By Geoffrey Smith
March 6, 2017

General Motors CEO Mary Barra took pains Monday to say that the deal by which GM exited Europe was a win-win.

The stock market had other ideas.

GM’s shares fell over 2% in New York Monday as analysts and investors digested the fine print of the deal. Meanwhile, shares in PSA Group, the French-based maker of Peugeot and Citroen who is buying GM’s European unit Opel, rose nearly 3%.

Most analysts had welcomed the initial announcement that GM it was close to selling Opel, so Monday’s reaction can only be down to the details. And they aren’t great.

Scroll down the GM press release far enough, and you will see that GM is taking a “primarily non-cash special charge of $4.0-$4.5 billion” to sweeten the deal for PSA. That compares to a relatively modest $2 billion that Barra promised GM shareholders Monday in the form of accelerated share buybacks.

Most of that is related to an eye-watering bill for company pensions. GM will pay $3.2 billion to PSA to transfer the liabilities for the principal retirement plan that covers Opel’s 18,500 workforce in Germany and some other smaller plans. But it will keep liability for all the retirees currently drawing Opel pensions. Compare the $3.2 billion being paid to the $2.3 billion being received, and it’s clear that GM actually paid PSA to take Opel off its hands.

The rest of the accounting charge appears to come from a write-down of goodwill, an admission that the business wasn’t worth as much as GM thought. GM’s financing assets in Europe, specifically, were sold for 900 million euros, or only 80% of the value GM attributed to them in its most recent accounts.

The automaking plants themselves, which employ over 30,000 people and turn out nearly 1 million vehicles a year, were sold for 1.3 billion euros.

PSA investors, by contrast, have zeroed in on the fact that CEO Carlos Tavares can concentrate on realizing the gains that were promised, but largely not delivered, after the two companies’ strategic alliance four years ago. That seems logical enough, given that there’ll only be one company making the decisions now.

GM has, at least, guaranteed that it, too, will profit if Tavares can pull that off. As part of the deal, it’s getting warrants on PSA shares equivalent to a 4.2% stake in the company that it will be able to start converting into cash from 2022. Tavares, who pulled PSA out of bankruptcy after a joint Franco-Chinese bailout, said the Opel and Vauxhall brand should be running at a 2% operating margin by 2020, rising to 6% by 2026.

If he manages that, then it will be difficult to avoid drawing some very hard conclusions about the GM managers who couldn’t squeeze a profit out of the company in 17 years of trying.

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