Global Economics

Chevrolet Pins Europe Hopes on Cruze


GM, needing to offset a brutal sales slump in the U.S., highlights a European strategy by unveiling the Chevy Cruze at the Paris Motor Show

Chevrolets are rarely seen on the streets of Paris. But General Motors (GM) has chosen the Paris Motor Show, which opens to the public on Oct. 4, to launch one of the most important new Chevy models in years.

The Cruze, a compact sedan set to go on sale in Europe next March and in the U.S. in 2010, will be Chevrolet's first global small car. With its sleek, arched roofline and high-tech interior, "it's one of the global Chevrolet products that are the future of where this brand is going to be," says Wayne Brannon, Chevy's European chief.

GM has been trying for several years to establish Chevrolet as its main global brand. Unlike rivals Toyota (TM) and Honda (HMC), GM has a balkanized brand portfolio—with Chevy dominant in the U.S., Opel in Europe, and Buick in China. After taking over South Korea's Daewoo in 2002, GM rebranded some of its models and now sells them under the Chevrolet name in Asia and Europe.

A Crucial Moment

But the Cruze is a brand-new design—and it comes at a critical time. GM needs foreign growth to offset a deep U.S. auto sales slump (BusinessWeek.com, 10/1/08). At the same time, Chevy is counting on the Cruze to fight its way back into the compact car market in the U.S. (BusinessWeek.com, 9/15/08), which has now become vitally important as customers flee gas-guzzling SUVs and trucks. Though the company hasn't yet disclosed fuel-efficiency figures for the Cruze, it has promised they'll be "north of 40 mpg." (BusinessWeek.com, 9/15/08).

European motorists will be a tough audience for the Cruze. Fuel economy of 40-plus miles per gallon (under 5.9 liters/100 km) may impress Americans, but it's ho-hum to Europeans who drive Volkswagen (VOWG.DE), Ford (F), and even Mercedes (DAI) models getting 50 to 60 mpg. Fuel efficiency is crucial in the Old World, with gas costing $8 a gallon and up in most countries.

And while the Cruze's design is a big leap forward from Chevy's existing Cobalt compact, it won't stand out in the crowded field of stylish European models. Another problem: Most Western Europeans prefer hatchbacks, while the Cruze is a 4-door sedan.

"It will do moderately well, but it's unlikely to change Chevrolet's fortunes," says Paul Newton, an auto analyst for consultancy Global Insight in London. He predicts only 12,000 Cruzes will be sold in Western Europe in 2009 and 30,000 in 2010—barely a drop in the region's 14.2 million total annual auto sales.

Eastern Strategy

For now, Chevy is pinning its hopes for the Cruze mainly on the Continent's eastern rim, in countries such as Russia, Poland, Hungary, Romania, and Turkey. Brannon says the Cruze will be positioned as a "good value for money" vehicle, with marketing emphasis on the brand's "iconic" American roots. Chevrolet hasn't announced pricing for the Cruze, though it has said the U.S. version will cost more than the Cobalt, which sells for $15,000 to $17,000.

Chevy has reasons for optimism in Eastern Europe. Its Polish-made Aveo, a Daewoo-developed subcompact, is selling well in the region, and Eastern European drivers are more partial to four-door sedans than their counterparts in the West.

Already, strong sales in Russia and Ukraine helped Chevy rack up an impressive 23% sales growth Europewide during the first half of this year, after a 26% rise in 2007. Still, Chevy's market share in Europe as a whole is barely above 2%. Global Insight reckons Cruze sales in Eastern Europe will be no more than 50,000 in 2010. Western European automakers, including VW with its Skoda brand, already have built strong customer bases in the region, Newton says.

The European version of the Cruze will have a 1.6-liter or 1.8-liter gasoline engine, or a 2-liter diesel engine. It will be manufactured initially in South Korea, although GM plans to open an assembly line in St. Petersburg, Russia. The U.S. version will be built in Lordstown, Ohio.

Will the Cruze be a game-changer? Perhaps not in Europe. But if it can post respectable sales in this fiercely competitive market, it could give a big boost to Chevy's global brand aspirations.

With David Welch in Detroit

Matlack is BusinessWeek's Paris bureau chief.

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