NEWS ANALYSIS

A missed opportunity for GM, or a fresh start?

"Chevrolet doesn't make any money in Europe," Morgan Stanley auto analyst Adam Jonas wrote bluntly in a client note last week. "It was losing market share and brand consideration was weak."
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DETROIT -- Four years ago, General Motors' tumble into Chapter 11 bankruptcy was both a humiliating setback for an American icon and a fresh start that paved the way for a robust recovery.

With its decision now to mostly pull Chevrolet, that quintessentially American marque, out of Europe, GM is hoping for a similar plotline.

Beginning in 2016, Chevrolet "will no longer have a mainstream presence in Western and Eastern Europe, largely due to a challenging business model and the difficult economic situation in Europe," GM announced last week.

The move is widely seen as an acknowledgement that the nearly decade-long effort to establish Chevy as a value brand in Europe, while moving GM's Opel brand upmarket, had failed.

Still, some analysts believe the move was best for GM's bottom line and its prospects for growth in Europe. Rather than force-feeding Chevys into a market that had shown little appetite for them, they say, GM now can concentrate on its Opel and Vauxhall brands, which outsell Chevy in Europe by a 6-to-1 ratio.

For a sense of the size of Chevy's challenge, consider that the Cruze compact, Chevy's best-selling car globally, sold just 30,475 units in Europe this year through October -- one-tenth that of the Ford Focus -- according to the latest figures available from JATO Dynamics. Chevy's best sellers in Europe were the Aveo subcompact and the Spark minicar.

"Chevrolet doesn't make any money in Europe," Morgan Stanley auto analyst Adam Jonas wrote bluntly in a client note last week. "It was losing market share and brand consideration was weak."

GM CEO Dan Akerson telegraphed a major shakeup to the European brand strategy in an interview with Automotive News last month, expressing frustration with the persistent overlap between Opel and Chevy, whose products share floor space in about 1,900 dealerships across Europe.

"I don't think you can have an Astra ... and a Cruze sitting in the same showroom," Akerson said.

Chevy, he said in the interview, got off on the wrong foot back in 2005, when his predecessors at GM decided to roll out the brand across Europe in the form of rebadged vehicles from Daewoo, the Korean automaker that GM acquired in 2002.

"We sent in a bunch of young MBAs and said, 'We can make Daewoo a much stronger product. We're going to name it Chevrolet,'" Akerson said. "There was no brand discipline."

Akerson: Didn't like the overlap

Improved lineup


Since then, Chevy's lineup has evolved into a mix of vehicles built on platforms developed by both Opel and GM Korea, with styling and features that more closely match Chevys sold in the United States and elsewhere.

By 2011, even Akerson was expressing optimism that Europe could be a key part of a broader GM strategy that he inherited, to elevate Chevrolet into a global mass-market brand on par with Volkswagen and Toyota. At the time, he said GM "probably" needed to start building Chevrolets in Europe as part of its long-term growth strategy for the continent.

GM continued to sink resources into marketing the brand and expanding the Chevrolet retail network, frequently funneling money to Chevy dealers for store upgrades and to prop up their bottom lines. Chevy Europe went through four executive chiefs in eight years, including a switch this past summer that signaled a re-evaluation of the strategy.

But the European recession hit Chevy's target customer especially hard. Chevy sales have contracted faster than the broader European market, down 17 percent this year through October, to 124,425 units, compared with a 3 percent industry decline.

And ultimately, Chevy's improved European lineup didn't fix the overlap problem -- and might have exacerbated it.

Take the Chevy Trax small crossover, which was launched this year on the heels of the successful rollout of the Opel Mokka. Even GM insiders wondered aloud why the company would offer largely similar vehicles under two separate brands, both aimed at the mass market.

"Chevrolet now has some product which is, in my opinion, too close with the Opel product," Opel chief Karl-Thomas Neumann told reporters in September.

In the recent interview, Akerson said the confusing brand mix smacked of the old GM, which routinely plastered Chevy, Oldsmobile, Pontiac and Buick badges on largely identical products.

Under the new strategy, only iconic Chevys, such as the Corvette, will continue to be sold throughout most of Europe. Chevrolet will continue selling a broad lineup in Russia and other former Soviet republics, such as Ukraine, Kazakh-stan and Uzbekistan.

GM's European operation "will benefit from a stronger Opel and Vauxhall and further emphasis on Cadillac," Akerson said in a statement, while Chevy focuses on markets with more potential, such as China, Brazil and Russia.

Emphasis on Cadillac


Cadillac, which has almost no presence in Europe today, will expand its distribution network in Europe over the next three years in advance of "numerous product introductions," GM said. GM has been busily revamping Cadillac's U.S. products to make them more appealing to fans of German luxury brands.

By quitting on Chevy, GM is forgoing an opportunity to expand its market share and to wring more models from its global vehicle platforms, says Warren Browne, a Detroit-area automotive consultant and former GM executive who ran the company's Russian operations in the mid-2000s.

GM officials have long insisted that there's little cross-shopping between Chevy and Opel, meaning that Chevy's target customers may well defect to other value brands before considering an Opel.

"Chevrolet bowing out of Europe will energize Skoda and other mainstream brands," Browne said.

Beyond that, the retreat marks an embarrassing turnabout on a mission that GM had publicly defended as recently as this year. But Akerson has indicated that he's not averse to such reversals, and favors admitting strategic missteps and cutting losses rather than doubling down on grand visions.

Asked last month about the traits he'd like to see in his successor for GM's top post, Akerson talked about the ability to take chances -- and admit failure.

"Have the humility and audacity to say, 'I made a mistake,'" he said, "and back up and go down the other way."

You can reach Mike Colias at mcolias@crain.com.


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