Leading with Opel or hiding behind it?

11 March 2017

Leading with Opel or hiding behind it? image

Dr Irina Surdu, Lecturer in International Business and Strategy, shares her thoughts on the recent acquisition of Opel-Vauxhall by PSA:

PSA Peugeot Citroen, whose logo is a roaring lion, is once again a predator on the hunt.

Following the acquisition of Ambassador (India's former crown jewel) and ongoing attempts to acquire Proton (Malaysia's former crown jewel), PSA's latest acquisition of Opel-Vauxhall has unsurprisingly been viewed positively by investors, with significant synergies expected between the two companies.

That said, news of PSA's latest acquisition sits in a backdrop of struggling French automakers. The jam? Broadly, a declining and congested European car market, heavy competition in emerging markets and most importantly, failure to cut into in the world’s second largest car market, the US. If we leave out Renault's success with the Dauphine model in the '60s and later with Renault Alliance in the '80s – French cars have historically been unsuccessful in the United States. Peugeot's many attempts to re-enter the US and promises to produce vehicles there have been much debated in the last few years - but have yet to get off the starting line.

There are two key issues with PSA’s current strategy:
 
  1. The Opel acquisition comes seemingly as an attempt to access the US market under a different name. Banking on success under a different brand.
    GM sold Opel due to the lack of synergies with other regions such as the US. Peugeot may be able to leverage Opel's reputation and German emphasis on quality and precision in Europe but it remains to be seen how it may help Peugeot to form a relationship with the US consumer. With their current CEO at the wheel, Peugeot has made some attempts to reposition themselves by reducing the number of models and increasing prices. But to beat the likes of premium German brands such as BMW and Audi or US darlings like GM and Ford – even with Opel by their side, Peugeot have a bumpy road ahead of them.

  2. With competitors such as GM, BMW and Audi freeing-up cash to invest in new technologies and innovations such as the driverless car, one has to wonder whether engaging in a wave of expensive acquisitions that may require a long and costly integration process, is a smart move?
    Yes, PSA and Opel-Vauxhall have shared some platforms in the past, but integration is required none-the-less. And then, there's the elephant in the room. Google and Tesla, who are investing in technologies that are expected to challenge and redefine the automotive landscape, could force a level of adaptation at a speed that would require significant access to resources to achieve.

So, is Peugeot's management betting on a more stable automotive environment than the one described here?

Perhaps. Though, Peugeot may be rediscovering its killer instincts, concerning the US market at least, it seems to be 'stuck in the middle', neither commanding the price premium the likes of BMW and Audi are enjoying nor the market share of non-premium carmakers such as Nissan, Honda and Hyundai.

As it stands, the lion's share seems like it could escape them.

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