GM, Opel and the price of freedom

March 13, 2017 01:00 AM

If General Motors' sale of its Opel and Vauxhall brands were an NBA trade, the commissioner likely would veto it for being too lopsided.

When all expenses -- including pension obligations, stock options and other costs -- are accounted for, the Detroit automaker ends up paying out more than it's receiving for 2 brands it has owned for nearly a century.

What GM gets:

$2.3 billion, comprising $1.9 billion from PSA and roughly $400 million from French bank BNP Paribas

$700 million in warrants for PSA shares. The warrants have a 9-year maturity but can't be exercised for 5 years from the issue date.

$2 billion of cash freed up for accelerated share buybacks

What GM keeps:

Responsibility for $9.8 billion in pension liabilities, $6.5 billion of which is underfunded

An engineering center in Turin

What GM gives up:

All of Opel/Vauxhall's automotive operations: 6 assembly and 5 component plants; 1 engineering center in Ruesselsheim, Germany; and about 40,000 employees
Its No. 3 global ranking. Sales of both brands added up to 1.2 million vehicles in 2016.
Revenue from both brands, which totaled $18.7 billion in 2016
$3.18 billion, paid to PSA for pension obligations
$4 billion to $4.5 billion in a special noncash charge

Despite the on-paper premium GM is paying to leave Europe, executives say the deal is worth it because it stops the bleeding at one of the automaker's biggest profit drainers in recent years.

Since the last time GM made money in Europe in 1999, it has lost more than $20 billion there. By cutting bait now, GM can divert about $1.1 billion in capital expenditures typically reserved for Europe to more profitable parts of its business in the U.S. and elsewhere.

It also can shrink its cash-on-hand needs by $2 billion and accelerate its share buyback program. Executives believe that more than makes up for the less-than-stellar haul it got for Opel and Vauxhall.