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France's PSA seeks to be 'European car champion' with Opel

2017-02-23 13:09

SURGING AHEAD: French automaker PSA Group saw its profits jump last year and is giving dividends for the first time since 2011, burnishing its image as it weighs a buyout of General Motors' money-losing European operations. Image: AP / Christophe Ena

Paris - The chairman of French automaker PSA Group wants to create a "European car champion" with the purchase of General Motors' European car business and pledged to work with governments and unions worried over job cuts.

After reporting a near-doubling in 2016 profits, Carlos Tavares lauded the benefits of a deal that could reshape the continent's car market and leave PSA, the maker of Peugeot and Citroen cars, leapfrogging the Renault Nissan alliance to be second behind Germany's Volkswagen.

Speaking in Paris, Tavares said PSA's ambition to buy GM's loss-making Germany subsidiary Opel and its British brand Vauxhall is rooted in its remarkable financial turnaround. The company, which had to be bailed out by Chinese investors and the French government just three years ago, was able to announce Thursday its first dividend payment in six years alongside the profit jump.

Tavares insisted that the potential deal is "nice to have" but "not a must" and laid out a string of reasons why he thinks it would be a good idea: it could improve Opel's bottom line, expand PSA's market, and keep both companies competitive globally.

He said a combined company, which would be Europe's No. 2 carmaker behind Volkswagen, could have volumes of 5 million cars.

Detroit-based GM has been trying to boost prospects for its European business, which last made a full-year profit there in 1999.

"We believe there is an opportunity to create a European car champion, resulting from the combination of a French company and German company and without forgetting our UK friends," Tavares said.

He said: "Opel has making red ink for 10 years, and burning approximately 1-billion in cash every year. We believe we can help."

He insisted that Opel would remain a German company, in part to benefit from Germany's strong reputation for car engineering.

He said PSA would respect existing labor agreements, though he didn't explicitly rule out job cuts. Tavares has spoken with German Chancellor Angela Merkel and met with Opel employee representatives since the takeover discussions were announced last week.

He said: "The best way ... is to have unions and governments on your side." 

Jobs are an especially sensitive issue in what is election year in both Germany and France. The German and French economy ministers are expected to discuss the potential deal at a meeting in Paris on Thursday.

Opel employee representatives and union leaders in Germany say they will push to keep current jobs and factories, and Britain's biggest trade union has demanded that the government protect Vauxhaull, as Britain prepares to leave the EU and PSA considers the buyout.

While revenues last year were largely stable, PSA's group income was 1.7-billion euros in 2016, up from 899 million in 2015, attributed in part to a faster-than-expected cost-cutting. The company also announced plans for a 48 euro cents dividend per share.

Beyond Europe, Tavares acknowledged that PSA is frustrated with lost market share in China, but said PSA hopes to double sales in Iran this year after the lifting of sanctions allowed the French carmaker to revive activities there.

Chief Financial Officer Jean-Baptiste de Chatillon said PSA took a "big hit" on currency volatility, especially in Britain after its vote to leave the EU sent the pound plunging against the euro.

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