PSA Finds Opel-Vauxhall Lags Badly In Race To Cut CO2.
Faces Big Hurdle Anyway As Diesel Demise Continues.
Opel-Vauxhall Plan Relied Heavily On Loss-Making Electric Car.
“If only PSA had picked up the phone and asked us, we could have told them before they completed the deal,”
PSA Group is reportedly claiming compensation from General Motors because it failed to tell the French company how far Opel-Vauxhall was behind in meeting European Union CO2 emissions for 2021 when it negotiated the takeover price.
PSA paid €1.3 billion for Opel-Vauxhall and according to the report from Reuters, it will claim back between €600 and €800 million as the extra cost of meeting the standards. The report said PSA would sue GM for compensation.
PSA and GM both declined to comment on the reports.
Industry sources expressed surprise at the report because the information on Opel-Vauxhall’s slow reaction to the need to cut CO2 emissions was an established fact amongst automotive experts.
“If only PSA had picked up the phone and asked us, we could have told them before they completed the deal,” said an industry expert who declined to be named.
Investment researcher Evercore ISI said if the report is true, the fault was clearly with PSA.
“To us the current situation is pretty clear –
- The technical performance of a company’s products should be at the core of any due diligence
- EU emission targets and the decline of diesel were known facts at the time of the deal
- Opel-Vauxhall always had powertrains with underperforming emission data”
Evercore ISI conceded that from the outside it would be difficult to judge if there was any deviousness.
Citi Research said regardless of any argument with GM, PSA will find compliance with CO2 laws a problem.
“In 2016 PSA had the lowest average CO2 emissions in Europe at 102 g/km. As a consequence it required the second lowest amount of improvement to reach 2021 E.U. targets. In contrast at 123 g/km in 2016 Opel had the third highest 2021 hurdle. We estimate making Opel compliant could cost well in excess of €1 billion. In addition Opel makes PSA more exposed to European diesels, which we think could add a further €2 billion-plus hurdle,” said Citi Research analyst Michael Tyndall.
Citi Research also thinks PSA’s turnaround of Opel and Vauxhall is going to be more costly and time-consuming than the company or the market expects.
“We are concerned that bulls place an undue emphasis on the track record of the CEO, and while we accept CEO (Carlos) Tavares has an impressive track record, we would argue the pivotal agreement for PSA in terms of downsizing was in place before he arrived,” Tyndall said.
Sell PSA stock
Tyndall recommended shareholders sell PSA stock.
PSA shares peaked at close to €21 in early October and have plunged 25 per cent since to just under €17 in mid-December.
Evercore ISI said bringing Opel-Vauxhall’s CO2 level – 128.8 g/km – down to PSA’s current level – 109.6 g/km – would cost €750 to €800 per vehicle. Bridging the 32 g/km gap by 2021 will cost an additional €1,575 per Opel-Vauxhall vehicle.
“Assuming Opel (Vauxhall) sells about 1 million vehicles in Europe, this leads to €1.5 billion additional costs,” Evercore ISI analyst Arndt Ellinghorst said.
According to the Reuters report, Opel-Vauxhall’s CO2 compliance plan relied heavily on big sales of the Opel Ampera-e (battery-only Chevrolet Bolt), but at a loss of close to €10,000 per car. The report also quoted GM CEO Mary Barra saying 5 months before the deal closed in July that increased regulatory and compliance costs were a big reason for seeking to offload the European operations. It also said the scale of Opel-Vauxhall’s miss of the 2021 target itself would cost about €1 billion in fines.
PSA has recently announced electric and plug-in hybrid versions of the Opel Corsa, Grandland X and Crossland X.
GM back in Europe?
In mid-December GM’s Barra dangled the idea that the company might in fact return to Europe, not as a mass manufacturer, but as a seller of self-driving technology or mobility services. She offered no details but was quoted as asserting the deal with PSA didn’t preclude doing business in Europe. Given her eagerness to sell Opel-Vauxhall that’s a question that was probably never asked.
“Nothing keeps us from going back to Europe,” she said at an event in Detroit.
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