Trading General Motors Stock This Week

General Motors Company (GM) stock is trading at $38.35 in the pre-market session on Monday, 6 March 2017. General Motors recently agreed to sell Opel to French company, PSA Group for a nifty sum of $2.3 billion (€2.2 billion). This now changes the automobile landscape in Europe, creating a massive new power player that will compete directly with Volkswagen.

The PSA Group produces Citroen and Peugeot vehicles, and is now targeting Opel as its next profitable brand in Europe. The PSA Group is gearing up towards 2% profitability by 2020 and 6% profitability by 2026. The PSA Group is hoping to achieve joint cost savings in the region of €1.7 billion. For GM, the sale of Opel netted the company €1.32 billion, split between 670 million share warrants of PSA and €650 million in cash.

The important question for GM traders is how the sale of Opel will affect GM stock?

GM Stock After the Opel Sale – Trading Insights

Unfortunately, this is the end of General Motors in Europe, and it puts paid to a relationship that spanned almost 100 years, dating as far back as the 1920s. For PSA, the news couldn’t be better. The share price spike 5.2% after the CEO Carlos Tavares announced that GM Europe could learn a lesson or two from how PSA turned its own fortunes around. For Opel, the sale was necessary since the car manufacturer had racked up its 16th year of losses on the trot.

Detroit-based car manufacturer General Motors has been under tremendous pressure in Europe to offload poorly performing businesses to return to profitability. GM has been locked in a tight race with other major European automobile manufacturers such as Volkswagen and PSA. In 2016, PSA and GM recorded sales of €72 billion for some 4.3 million vehicles that were delivered to the European market. Opel will receive €900 million from PSA and BNP Paribas.

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Head of General Motors Company, Mary Barra was relieved that the sale had been brokered with PSA, and had this to say about the deal: ‘… The way I look at this is positioning Opel Vauxhall to be incredibly successful in the future.’ However, PSA’s CEO dismissed Barra’s claims and said that GM should be proud that Opel Vauxhall – the British company – now has a far brighter future under PSA. Indeed, the news of the deal pushed PSA shares 2.2% higher to €19.49, while General Motors shares inched 1.2% higher on Friday, 3 March 2017.

Now, the European car market is reaching saturation, and VW and PSA will be dominating the market. There are concerns about how British car manufacturer Opel Vauxhall will fare in a post-Brexit Europe, but short-term prospects are positive. Unfortunately for General Motors, they will still be liable for Opel’s pensions. This is estimated at $10 billion. GM was attempting to relieve itself of these liabilities in the deal, but most of them remain in place. With the Opel deal, General Motors has the ability to speed up its share repurchases, with a cash balance of $2 billion. The deal will be signed, sealed and delivered by the end of 2017.

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According to Mary Barra, the sale of its European automobile business had nothing to do with proposals to implement border taxes on US companies operating abroad. GM announced that it will continue selling Cadillac and Chevrolet across Europe, and will look to collaborate with European manufacturers in the future.

For General Motors, the deal is strategic and aimed at increasing cash availability for financing in strategic operations. GM has been struggling to finance long-term viable projects given its ailing business units. As a binary options trader, the sale injects much-needed cash flow into GM’s coffers and will invariably increase the share price. The trend is your friend in this instance, and short-term call options are the order of the day.