General Motors Co. will practically pay France's PSA Group totake its long-struggling European unit off its hands as it looks tocauterize a perennial bleeder.

PSA will pay a total of $2.2 billion to buy GM's German Opelunit, its U.K. sister brand Vauxhall and its European auto lendingbusiness. In return, GM will give the French carmaker $3.2 billionto cover future Europe pension obligations and keep managing $9.8billion worth of plans for existing retirees.

The European burden on GM's balance sheet will now be confinedto pensions, leaving Peugeot owner PSA with the task of fixing thetroubled Opel brand and turning around a business that's lost about$9 billion since 2009. Once the deal closes, GM will pay about $400million annually for 15 years to fund the German and U.K. plans,spokesman Tom Henderson said.

“Peugeot really held them over the fire on the pensions,” DavidWhiston, an auto analyst at Morningstar Inc., said by phone. “Butthe benefits outweigh the risks. GM would have had to manage thepension obligations that they are keeping anyway.”

GM executives dismissed the idea they're paying PSA to take Opeloff their hands. The automaker is cutting losses and cash burnwhile keeping its obligations to retirees who worked for thecompany, chief financial officer Chuck Stevens said. The automakerburned through about $4.4 billion in cash during the last threeyears in Europe.

“It's a known obligation,” Stevens said on a conference callMonday. “All we're doing is recognizing an obligation that we hadand the historical drag on the business.”

By dropping its European business, GM will improve profit andcash flow, Stevens said. Rather than keep about $20 billion in cashon hand to run the business and cushion against recessions, thecompany can shrink its buffer to about $18 billion, he said.

The newly freed $2 billion will accelerate GM's share buybackprogram once the deal closes later this year, Stevens said.

The move also allows GM to redirect about $1.1 billion incapital expenditures the company typically spends per year inEurope. The automaker can now either plow that into new models forprofitable markets like the U.S. or China, develop costlytechnology or return cash to shareholders.

“We laud GM management for taking an aggressive action,” MatthewStover, an analyst with Susquehanna Financial Group in Boston,wrote in a report Tuesday. It sends a strong message to theorganization about a change in behavior.”

Peugeot's Opportunity

PSA CEO Carlos Tavares is walking away with some goodies, too.GM is taking on a noncash charge of as much as $4.5 billion for thedeal. The nonpension portion of that is $2.7 billion in deferredtax assets that PSA can use to offset income — assuming Tavaresturns the company around and starts earning some.

GM isn't on the hook for any restructuring costs that could comefrom PSA laying off workers.

“If you can't fix something, then why hang on?” said MaryannKeller, an industry consultant in Stamford, Connecticut. “This wasa bold move and a smart move by GM.”

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