GM casts Chevy off Europe’s levy

GENERAL Motors says it will dump its Chevrolet brand in most of Europe from 2016 in an effort to build its flagging Opel and Vauxhall operations in the region.

A statement from the US automotive giant overnight said the move was a result of a “challenging business model” as well as the “difficult economic situation in Europe” that left the iconic brand struggling against local competition since it re-launched in the region in 2005.

GM marketed Chevrolet as an entry-level brand tasked with taking on South Korean car-makers such as Hyundai and Kia, as well as the Volkswagen Group’s budget brand, Skoda.

To boost sales, Chevrolet cut some of its prices and introduced premium models, causing it to clash directly with sister companies Opel and Vauxhall. Sales failed to live up to the General’s expectations and slipped to about 200,000 units per year.

GM hopes its decision to pull Chevy from Europe will have a positive impact on German brand Opel, which has faced significant financial troubles resulting in losses of about $US18 billion ($A20 billion) over the past 12 years.

The US car-maker admits there is “market complexity” or brand confusion with Opel and Chevrolet both operating in the same market, and a number of models are sold by both brands with different bagdes, including the Opel Mokka/Chevrolet Trax twins and the Opel Ampera/Chevrolet Volt.

Despite Chevy’s departure from the region, GM is pushing ahead with plans for a European expansion of its premium Cadillac brand, which currently sells a handful of cars in the region through a small number of retail outlets.

GM will also continue to sell niche Chevrolet-branded products such as the Corvette sportscar in Western and Easter Europe.

Putting a positive spin on the situation, GM chairman and chief executive Dan Akerson said the departure of Chevrolet from Europe would allow GM to tighten its focus on the region and re-build its remaining brands.

“Europe is a key region for GM that will benefit from a stronger Opel and Vauxhall and further emphasis on Cadillac,” he said. “For Chevrolet, it will allow us to focus our investments where the opportunity for growth is greatest.

“This is a win for all four brands. It’s especially positive for car buyers throughout Europe, who will be able to purchase vehicles from well-defined, vibrant GM brands.” While Chevrolet will disappear from Western and Eastern Europe from 2016, the brand will maintain its presence in the Commonwealth of Independent States, which includes Russia.

GM said it would work closely with its European dealer network to ensure it honoured obligations to existing customers.

The departure of Chevrolet is likely to impact heavily on GM Korea, which produces most of GM’s bowtie-badged European line-up.

GM said it would increase its focus on South Korea in a bid to improve profitability and manage costs by looking at “new ways to improve business results in the fast-changing and highly competitive global business environment”.

Withdrawing from the European market will be a costly exercise for GM, with the closure expected to cost between $US700 million to $1 billion for “net special charges” relating to dealer restructuring, staff redundancies, sales incentives and other general expenses.

The company said it expected these charges to eat into fourth-quarter profit through to the first half of 2014, while other restructuring costs would affect GM International Operations –which includes Australian car-maker Holden – throughout 2014.

GM pulled the plug on Opel’s local operation in August this year after a 12-month struggle to gain a foothold in the fiercely competitive new-car market and failing to match the pricing of European competitors such as Volkswagen.

In April, GM announced a cash injection of $A5 billion into Opel between this year and 2016 to fund research and development of new models and powertrains with a view to becoming profitable by the middle of this decade.

GM famously came close to selling Opel in 2009 at the height of the global financial crisis, but the parent company changed its mind at the last minute, deciding to invest in the 112-year-old car brand.