Europe's emission limits, small cars far from global mainstream: is this why GM sold Opel?


Carlos Tavares, chairman of the Managing Board of PSA, and Mary T. Barra, GM chairman and chief executive officer of General Motors, at this morning’s press conference in Paris announcing the agreement under which GM’s Opel/Vauxhall subsidiary and GM Financial’s European operations will join the PSA Group. (March 6, 2017)

Carlos Tavares, chairman of the Managing Board of PSA, and Mary T. Barra, GM chairman and chief executive officer of General Motors, at this morning’s press conference in Paris announcing the agreement under which GM’s Opel/Vauxhall subsidiary and GM Financial’s European operations will join the PSA Group. (March 6, 2017)

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At the 2017 Geneva auto show, General Motors announced the sale of its entire European operations—comprising factories and the Opel and Vauxhall brands—to PSA Peugeot Citroën.

German Opel and its British Vauxhall sibling have represented GM's main presence in Europe for decades, but the U.S. automaker was willing to let them go for 2.2 billion euros (approximately $2.33 billion).

As is always the case with such major business deals, a considerable amount of reporting and analysis has been generated trying to understand why GM decided to sell Opel.

The company had agreed to do that once, several years ago, and then pulled back.

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Certainly the division's lack of profitability was a major factor: Opel has lost almost $20 billion over the past two decades.

It has four separate sites in Germany, one of the highest-cost places in the world to build cars.

But one report claims European emissions standards may have also been played into the decision.

"Emissions rules made GM's decision easier," reads the headline of a recent Automotive News article.

2015 Opel Corsa OPC

2015 Opel Corsa OPC

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The article focuses on one model—the Opel Corsa subcompact—which an anonymous account manager at a major German supplier suggested had put GM in an awkward position.

The car would need to be completely redesigned to meet upcoming European emissions standards, but the costs of that redesign for GM sales alone would price it out of that segment, the source said.

Alternatively, GM could aim to sell the Corsa in markets outside of Europe, or at least to share a basic platform with cars for other markets.

ALSO SEE: 2017 Opel Ampera-e (nee Bolt EV) to debut at Paris Motor Show (Aug 2016)

But that would make the car unappealing in its home European markets, the source said.

Thus, the argument is that both emissions rules and a lineup of cars that would have to be tailored only to European market preferences pushed GM to sell Opel because its volumes were simply too low to make that economically justifiable.

Europe does indeed have some peculiarities not shared with the larger U.S. and Chinese markets.

2017 Opel Insignia Grand Sport

2017 Opel Insignia Grand Sport

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European buyers have tended to favor diesels, and they continue to prefer hatchbacks over sedans.

They also, on average, opt for smaller cars than North Americans and even many Chinese buyers.

It's also worth noting, however, that China's emissions standards are set to become roughly as strict as Europe's.

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Both sets of standards are considerably tougher than those planned for North America.

But because China is the largest new-car market in the world, it's not a market GM can avoid simply because of tough emissions standards.

And the company has indicated it will comply with Chinese emissions standards, taking on local automakers like BYD in the realm of plug-in electric vehicles as well as other gasoline-car makers.

Opel Ampera-e

Opel Ampera-e

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Before the sale to PSA, Opel CEO Karl-Thomas Neumann had discussed future plans to convert the brand's entire lineup to electric cars, which would have made emissions compliance a nonissue.

But between the costs of investing in electrification and having to develop smaller vehicles for Europe than elsewhere, GM may simply not have been willing to invest that money in a market where it is currently a bit player.

In other words, the European market—tough, specialized, and hugely costly—just isn't nearly as important to the automaker as the U.S. and Chinese markets.

It's possible the automaker literally wanted to cut its losses by cutting ties to its money-losing European division, and focus on markets where it is already more competitive.

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