO Carlos Tavares and Opel CEO Karl-Thomas Neumann shake hands after a news conference in Paris. (Christopne Petit Tesson / European Pressphoto Agency)

By shedding the bulk of its European operations, General Motors Co. is getting rid of a perennial money drain and gaining cash that it can use to reward shareholders and invest in technology such as electric cars and ride hailing.

The Detroit automaker also indicated that it may pull out of more unprofitable markets in the future.

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GM sold its European Opel and Vauxhall brands Monday to French carmaker PSA Group for roughly $2.33 billion, retreating from the world's third-largest auto market after almost two decades of futile efforts to make money there. The brands have lost $20 billion in the fiercely competitive region since last making a full-year profit in 1999.

"I think they're ready to cut their losses and move on," Morningstar analyst David Whiston said. "They'd rather take their time and money and spend it elsewhere on something that has a better return."

The sale, expected to close by the end of the year, also includes GM's European auto financing arm, which goes to a joint venture between PSA and French bank BNP Paribas. GM has to keep $6.5 billion in unfunded pension obligations, but it unloads any future losses and about $1 billion per year in capital expenditures on new products.

Chief Financial Officer Chuck Stevens told reporters that the sale also means GM has to keep only $18 billion on hand to weather an economic downturn, rather than $20 billion. That $2 billion will go to speed up a company commitment to buy back $8 billion in stock. GM could repurchase as much as $5 billion this year.

The sale also was influenced by stronger European clean-air regulations that will require significant spending on electric-car development, as well as currency issues caused by Britain's exit from the European Union, GM said.

"Increasing regulatory and compliance costs will continue to be a burden for the foreseeable future," President Dan Ammann said. He said that after the sale, PSA, with a larger scale in Europe, could spread those costs over more vehicles.

GM Chairwoman and Chief Executive Mary Barra told analysts that the sale may not be GM's last. She said the company has work to do on some international businesses and could make a similar deal for them if they don't make enough money. GM has operations in Asia, South America, the Middle East, North America and elsewhere.

GM still will sell small numbers of high-performance Chevrolets and some Cadillacs in Europe. The deal doesn't include ride-hailing or other mobility ventures in Europe.

For PSA, which makes Peugeot and Citroen cars, the acquisition will turn it into Europe's No. 2 automaker after Volkswagen, capping a remarkable turnaround after it was bailed out just three years ago.

PSA will take over 12 Opel and Vauxhall manufacturing facilities that employ about 40,000 people, the companies said, fueling worries that jobs eventually will be cut.

Executives insisted that no layoffs are currently foreseen, while analysts say job cuts are inevitable over the long term. CEO Carlos Tavares said there are ways to contain factory costs other than cutting workers. He said the company would focus on logistics, quality, energy, maintenance and security.

Last year, Opel and Vauxhall sold just under 1.2 million vehicles, amounting to only 5.6% of the European market, according to GM.

"Unloading Opel-Vauxhall and the European part of the financing greatly improves GM's balance sheet, allowing investments in growing markets such as China and India," Rebecca Lindland of Kelley Blue Book said.

Christian Stadler of Warwick Business School said job cuts probably will be coming: "PSA has done it before and there is no other way to realistically achieve the cost savings they have in mind."

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"The UK is definitely in a bad position as Brexit makes it less competitive than Germany and the unions are stronger in Germany," he said.

U.S. investors yawned at the sale. General Motors shares slipped about 1% to $37.91 on Monday. They're up 9% since the first of the year, indicating that investors already were anticipating benefits from the deal.

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UPDATES:

4:50 p.m.: This article was updated throughout with additional details.

This article was originally published at 4:30 a.m.

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