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GM Europe Dumps Chevy, Looks Serious About Fixing Europe

Chevrolet Cannibalized Opel-Vauxhall Sales And Had To Go.

General Motors’ decision to close down Chevrolet in Europe shows it is really serious about turning around financially troubled Opel-Vauxhall, according to investors.

It has been a big week for GM after appointing Mary Barra CEO, announcing it will stop production in Australia, deciding to sell its seven per cent stake in Peugeot-Citroen and slimming down its alliance, while the U.S. government sold its last shares in the company, ending four years of state control after the recovery from bankruptcy.

When GM bought South Korean Daewoo, it changed its car’s names to Chevrolet and charged it with pursuing budget sales in Europe. But Chevrolet’s range of mainly Korean made cars never caught on, and often undermined Opel-Vauxhall sales by offering similar or sometimes identical cars with different names and much lower prices.

GM Europe used to say that Opels and identical Vauxhalls were more upmarket than Chevrolets and they wouldn’t take sales from each other. But that was always wishful thinking as the buying public thought all three brands were more or less in the same quality space.

Opel-Vauxhall could use some help. It lost $1.8 billion in 2012, expects to lose slightly less in 2013, and has trashed an eye-watering $18 billion since 1999. It is charged with breaking even by mid-decade, which is closing in fast. GM could have pulled the plug in 2009, but it pulled out of a deal to sell Opel to Magna International in a package engineered by the German government. GM Europe has been restructuring and has announced the closure of one plant in Germany. Earlier this year it announced a $5.25 billion investment plan through 2016 to develop 23 vehicles and 13 engines, but doubts about its long-term intentions linger.

Analysts lauded the Chevrolet decision.

“We believe that GM’s decision to remove Chevy is a smart one,” said International Strategy and Investment analyst Arndt Ellinghorst.

“Chevy was likely cannibalizing Opel’s sales and also possibly damaging Opel’s brand and pricing. Analyzing both brands offerings in Europe, model by model, we found that Chevy was effectively selling similar, and in some instances the same product at about 10-15 per cent discount to Opel,” Ellinghorst said.

Morgan Stanley analyst Adam Jonas, who has consistently argued that it would be better for GM to shut-down Opel-Vauxhall and cut its losses,  applauded the move too.

“While difficult to measure, we believe the removal of Chevy losses and volume-price tailwinds to Opel can help accelerate the path to General Motors Europe break-even by 2015, if not late 2014,” Jonas said.

Good sign
“This demonstrates fresh risk-taking thinking at GM, which is probably a good sign. The bottom line: good, probably not game changing. Pulling Chevy from Europe will help near-term results, but does not significantly change the long-term strategic challenges of Opel in the world’s most difficult car market,” Jonas said.

Chevrolet’s sales in Western Europe have been weak. In the first 10 months of 2013 market share fell to 1.1 per cent from 1.3 per cent in the same period of 2012, according to AID data. In the first nine months sales fell 19.4 per cent to 98,400. Meanwhile Opel-Vauxhall is holding its own in a weak market with market share unchanged at 6.8 per cent in the first 10 months.

This leaves the ground clear to see if GM vice-chairman Steve Girsky’s ambitious claims can succeed.

Make it work
At a launch in Gliwice, Poland earlier this year of the Opel Cascada convertible, Girsky said Opel-Vauxhall, which sells around one million cars a year, should be made to work.

“This will be the most successful comeback in Europe’s automotive history,” Girsky said.

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