Bloomberg News

GM Pulls Chevrolet From Europe After Decade to Focus on Opel (2)

December 05, 2013

Opel Convertible Automobile

An employee stands on a ladder as he polishes the alloy wheel of a Opel convertible automobile, produced by General Motors Co. (GM), at the 65th Frankfurt International Motor Show in Frankfurt. Photographer: Jason Alden/Bloomberg

General Motors Co. (GM:US) is pulling its Chevy brand out of Europe, reversing a decade-old sales strategy, as a revival at the carmaker’s Opel and Vauxhall divisions beats the U.S. nameplate’s performance in the region.

Chevrolet will halt deliveries in Europe by the end of 2015 while remaining in Russia, GM Vice Chairman Steve Girsky said on a conference call today with reporters. Reorganization costs from the shift will total $700 million to $1 billion.

The move ends an effort by Detroit-based GM to use Chevy, one of America’s top-selling auto producers since it was introduced in 1911, to make up for losses in Europe generated by Opel and Vauxhall. The two divisions have maintained their regional market share this year while Chevrolet’s has declined. “Unacceptable” financial performance at the brand in the region contributed to the pullout, Girsky said.

The revamp “eliminates some competition from one of their own brands,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. “But we need to keep a sense of proportion: Chevrolet has never been very successful in Europe, and there’s no guarantee Opel will automatically get its market share.”

GM rose (GM:US) as much as 1.6 percent and was trading up 0.3 percent at $38.84 at 10:39 a.m. in New York. The stock has risen 35 percent this year, valuing the company at $54 billion.

Regional Losses

The manufacturer ranks fourth in group European car sales, behind Volkswagen AG, PSA Peugeot Citroen (UG) and Renault SA. (RNO) GM’s losses in the region since 1999 have exceeded $18 billion, including a $214 million deficit in the third quarter.

The carmaker began selling Chevrolet models in Europe in 2005, putting the U.S. brand’s nameplate on low-cost vehicles made by the Daewoo division in South Korea. GM came close to selling Ruesselsheim, Germany-based Opel, a business it has controlled since 1929, to Canadian vehicle-parts maker Magna International Inc. in 2009 amid moves to emerge from bankruptcy.

“It was a strategic mistake from the beginning to re-badge cheap Korean cars with the Chevrolet name that’s associated with large U.S. road cruisers,” said Frank Schwope, a Hanover, Germany-based analyst at Nord LB.

The European reorganization is another “mistake,” as GM “could have pushed Opel more up-market and established Chevrolet as a budget brand,” Schwope said. “Volkswagen successfully manages four similar marques in Europe -- VW, Skoda, Audi and Seat -- yet GM isn’t able to make one profitable in the region.”

2012 Sales

Chevrolet’s registrations in the region amounted to 172,100 vehicles last year, down 2.5 percent from the 2011 figure, with the brand accounting for 1.4 percent of industrywide registrations, according to the Brussels-based European Automobile Manufacturers Association. That compares with 834,800 deliveries in 2012 by Opel and its sister U.K. division Vauxhall.

Chevrolet’s European sales in the 10 months through October dropped 17 percent from a year earlier, narrowing the brand’s market share by 0.2 percentage point to 1.2 percent. Opel and Vauxhall posted a 3 percent decline in the period, about matching the industrywide contraction, and their combined market share held steady at 6.7 percent.

Part of GM’s efforts to restore profit in Europe include cooperating with Paris-based Peugeot on developing models and parts procurement. Chevrolet’s departure from the region isn’t related to those projects, Girsky said.

New Models

Chevrolet introduced a dozen vehicles in Europe in 2011 and 2012, including a wagon version of the mid-sized Cruze that was designed specifically for the region. Opel’s new models include the South Korean-built Mokka that went on sale in October 2012 and the Adam city car that began deliveries early this year. The division started building the latest version of its mid-sized Insignia in August.

Susan Docherty, a GM marketing veteran, became head of Chevrolet’s European operations in January 2012. She left in the middle of that year and was replaced by Thomas Sedran, Opel’s strategy chief.

The Chevrolet distribution network in Europe totals about 1,900 dealers, and the company will “work with individual dealers” to determine their future, Sedran said on the conference call. More than half of the outlets also handle Opel models, Vijay Iyer, a Chevrolet spokesman, said by phone.

The business has focused on individual customers rather than on corporate-fleet operators and, with dim prospects for a revival soon in southern European auto markets, “we don’t see that in the long run we can have the growth that we want to have,” Iyer said.

Offering Corvettes

Some of Chevrolet’s “iconic” models, such as the Corvette sports car, will remain on sale in Europe, and GM is working on an expansion of the up-market Cadillac marque in the region in the next three years, the manufacturer said today in a statement. GM’s South Korean operations will focus on “driving profitability, managing costs and maximizing sales opportunities.”

A nine-year Chevrolet promotional agreement with the Manchester United Plc (MANU:US) soccer team in the U.K. that began in 2012 will continue unaffected by the strategy shift, as the sports club has a large fan base in Asia, Iyer said.

To contact the reporter on this story: Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


Video Game Avenger
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • GM
    (General Motors Co)
    • $32.07 USD
    • -0.16
    • -0.5%
  • MANU
    (Manchester United Plc)
    • $16.58 USD
    • 0.16
    • 0.97%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus