By on December 1, 2017

The handover of General Motors’ money-losing European division to France’s PSA Group seemed complete last July, but now the maker of Peugeot and Citroen cars isn’t happy with the bag it’s holding.

PSA claims the acquisition of the Opel and Vauxhall brands left it on the hook for massive fines, all stemming from looming European emissions regulations and the not-so-squeaky-clean state of its new holdings. The automaker’s now seeking nearly $1 billion from GM — more than half of what it paid for the brands.

Ultra-strict European Union emissions regulations slated to come into effect in 2021 would penalize PSA for its newly acquired fleet, something that apparently wasn’t known at the time of the handover. According to a Reuters report, PSA says the scale of the problem only became clear after it took ownership. Blame a brand with one gee-whiz clean car and a full stable of emissions laggards.

“We became aware a few weeks after we finalised the closing that the company was going to the wall on CO2 emissions,” PSA Group CEO Carlos Tavares told reporters in early November. “If you fail to comply (with EU rules) the weight of fines you are hit with can threaten the company’s existence.”

Tavares said his company immediately set about accelerating product development. The move to switch Opel and Vauxhall products to PSA platforms (with cleaner French engines) was pushed ahead three years. Still, the new breed won’t appear until 2024.

Sources close to the issue tell Reuters that GM underestimated the public’s switch away from diesel-powered cars in its calculations. It also relied heavily on sales of the all-electric Opel Ampera-e (Chevrolet Bolt) to meet its emissions targets. The looming regulation change punishes each car in an automaker’s fleet for every extra gram of carbon dioxide it spews per kilometer, to the tune of $113 per vehicle. A crushing load of fines wouldn’t take long to pile up.

“People who had worked on the closing realised quite quickly that there were these big discrepancies,” one PSA source said. “They had been swept under the rug.”

Another source said that PSA stood to lose over $11,000 for each Ampera-e sold, making the company’s reliance on that one car doubly risky.

“Their technical solution was economically unviable and would have led to enormous losses,” the source told Reuters. “So the first thing you do is drop that (product) line, but then the fleet emissions explode.”

Besides expediting the development of new vehicles, PSA was forced to slap together hybrid variants of several Opel cars. This wasn’t part of the original product plan. Still, the state of Opel’s fleet wasn’t entirely a secret leading up to the sale.

“We’ve been reporting for years that Opel/Vauxhall would have significant problems meeting the CO2 targets as GM brands in Europe,” said Thomas Goettle, head analyst at PA Consulting. The firm published a study detailing Opel and the 2021 emissions regulations in November 2016. “Opel is five to seven years behind with their engine lineup,” he added.

GM spokesman David Caldwell wouldn’t comment on whether the two companies discussed emissions, only stating, “We provided them with substantial information.”

PSA has not yet filed any legal claims against GM.

[Image: General Motors]

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34 Comments on “PSA to GM: Pay Up for That Dirty Fleet You Sold Us...”


  • avatar
    dwford

    One would assume that PSA would have done it’s due diligence on the Opel fleet, knowing the impending regulations. It’s not like GM could hide the emissions of it’s models.

  • avatar
    SlowMyke

    I don’t understand how PSA is acting like they had no clue to the state of the fleet emissions over at opel/vauxhall. How is that not part of your homework when negotiating a billion-dollar-plus sale of a company? Are they alleging some sort of cover-up? I mean “sweeping under the rug” is vague. Do they mean GM just never pointed it out or GM committed fraud? This just doesn’t seem like something PSA should have reasonably missed on their own.

  • avatar
    1500cc

    I still remember when Fiat extorted $2 billion from GM back in the aughts when GM wanted to dissolve that relationship … and I still can’t believe they just rolled over and handed them the cash.

    Although I suspect Mary Barra has both bigger balls and a bigger brain than Rick Wagoner, so GM may not give in so quickly this time.

    • 0 avatar

      Exactly what I thought reading this article. PSA saw opportunity there with GM’s well earned reputation to throw money left and right as if it was taxpayers money.

    • 0 avatar
      Znueni

      Have read similar comments re: Fiat and PSA situations. Without getting into whether is was smart for GM to make either deal, I believe situations are totally different.
      In case of Fiat, they had solid contract. GM was supposed to do something, they changed their mind, and so had to pay Fiat compensation in order to get out of it. Fiat would have been happy to just execute the agreement.
      In case of PSA, they have a solid contract. PSA is supposed to do something, they changed their minds about how much it should cost, and now want GM to pay in order to get out of the expense. GM seems to be happy to just execute the agreement.
      So, Fiat had legal basis for compensation and PSA doesn’t (if politics don’t get in the way.)
      What would be interesting is if PSA now comes back to GM and offers them $2 billion not to have to do the deal…..

      • 0 avatar
        ToddAtlasF1

        I disagree with your summation of the Fiat-GM affair. The ‘something’ that changed GM’s mind was Fiat doubling their outstanding shares and halving GM’s Fiat ownership prior to invoking the purchase clause. GM had 20% of Fiat when the agreement was signed. Fiat diluted that holding to 10% through issuing new shares to pay off debts. Then they tried to make GM pay twice for their undesirable company.

        You can read about it on page three of this article:
        https://robins.richmond.edu/documents/cases/GeneralMotors.pdf

        Then the EU courts shook down GM, which was too mismanaged to admit that it didn’t have the money to spend on incompetent Europeans.

  • avatar
    jpolicke

    At first glance I thought PSA was looking for GM to make good on fines it was already assessed. But that’s not the case. PSA is essentially saying “If, come 2021, we were to attempt to sell the product we bought in 2017, we would be hit with massive fines, so pay us in advance.” Most ridiculous argument for justifying buyers remorse I’ve ever heard.

    Apparently PSA went looking for the secret GM plans for an ultra clean future fleet and found out the vault was empty.

  • avatar
    conundrum

    What? GM engines five to seven years behind the times? Seems a bit unlikely, to say the least.

    It’s not clear from this article, nor other news outlets, nor from PA Consulting itself, whether this is diesel engines, gasoline engines, or both. PA Consulting is willing to let you download their report provided you are in the business and hand over your bona fides. Or lie about them. Couldn’t be bothered.

    The EU itself is probably to blame. They have kept their 2021 95gm CO2/km fleet fuel economy standards comprising all types of power units lumped together per manufacturer – their version of CAFE. While, of course, not taking into account the shift to gasoline-powered vehicles from dirty diesels because of bad NOx emissions – that would overtax the bureaucratic brain, changing a program mid-course.

    European cities are rejecting diesels from city centers, but hey the change hasn’t stayed the steely determination of EU regulators (or is it EC regulators – another area of who knows which bureaucracy is in charge over there) for better fuel economy. Of course, they have also relaxed diesel NOx standards to allow gradual acclimation to Euro 6 in the next four years because virtually nobody could meet them in 2016 without using huge doses of urea fluid, brains or corrupt computer programming, and besides VW was embarrassed.

    Combine relaxed diesel NOx standards but with the gradual switch to gasoline, it seems quite unlikely that many of the car companies will avoid fines in 2021 because they won’t get down to 95 gm/km C02 standards including gasoline power, WITHOUT making gas cars full hybrid, or flogging huge numbers of EVs. Both approaches drive up costs/prices and lower sales all by themselves.

    Toyota and Volvo are grinning, the rest plan on hybridizing rapidly and making customers buy EVs, which despite some thermal electricity generation are given a total free pass in the fleet CO2 stakes. Batteries still cost a fortune though, and the Bolt price just shot up in Europe to better match the reality of costs, about $6K per car.

    Left EU hand, talk to right EC hand why don’t you? Or is it too much bother? Just to make things worse, they are revising testing standards so that the outrageously high mileage presently claimed and allowed in ads will plummet down. Making the move to 95 g/km in 2021 even more difficult to achieve, because it will be measured more realistically.

    As for Peugeot and its shining star Carlos Tavares, you simply didn’t do your due diligence when buying Opel. Plain and simple. When the Big Boys are at play, there is an implied understanding that they’re on their own with enough internal and hired expertise to draw on to make an informed buying decision. The courts wouldn’t touch a suit on such slim whiny grounds by PSA on GM with a barge pole, in my opinion. Especially as GM booked a $3 billion loss on the sale as it was, just to rid itself of Opel. What, Tavares expects GM to hand over an extra billion or so out of the goodness of its heart? Dream on.

    • 0 avatar
      28-Cars-Later

      Excellent post.

    • 0 avatar
      True_Blue

      Very insightful!

      “Especially as GM booked a $3 billion loss on the sale as it was, just to rid itself of Opel. What, Tavares expects GM to hand over an extra billion or so out of the goodness of its heart? Dream on.”

      Kind of the lynchpin of the whole argument. The diligence wasn’t due, apparently. This appears to be a shot-in-the-dark appeal.

    • 0 avatar
      jpolicke

      Well, this should be thrown out of court, but it will be in a European court and GM is an American company. The EU enjoys shaking down US firms almost as much as their football.

      • 0 avatar
        Guitar man

        I think its principally the cast iron (turbo) Family I engines used in the Astra. There are already strong rumours that the Hungarian factory that makes these is going to be closed.

        Only GM would have known the emissions of their engines ; they should have provided this information to PSA as part of the takeover process. Aparrently they didn’t.

      • 0 avatar

        “The EU enjoys shaking down US firms”

        As well as shaking down US Government to protect their butts from bad actors with unreasonably high defense spending while EU spends all their money on social programs and science. It is difficult to believe today that there was a time when Europeans powers had powerful armies while US was like a backwaters.

  • avatar
    tomLU86

    Too bad, so sad.

    Looks like some one didn’t do their DUE diligence.

    Caveat emptor! Buyer beware!

    Ask they say in France, “tant pis, mes amies!” Too bad, my friends.

  • avatar
    thegamper

    So PSA wants GM to pay because it forgot about emissions regulations set to take effect in 2021 and didn’t consider how far away the Opel fleet was from meeting the targets?

    “Hey, I know we closed on this house a month ago and I had my inspector come through and everything ahead of time, but it just occurred to me that the 6 feet of standing water in the basement might cause some mold issues. Any chance we could renegotiate?”

  • avatar
    SCE to AUX

    This says as much about the Ampera as it does about PSA’s incompetence.

    GM sold PSA queer giraffes: “https://www.youtube.com/watch?v=obel7Iu1hik”

  • avatar
    Lichtronamo

    What?! You mean there was a reason GM wanted to abandon the entire European market because the enterprise has been/forever will be a money-sucking black hole?! And PSA had no idea as part of their due dillegence to look at environmental compliance (which they should be familar with as it applies to their own products as well). Insanity!!!

  • avatar
    Fred

    We had a boss who made us ship equipment even tho it wasn’t passing inspection. Company was sold soon after and we spend a lot money fixing the equipment in the field. New owners threatened to sue and got the money back. Mostly because we ratted the old boss out.

  • avatar
    stingray65

    Can’t make money on EVs.
    Can’t make money on hybrids.
    Diesels are being banned.
    Gasoline can’t meet emission standards without paying huge fines.
    Guess we will all be walking soon, but at least the planet will be .0000001% cooler.

  • avatar
    newenthusiast

    I have no idea under what country’s laws the deal falls under.

    But I was under the impression that generally speaking, when one company buys another, they not only acquire the assets but also the debts and liabilities of that company as well (barring some sort of court order or bankruptcy proceeding).

    Is that not the case in the EU?

    • 0 avatar

      Not with US companies. Ford also was fooled once by smart Englishmen into buying JLR for fantastically unreasonable price. So shaking down US and US companies is okay and not only in EU but all over world. Hey US is the richest country in history of mankind and EU are Robin Hoods, so why not? Esp tacking into account that Americans are considered in Europe to be rich but stupid.

  • avatar
    Greg Locock

    “the new breed won’t appear until 2024”

    Um, 7 years to sling some existing engines into a preexisting platform seems a little generous, even by French bureaucratic standards. I’ve never been able to find a legit free on-line version of product development schedules so I’m not going to make a hard and fast ruling, but 4 years should be ample, 3 at a push.

  • avatar
    ToddAtlasF1

    I don’t have a dog in this fight, but it will provide some good entertainment going forward. I wonder if any of the parties involved will learn anything constructive this time?

  • avatar
    WildcatMatt

    So basically PSA is claiming they’re Packard and Opel/Vauxhall is Studebaker?

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