General Motors (GM) will drop the Chevrolet brand in Europe by the end of 2015 after it failed to build a significant market share, and focus instead on its Opel and Vauxhall marques in a drive to return to profit on the continent.
Continue Reading Below
The world's second-biggest carmaker behind Japan's Toyota <7203.T> said on Thursday the decision would result in one-off charges of up to $1 billion, but it should lead to production, marketing and distribution savings.
Relaunched in Europe in 2005, Chevrolets were supposed to compete at the budget end of the market with the likes of South Korea's Hyundai <005380.KS>, Volkswagen's <VOWG_p.DE> Skoda and Renault's <RENA.PA> Dacia.
But the brand, by far General Motors' (GM) biggest in its home U.S. market, failed to make much headway as its largely rebadged South Korean-made Daewoo cars struggled against rivals, some of which are customized for European markets.
Hurt also by a brutal downturn in European demand, Chevrolet responded by slashing prices and introducing more upmarket models. But that put it on collision course with Opel and Vauxhall, leaving Chevy's sales making little progress at around 200,000 cars a year.
"It's great for Opel," NordLB analyst Frank Schwope said about the decision to drop the Chevy brand, with the reduction of Chevy cars likely to ease some of the pressure on a European market suffering from overcapacity.
Continue Reading Below
"GM hopes Chevy customers will now migrate to Opel. But will they instead go off and buy other value brands like Dacia and the Koreans?" Schwope added, referring particularly to strong European demand for Hyundai cars.
GM's decision to drop Chevy in Europe, where the brand has around 1,900 dealers, will also be felt in South Korea, where GM produces most of the Chevrolet vehicles sold in Europe. In 2012, GM exported 186,000 Chevy-branded vehicles to Europe from Korea.
"We will phase out exports to Europe by the end of 2015. We will discuss with the union how to enhance the operating efficiency of our plants," GM Korea spokesman Park Hae-ho said.
CONFIDENCE IN OPEL
GM has made a turnaround of its European business a top priority after racking up around $18 billion in losses over the past 12 years, and is investing billions more despite calls from Morgan Stanley to sell Opel and its UK sister Vauxhall at virtually any cost.
In April, GM pledged to invest 4 billion euros ($5.2 billion) in loss-making Opel by the end of 2016 to support new model launches, renewing a commitment to its struggling European brand.
GM's investment will result in a new generation of fuel efficient engines, renewing 80 percent of the brand's engine portfolio by 2016.
"We have growing confidence in the Opel and Vauxhall brands in Europe," Stephen J. Girsky, GM vice chairman, said on a call with journalists.
Abandoning Chevy shows that GM, unlike Volkswagen, is unable to manage several brands in Europe, NordLB's Schwope said.
As part of its efforts to push Chevy globally, GM signed a $559 million, seven-year sponsorship deal with English soccer champions Manchester United in July 2012, which is due to put the Chevy brand on the club's famous red shirts in 2014-2015.
GM said the decision to drop the Chevy brand in Europe would result in net special charges of between $700 million and $1 billion, primarily to be taken in the fourth quarter of 2013 but continuing in the first half of 2014.
Of this amount, $300 million will be non-cash expenses. These charges also include asset impairments, dealer restructuring and severance-related costs.
In addition, GM said it expects to incur restructuring costs that will not be treated as special charges, but will impact GM's international operations earnings in 2014.
The decision to drop the Chevy brand in Europe was not influenced by a partnership GM has with PSA Peugeot, Girsky said. "This is done independent of the PSA relationship," he said. "The financial results have been unacceptable," he added.
GM, the No. 1 U.S. carmaker, took a 7 percent stake in France's Peugeot <PEUP.PA> after the companies announced what was billed as a broad-based alliance in February 2012, promising eventual savings of $1 billion each. But that was followed by unsuccessful talks on a deeper combination and a steady scaling back of plans.