GM Will Be Making Pension Payments in Europe For Years

General Motors is practically paying PSA to take its perpetually underperforming European operations off its hands. 

PSA’s $2.3 billion purchase price of Germany’s Opel, the U.K based Vauxhall brand, plus GM’s European lending business is largely symbolic; GM is actually paying PSA $3.2 billion in order to cover some future pension obligations. The French car marker will also manage a $9.8 billion fund for existing retirees even though Detroit will continue writing the cheques.

According to Automotive News, the Opel deal will continue to cost GM $400 million annually for the next 15 years as it pays off its obligations to German and U.K. pension plans.

GM executives are playing down the notion that they essentially paid PSA to take the billion dollar burden of their hands, but with Opel’s massive loses, an even bigger burn rate and Mary Barra’s unwavering commitment to doing business profitably, the historical drag had to go, almost at all costs.

The immediate upside for GM will be improved cash flow and profits. GM’s CFO Chuck Stevens says the deal also allows GM to shrink the cash buffer it keeps on hand to run the business and cushion against downturns by roughly $2 billion; which will likely be plowed into a share buyback program.

In addition, the sale also frees up about $1.1 billion in CapEx normally spent in Europe every year, it’s expected this money will be rolled into product development both at home and in China, along with the potential for returning cash to shareholders which could be in the form of a dividend somewhere down the line.

Should PSA begin laying off workers GM isn’t responsible for any restructuring costs; aside from its pension obligations GM has washed its hands of its 80 year experiment with Opel.

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