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Letter From The UK: Selling Out

Letter from the UK

Recently, European Union antitrust authorities approved the proposed acquisition of GM’s Opel/Vauxhall automotive business by the PSA Group, which manufactures Citroen, DS, and Peugeot models. This merger applies to the Vauxhall manufacturing plants in the United Kingdom that produce two of the top ten most popular vehicles currently on sale in Britain – the Astra and Corsa.

It doesn’t bode well.

This deal, first announced a few months ago, will position PSA Group as the second-largest automotive company in Europe and will serve as the basis of the Group’s profitable growth worldwide, we are told. It is expected to be formalized later this year.

Proud Achievement?

Carlos Tavares, Chairman of the Managing Board of PSA is quoted as saying:“We are proud to join forces with Opel/Vauxhall and are deeply committed to continuing to develop this great company and accelerating its turnaround. We respect all that Opel/Vauxhall’s talented people have achieved as well as the company’s fine brands and strong heritage. We intend to manage PSA and Opel/Vauxhall capitalizing on their respective brand identities. 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.”

On the face of it, that all sounds fine and dandy but, as seems likely, when the deal is completely finalized, the UK should rightly be concerned the next word out of Tavares’ mouth will be “rationalization.”

The transaction will allow, they say, substantial economies of scale and synergies in purchasing, manufacturing, and R&D. Annual synergies of €1.7Bn are expected by 2026, of which a significant part is expected to be delivered by 2020. These huge savings will have to come from somewhere. This is the part where I mention Brexit.

According to a recent press release, PSA Group delivered 1,580,000 units during the first half of 2017. Sales increased in Latin America, the Middle East, Africa, Eurasia, and the India-Pacific regions. Market share gains transpired for all new models, including the Peugeot 3008 and 5008 SUV and Citroen C3 in Europe. Photo: PSA Group.

High Costs

Overshadowing this huge financial deal is the specter of you-know-what. Right now the discussions over the UK’s departure from the EU look pretty sketchy. The British car industry should rightly be concerned. Inevitably, new vehicles from this conglomeration will progressively convert to PSA platforms over the coming years, and that could well sound the death knell for Vauxhall manufacturing plants.

John Colley, Professor of Practice at Warwick (UK) Business School and noted expert on mega-mergers, has been quoted as saying: “Carlos Tavares, Chief Executive of Peugeot Citroen (PSA), has little choice but to close the UK Vauxhall plants at Ellesmere Port and Luton to make the Opel (German brand) acquisition work. The cost of closing the high-cost German plants will be at least triple that of the UK plants. Not only will they (PSA) have to placate the powerful German unions who have a right of deal veto, but redundancy costs are around three times the level of the UK.”

Astra Sports Tourer production at Vauxhall’s Ellesmere Port facility. Photo: Vauxhall.

No Compromise

Given that governments come and go, any promises made by the British Administration are unlikely to be taken too seriously. Also, with wearying familiarity, the bullish leader of the Unite Trade Union in the UK has already said it “will not accept any job losses” if the sale goes ahead, urging the UK government to think again on its policy towards the European single market as the uncertainty is now clearly impacting on the future of flagship UK companies, such as Vauxhall. That will do until the real mess gets here.

As far as Great Britain is concerned, the whole shooting match is chaos and no doubt will remain so until the real mess arrives further down the line. Although the UK government is committed to Brexit on the basis that in a national referendum, a majority of the public demanded we get out of the EU, their hearts are plainly not in it. And it is possible to catch a whiff of the hot, fetid breath of failure; in short, it is not going well.

At a time like this, the last thing British industry needs is more uncertainty. The EU is taking a hard line that is likely to be followed by the PSA Group. In the longer term, the future of our Vauxhall car manufacturing does not look good.

Geoff Maxted is a motoring writer, photographer, and author of our Letter From The UK series. Follow his work on Twitter: @DriveWrite

Cover Photo: Vauxhall.