General Motors Is About To Completely Change How They Do Business

General Motors’ last decade has been a bit of a cluster F. Profits were way up in the early 2000s, then the bailouts happened, and now it seems sales have stagnated slightly. From 2012 through 2015, GM’s profits were no less than $152 billion, but no more than $155 billion. In 2016 they saw a marginal uptick with total sales at $166 billion. But in a market where innovation is key and a consumer base with a “what’s next” mentality reigns supreme, GM needs to evolve.

Today marked that first step for GM as they sold off Opel/Vaxhaull brands to Groupe PSA (Peugeot) for the hefty sum of $2.3 billion (USD). But why sell off a brand or group of similar brands? Simple. They aren’t performing. GM’s reputation in Europe is not as good as it is domestically. Because of this, GM has decided to focus inward as opposed to the globalization strategy that many companies are currently championing.

The Next Steps

While GM flounders in Europe, it is flourishing domestically. According to Reuters, if GM had dumped Opel last year, earnings per share would be up 5% even with the company being down 10% in profits. That’s an insane ratio when talking about companies of this scale.

So because of this, GM has decided to focus mostly on the North American market.

Europe is demanding cleaner cars, too. But far less of the technology GM would buy to clean up European diesels and tiny gasoline engines would be useful in the United States, where larger gasoline engines – including eight-cylinder motors used in pickup trucks – dominate the market.

“Only 20 percent of the (European) portfolio overlapped with rest of General Motors’ portfolio,” Chief Executive Officer Mary Barra told analysts on Monday. That is why GM has concluded it cannot achieve significant economies of scale in emissions technology for Europe on its own.

This will also free up a lot of minds, money, and effort to focus more on China where GM can grow exponentially if they play their cards right. Hell, Buick and Cadillac are already booming in China so this can only help matters. They aren’t solely going to focus on North America, that would be foolish.

What About PSA?

PSA is hoping that the Opel/Vaxhaull purchase will increase it’s standing in the market and give it a fighting chance against the monolith that is VAG.

PSA CEO Carlos Tavares is betting Opel’s revenue and sales volume would help give his company, which makes Peugeot, Citroen and DS cars, an advantage against rivals such as Volkswagen and Renault SA (RENA.PA). GM is in on that bet because it will receive warrants equivalent to a 4.2 percent non-voting stake in the French company.

Opel was with GM for 80 years so this isn’t an insignificant deal for them. Only time will tell how this move works out for both companies, but in the short term it looks like a win/win.

(Source: Reuters)