General Motors (GM) has made a bold move by selling off its Opel/Vauxhall auto business for $1.4bn to French manufacturer PSA – one that is expected to save the company billions of dollars by streamlining its business to slide more easily into the rising autonomous vehicle market. However, it is also a decision that will likely come at the cost of giving up its title as the world’s third largest auto manufacturer – for that, we commend it.
The US auto firm has been losing cash hard and fast through Opel, an estimated $15bn worth over 16 years, so by selling off the European business, GM will not only make key savings, but it could also position itself to build crucial new revenue streams.
GM will be aiming to funnel its new financial clout into investments to counter Uber, which is currently aiming to leverage its Tesla and Volvo-supplied fleets as a means to replace its human drivers. To this end, GM will do Lyft and Maven – as direct rival services to Uber. GM has invested $500m in Lyft, and it can also call up technology assets from Cruise Automation, the company it acquired for $1bn last year.
Maven is GM’s app-based ride sharing service, which last month launched in its 17th US city, with Atlanta being the newest addition to the program. Last month, GM confirmed it will test thousands of its self-driving Chevy Bolts via the Lyft ride-sharing network in 2018.
The market is slowly but surely shifting from a world of privately owned vehicles over to ride sharing services, which will eventually evolve into semi-autonomous and on to fully fledged self-driving vehicles, and some industry players have been preparing for this years in advance. GM is being smart here by thinking to the future; cutting its losses and investing in self-driving and ride-sharing endeavors now, rather than later.
By selling a managed fleet system to the likes of Lyft, GM can create a recurring source of revenue, and potentially recycle the older vehicles in markets with lower ARPUs. We call this Vehicle-as-a-Service (VaaS), and have covered the model in a recent report.
Meanwhile, the future of Opel, in the hands of PSA, will likely be subject to ruthless cuts – stripping a once prosperous business down to its bare bones. However, the chief executive of PSA Group, which also owns Peugeot and Citroen, has pledged to make savings without job cuts. UK politicians are skeptical, and are fighting to protect British jobs in the pre-Brexit climate.
GM’s investment in Lyft values the company at around $5.4bn which, admittedly, is not even close to Uber’s $50bn-plus estimated market cap, but Lyft’s advantage over Uber is its clean track record (as of writing). As long as Lyft can stay away from wrongdoings such as gender discrimination allegations, workers’ compensation lawsuits, and the recently revealed Greyball tool to evade regulators, it should continue to gain ground on Uber as the leading ride-sharing service (very publicly) founders. Expect the Uber CEO to be shown the door pretty shortly.
GM’s main rival, Ford, has been making some pretty similar VaaS moves, in both the traditional vehicle manufacturing business and also the race to autonomous technologies. Ford has made investments in Velodyne, a LiDAR manufacturer, Chariot, an on-demand shuttle service, and it acquired Israeli machine-vision company SAIPS, as well as Motivate – a bike-share operator.
A much-expected manufacturing deal between Ford and Google failed to materialize at CES 2016, and since then, Alphabet has been apparently distancing itself from self-driving vehicles – spinning out the project as its Waymo subsidiary.
GM’s European exit also adds to recent closures of factories in Russia, Thailand and Indonesia, and GM reportedly has its eye on the Chinese market. PSA chief executive, Carlos Tavares, said “we do not need to shut down plants. We believe we need to trust the talents of people. They always come up with ideas and solutions we could not imagine. Shutting down plants is rather simplistic.”
Mary Barra, chief executive at GM, took a swipe at Brexit following the announcement of the sale, claiming that the Opel business would have gone into profit had the vote for the UK to leave the European Union not been passed.
Opel brought in revenues of $18.8bn last year, and GM and PSA claim that the deal will create savings of $1.8bn a year by 2026 in manufacturing, purchasing and R&D costs.