Bringing the two automakers together will yield projected annual savings of 1.7 billion euros by 2026 by combining development costs, factory investments and purchasing. That will help Opel generate an operating profit margin of 2 percent by 2020 and 6 percent by 2026. Initially the deal will be a drag, with PSA’s profit margin from automaking likely to drop to 3.8 percent from 6 percent, according to an estimate from UBS AG.
While job and production cuts are likely as the two companies offer a similar slate of mass-market cars from high-cost locations in Germany, France and the U.K., it’ll take years for savings to filter through. Implementing the savings measures will cost about 1.6 billion euros.
“This move, on the paper, is a good deal for PSA,” in part because it gives the French carmaker access to GM’s expertise on electrification and fuel cell technologies, Bryan Garnier & Co. analyst Xavier Caroen wrote in a note to clients. However, “implementing synergies will take time, diluting group’s PSA margin on the short term, while risk of further cannibalization between brands could occur.”