Fundamentally, customers don't want a German car or a French car. They want a great car. A prospective customer doesn't purchase a Porsche because it is a German brand, they purchase it due to its performance and quality. Likewise, a Volvo isn't bought because of its Swedish origins, it is purchased because of its commitment to honest design and renowned safety features. The notion that German engineering, and thus cars from German brands, are inherently better than their peers is an illusion resulting from the German automotive industry's collective desire to focus on the premium end of the automotive market. There is little value in marketing a car as French or German without it also having the requisite performance, features and quality desired by the target market.

In this sense, it is important to distinguish the often fine line between differentiation for differentiation's sake, and differentiation that actually improves the product. Before PSA can differentiate its French brands and Opel, it must ensure that the vehicle fundamentally is great. Once this initial standard has been established, PSA can then embark on endowing its brands with different flavours as a form of differentiation that improves the brand. The presence of a particular feature, performance or quality characteristic cannot be justified solely due to the car being "French" or "German"; it must have a higher purpose in terms of actually improving the product.

Product cannibalisation

Product cannibalisation is the fear that offering a new, or differentiated, product in the market will take away from sales of an existing product, instead of compounding total sales. With PSA now selling Opel models competitive with its own French brands, there is the fear that rather than the company's market share multiplying, it will stagnate as the two brands take sales away from each other.

Ultimately, this fear is groundless. Even if there is product cannibalisation, it is a near certainty that the combined ownership of Opel and existing French brands will give PSA better sales than selling Peugeot, Citroen and DS only. This in itself will be a significant improvement.

The greater risk, in fact, is that the PSA Group artificially limits the quality or performance of a particular brand in a deliberate attempt to avoid cannibalisation. Rather, product cannibalisation should be encouraged, in the sense that PSA should allow each brand to make the best product that it possibly can (whilst remaining true to its brand identity). The best products are developed through fierce, but healthy, competition, and it is beneficial to PSA for this competition to also originate internally rather than only through external, non-PSA brands.

As per the business philosophy of a famous electronics company, if the ultimate goal is to create the best product, cannibalisation is an irrelevant and insignificant concern.

Challenges for General Motors

Loss of human potential

In a financial sense, General Motors' decision to sell Opel clearly makes sense. The company's new plan to focus on strong businesses with high profitability is a step change from its past desires to dominate the automotive industry by building 'a car for every purse and purpose.' Focusing instead on profitability should ensure that GM is a sustainable, well-run business that is safeguarded from bankruptcy in the event of future GFC style economic calamities.

What is also crucial to take into account is the intangible potential lost by the transfer of employees to the PSA Group. Opel employees were responsible for key developments in the GM group, such as bringing matrix headlamps into the mainstream with its IntelliLux technology, launching the CarUnity car sharing initiative and developing platforms that were used for small cars sold under various GM brands around the world. Whilst it is impossible to predict what innovations this group might develop in the future, precedent suggests that GM may have lost a talented group of engineers, designers and other business professionals.

Future access to the European market

With Opel being a loss-maker for GM, the company evidently feels that Europe is not a market in which it can profitably participate in. Nevertheless, business environments change constantly. The transfer of local employees and expertise, along with factories, may hamper any future effort to re-enter the European market. Whilst GM will maintain a rump presence in Europe by continuing to sell Cadillac vehicles and the Chevrolet Camaro and Corvette, such limited sales operations of niche products are unlikely to be of much benefit if GM wishes to become a major participant in the European market and again exploit the region's manufacturing, designing and engineering expertise.

Conclusion

It is clear that whilst PSA's acquisition of GM's European operations has significant benefits, there are numerous risks for both parties as well. The key challenge for PSA will be to effectively manage its new acquisition. Crucially, the potential synergies offered through platform-sharing must be taken advantage of, whilst inter-brand competition should not be artificially restricted. From GM's perspective, whilst this move is in line with its focus on profitability, any future re-entry into the European market may be hampered by this loss of local expertise and resources.