GM to drop Chevrolet in Europe to focus on Opel

UPDATED: 12/5/13 8:30 am ET - adds details, reaction

FRANKFURT -- General Motors will drop its Chevrolet brand in Europe by the end of 2015, GM Vice Chairman Steve Girsky said today.

The move is the latest effort by GM to turn around its European operations and to focus its resources on reviving the Opel brand.

Chevrolet will no longer have a mainstream presence in western and eastern Europe due to a challenging business model and the difficult economic situation in Europe, GM said in a statement.

"We believe this is a win for all of our brands here in Europe and around the globe as GM will benefit from a stronger Opel/Vauxhall," Girsky said. To pull Chevrolet out of Europe "will help us to accelerate progress in the region," he said.

Some of the brand's iconic models, such as the Corvette, will remain on sale in Europe, and the upmarket Cadillac marque is working on an expansion in the region in the next three years, GM said. Chevrolet sales will continue in Russia, where the brand ranks No. 5 in sales behind Lada, Renault, Kia and Hyundai.

Low sales

Chevrolet's annual sales in Europe have remained low at about 200,000 since GM relaunched the brand in the region in 2005. Chevrolet focused on selling small cars in Europe such as the Aveo subcompact and Spark minicar built by GM Daewoo in Korea.

Chevrolets were supposed to compete at the budget end of the market with the likes of Hyundai, Skoda and Renault's Dacia. But the brand failed to make much headway as its largely rebadged Korean-made Daewoo cars struggled against rivals, whose models are customized for European markets.

GM Daewoo exported 186,000 vehicles to Europe last year, accounting for over 20 percent of the unit's total vehicle output. "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," Park Hae-ho, a spokesman at GM Korea, said.

Chevrolet's deliveries in the EU and EFTA markets dropped 17 percent to 152,260 vehicles through October, giving the nameplate 1.2 percent of the market. Opel and its sister UK division, Vauxhall, posted a 3 percent decline to 718,829 units over that period for a 6.7 percent market share.

Hurt by a brutal downturn in European demand, Chevrolet has responded by slashing prices and introducing more upmarket models -- putting it on a collision course with Opel.

Thomas Sedran, Chevrolet Europe president, said: "Chevrolet's business results have been impacted by the unfavorable economic environment in Europe."

Dealer network

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. More than half of the outlets also handle Opel models.

Girsky said that by shutting Chevrolet GM expects to record net special charges of $700 million to $1 billion primarily in the fourth quarter of 2013 and continuing in the first half of 2014.

Of this amount, $300 million of net special charges will be non-cash expenses. These charges 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 Chevrolet brand is not influenced by GM's partnership with PSA/Peugeot-Citroen, Girsky said. "This is done independent of the PSA relationship," he said.

Opel may not benefit

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.”

NordLB analyst Frank Schwope said the decision to drop the Chevrolet brand will likely to ease some of the pressure on a European market suffering from overcapacity. "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 said, referring particularly to strong European demand for Hyundai cars.

Abandoning Chevy shows that GM, unlike Volkswagen, is unable to manage several brands in Europe, Schwope said.

As part of its efforts to push Chevrolet 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 Chevrolet brand on the club's famous red shirts in 2014-2015.

Girsky said that deal remains unaffected. "We always looked at Man U as a global deal," he said. "They're exposed around the world and Chevrolet will be exposed around the world."

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.

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 Sedran, Opel's strategy chief.

GM’s losses in Europe since 1999 have exceeded $18 billion, including a $214 million deficit in the third quarter.

Reuters and Bloomberg contributed to this report

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