It's not as bad as two drunks propping each other up, but the Peugeot takeover of GM's European brands doesn't set the pulse racing. But that is because you are looking at the years of losses, the unionized work forces, the weak EU economy and the car brands which look just a little bit tired. What you are missing is the glue that will stitch this deal together: it is politics and the man who is steering Peugeot's takeover of Opel and Vauxhall has shown himself to be masterful in playing games with the nervous and worried people who govern the nations of Europe.
Step forward Carlos Tavares, the Portuguese who runs PSA, owner of Peugeot and Citroën. The French car maker was almost bankrupt when he took over in 2014: China's Dongfeng and the French government took stakes in a €5-billion ($7.1-billion) bailout of the company. More importantly, he cut thousands of jobs, secured a pay freeze, boosted sales and PSA edged back into profit. His challenge is to repeat the recovery trick at GM Europe, but he must also stitch together two vast manufacturing infrastructures, develop a credible electric car and begin to attack export markets.
Surprisingly, there is a chance that he could succeed. The first point is that Peugeot is getting a much better deal than appears at first glance. It is paying €2.2-billion for a business that employs 38,000, made 800,000 cars last year, hasn't made a profit since 1999 and accumulated $8-billion in losses since 2010.
All that is true but the damage can, in theory, be repaired on the condition that Opel and Vauxhall are hiding no unquenchable liabilities. Thanks to the desperation of GM, which wants to get rid of its European albatross, Mr. Tavares is getting the bird for free. GM has agreed to keep most of Opel's huge pension fund liability, estimated to be some $10-billion. Smaller pension funds will be transferred by GM to PSA along with a $3-billion contribution from the American company.
You could argue that GM is paying Peugeot to take Opel off its hands but there are better reasons why PSA's boss thinks he can take €1.7-billion of overhead out of GM's nine European car plants and turn the four brands, Peugeot Citroën, Opel and Vauxhall into a global success story. The conventional wisdom is that factories will have to close in a massive upheaval with at least 5,000 job losses. Mr. Tavares has promised to honour existing contracts which gives GM's European work force about five years' grace but it will be open season thereafter and it is in the period of limbo that the PSA chief will be working the political channels of Brexit, the euro zone and industrial policy in Paris, Berlin, London and Brussels.
In which country will Mr. Tavares invest? Where will he cut his losses and which governments will offer him the tastiest deals? Union bosses at Britain's Vauxhall plant at Ellesmere Port, which makes the Astra, a mid-market family car, are close to panic. Brexit has put U.K. manufacturing under the microscope. While U.K. unit labour costs now look cheaper thanks to the fall in sterling, the GM car plants import most of their components from mainland Europe. A hard Brexit with tariffs adding cost to U.K. supply chains might bury the Vauxhall business.
For Mr. Tavares, it may not be that simple. Speaking at the Geneva motor show this week, he insisted no axe was poised over any of GM's factories. It was all about performance and about which sites rose to the challenge. "As long as they improve their performance, there is no risk they should fear" he said. Moreover, the PSA chief executive was at pains this week to suggest that even a hard Brexit, with no special tariff-free arrangements for the motor sector, could be an opportunity. In such a scenario, Britain would need to build up its own components supply chain.
Mr. Tavares is saying to the GM work force: show me productivity and I will save your jobs. And he is saying to politicians: show me grants and cheap loans and I will save this industry, and your jobs. It is not just Theresa May, the U.K. Prime Minister who is fretting; half of GM's European staff are in heavily unionized Germany but the country only produces a quarter of the cars. With national elections this year, Chancellor Angela Merkel needs to prevent a massive bloodletting at Russelsheim, home to Opel's biggest plant, or anti-globalizers on the left and right will denounce a stitch-up between government and big business.
It looks like a massive dogfight with Mr. Tavares throwing raw meat into the ring and waiting to see which bloodied mastiff emerges triumphant. However, he knows that this is not a war of attrition. The end game has to be a successful integrated European business and one that is capable of making a transition to electric vehicles and export markets. That means government co-operation and investment and it may be that in such negotiations over cross-border industries that Britain and Europe manage to avoid the hard Brexit.