The Peugeot logo is seen behind an Opel hood ornament (Photo by Illustration by Thomas Lohnes/Getty Images)

France’s PSA Group is said to be close to buying General Motors Opel-Vauxhall subsidiary, a move that would send tremors through the European industry and pressurize market leader Volkswagen.

PSA has reportedly scheduled a press conference for Monday in Paris.

It remains to be seen how any deal is shaped. Apart from future jobs, there are questions about pension liabilities to sort out, and the deal may fall short of an outright takeover and may simply extend the already in place plans to jointly develop new cars and SUVs.

One academic said if a merger deal does go ahead, the impact will be “seismic”.

The Opel Vauxhall Crossland, due to debut at the Geneva Car Show, was developed in cooperation with Peugeot

PSA has said there will no early job shedding, but the deal to buy loss-making Opel-Vauxhall would make no long-term sense if the labor force was to remain the same at the German, British and Spanish factories. The German Opel factories at risk are Kaiserslautern and Eisennach.

Investment researcher Evercore ISI has said PSA and Opel are overlapping businesses.

“A successful integration is reliant on deep restructuring and industrial synergies,” Evercore ISI said in a recent report.

Most observers expect the British Vauxhall factory at Ellesmere Port to be under the most pressure, but Professor Ferdinand Dudenhoeffer from the University of Duisberg-Essen begs to differ, saying it has a big cost advantage compared with Germany.

Professor Stefan Bratzel, from the Center of Automotive Management (CAM) in Bergisch Gladbach, Germany, disagrees though, saying Vauxhall will come under the most pressure, and the future of the British operation will be complicated by the country’s negotiations to leave the European Union (E.U.), known as Brexit.

Last month PSA, which owns the mass-market Peugeot, Citroen, and DS upmarket brands, and GM, announced they were talking merger. PSA has staged a remarkable recovery over the last three years, turning life-threatening losses into fat profits. Opel-Vauxhall has been a chronic loss-maker in the 21st century, although it has always promised that profits are just around the corner. Opel sells its cars in mainland Europe, while Vauxhall sells the same cars with its brand in Britain. Its failure to get aboard the SUV bandwagon hasn’t helped.

The combined PSA-Opel-Vauxhall would create a company with the second biggest market share in Western Europe – over 16% – and bring it closer to the leader Volkswagen at 23.4%. German Chancellor Angela Merkel has pledged to keep jobs and factories in her country safe. About two-thirds of Opel’s 38,000 workers are based in Germany. In Britain there are close to 35,000 Vauxhall workers.

PSA has already closed factories in France as part of its recovery plan, and given it is in the driver’s seat, don’t expect the rationalization axe to fall in France. The French state owns 14% of PSA.

Dudenhoeffer said when and if the rationalisation axe falls, Vauxhall would in fact be in a strong position.

“Vauxhall has a big cost advantage compared with Germany, while the British market is very important. It is important to make cars there to serve that market, and to provide a hedge against foreign exchange fluctuations,” Dudenhoeffer said.

Foreign exchange problems could also have been the final straw in persuading GM that now was the time, finally, to dump Opel-Vauxhall. After the Brexit vote in Britain last June, sterling dived in value on the international exchanges, producing a loss big enough to derail its plan to break even.

According to Dudenhoeffer, it was unusual for a company like Opel-Vauxhall not to insure itself against this by hedging the risk.

“That made Opel-Vauxhall managers look ridiculous to GM and bearing in mind the 18 years of continuing losses, they lost credibility and that probably did for Opel,” Dudenhoeffer said.

It couldn’t have helped either that Ford Europe, long a loss maker too, managed to make $1.2 billion last year.

CAM’s Bratzel thinks if a merger goes ahead, Opel will retain some independence and its manufacturing in Germany will be maintained. Britain’s Ellesmere Port factory, and its Luton van manufacturer will be under pressure.

If the deal is consummated, Professor David Bailey of the Aston Business School in Birmingham, England said it will shake up Europe big time.

“If it does go ahead it will be pretty seismic in terms of the two companies and the European market. It will be a big challenge to Volkswagen if they pull out all the stops and share platforms (engineering and components). If a key object is to cut production capacity it will be easy to do this in the U.K. Whether it will work though is another question. Look at previous attempts at mergers,” Bailey said.

Daimler Chrysler and BMW Rover are the classic examples of ambitious mergers which went nowhere.

So why did GM finally run out of patience with Opel Vauxhall?

Apart from the obvious financial problems, there is a worry now about Europe’s future. Europe has become a hard market to operate in because of its tight government regulation, intrusive labor union influence and the resulting high cost of doing business, selling small cars with little or no profit margin. And upcoming elections in France next month and Germany in September threaten political and economic turmoil, particularly if the FN’s Marine Le Pen wins in France.

“This (Le Pen victory) would of course have a bad impact on the E.U. and then of course on the car industry. But of course the ability to earn money for Opel is one of the decisive questions. The more prospects for the E.U. darken the more it gets difficult for Opel, and of course the Germans,” CAM’s Bratzel said.

This article was sourced from http://news5boston.com