Page |1

Strategic Management
Case: Groupe PSA

Assignment I

Group 8 BM-A
Devagya Jha – B19014
Gaurav Nair – B19017
Nikhil Jindal – B19030
Ritika Deshwal – B19038
Ronit Ray – B19040
Sahil Gupta – B19041
 Page |2

Q1. Why did Opel/Vauxhall units continue to experience losses since 1999? Why could
GM not turn around the units?
Ans: Although GM had bought Opel in 1925 and Vauxhall in 1929 and hoped to leverage
GM’s large engineering design and production resources to produce low-cost vehicles, it
failed to do so on various accounts and therefore continued to incur losses till 2016 when they
sold the units to Groupe PSA. The accumulated loss between 1999 and 2016 was over $19
billion. Few of the significant factors for the losses can be:
a) Overcapacity: Opel had suffered from overcapacity than most of its European
carmaker counterparts. As a result, they had to offer big discounts often to maintain
production level and therefore it affected their profitability
b) European Market: It was a fragmented market comprising of many countries and
was dominated by European brands, e.g. BMW, Mercedes-Benz, and Volkswagen.
American manufacturers never really achieved success in Europe. Ford had struggled
to make a mark in Europe too.
c) Bankruptcy and Liquidity Problems: GM faced liquidity problems and had filed
for bankruptcy. Also, the closure of underperforming plants also cost them millions of
dollars.
d) Fewer investments in R&D: Extreme cost-cutting measures coupled with low
investment in R&D meant losing a competitive advantage over rivals. Opel was also
perceived as a low-quality automaker in Germany.
e) Poor risk diversification (Brexit): The external environment changed drastically in
2016 due to the Brexit issue as there was an overreliance on Ellesmere Port which
accounted for nearly 80% of the exports to the European markets. Brexit meant a loss
of control and access to European Markets from British grounds.
f) Product Mismatch vs. expectations: There was a mismatch between what customers
expected and what Opel/Vauxhall had to offer in the European markets (primarily the
lack of SUV)

Q2. Evaluate the decision of PSA to acquire Opel/Vauxhall based on our discussions in
class. Can an alliance-based approach work in this situation? Why or why not?
Ans: a) Although Opel/Vauxhall units were incurring losses year on year, it was
mismanagement on the part of GM through extreme job cuts, laying off of workers, plant
closure which had led to GM incurring losses in the past. In 2009, GM had almost sold Opel
but did not go forward. Many critics believe bad management practices were one of the major
reasons for poor decisions and therefore losses.
b) Given the poor performance of American automakers in the European market, GM had
finally given up on its effort to capture the European market, and thereby it only made sense
to sell the Opel/Vauxhall units to French carmakers Groupe PSA which were doing fairly
well in the European Market.
c) GM also prevented Opel from expanding beyond the European market as it had felt it
would cannibalize the GM’s other line of cars (e.g., Buick) which was one of their profitable
 Page |3

products. Hence, continuing with an alliance approach meant conflict of interest on the part
of GM and the possibility of cannibalization of their products.
d) Although the selling of Vauxhall/Opel units meant losing a significant chunk of market
share in Europe and also losing its footing permanently in the European market, however
selling made sense and continued losses as a result of overcapacity, mismanagement, Brexit
issues would have led to another bankruptcy event.
e) On the other hand, acquisition of Opel (a German brand) by PSA was strategic given that
the German Cars were perceived to be of high quality outside Europe, and therefore PSA’s
long term plan of entering emerging markets like China would be possible which was
earlier prevented by GM.
f) Industry Consolidation: Also, acquisition of Opel/Vauxhall meant the consolidation of
the automakers and therefore more leading high bargaining power in an otherwise fragmented
European market.
Alliance Based approach
Haspeslagh Jameson Framework:

Alliance based approach would require the partners to have high strategic interdependence
(like resource sharing, sharing of best practices, supplier benefits,etc.) and at the same time,
high autonomy due to the independent identity of the two automakers. That would make
them have a symbiotic relationship as per the framework. However, given the continued
losses by Opel/Vauxhall in Europe for more than 15 years meant there was a serious need for
restructuring/changing of culture and management practices and therefore, in this case,
the alliance-based approach would not have worked.
 Page |4

Q3. What is the possible impact of Brexit negotiations on the Opel/Vauxhall?

Ans: Impact of Hard Brexit: Hard Brexit meant that the British left the EU single market
and customs union without a deal. The direct impact of this will be a loss of control of access
to the European markets from British grounds. Moreover, the tariff will be applied by the
World Trade Organization which will increase import/export costs.
a) The over-reliance on Ellesmere Port factory of Opel which exported nearly 80% to
the European market, would have been severely affected due to hard Brexit and might
lead to the closing of the plant altogether or limiting its supply to only the British
market.
b) Major manufacturers will abandon their existing plants in the British grounds as the
additional tariffs imposed will increase the cost of production and might not be
sustainable in the long run in the overly existing competitive environment.
Impact of Brexit after Free Trade Agreement:
a) Groupe PSA can then integrate the production of Peugeot, Citroen with Vauxhall as
was always its plan and, therefore actually can benefit from the synergies obtained
from the acquisition of Opel/Vauxhall in the first place.
b) Groupe PSA can continue with its “Push to Pass” strategy adopted by its CEO Mr.
Carlos Tavares and become a truly global vehicle manufacturer.

References:
1) https://www.thelocal.de/20170305/takeover-of-german-opel-comes-after-years-of-
crisis
2) https://www.cnbc.com/2019/05/17/why-general-motors-sold-opel-and-vauxhall-
brands-in-europe.html
3) https://www.nytimes.com/2012/02/16/business/global/europe-remains-gms-weak-
spot.html
 Page |5

4) https://www.economist.com/schumpeter/2012/09/06/an-opel-less-future