GM has taken the bold decision to withdraw Chevrolet from Europe and let Opel/Vauxhall have a clear run at the market in a victory for the company's European heritage brands.
IHS Automotive perspective | |
Significance | General Motors (GM) has announced a radical overhaul of its European brand strategy to concentrate on the Opel and Vauxhall brands in mainstream European markets, while Chevrolet will be withdrawn from those markets by 2016. |
Implications | The move means that Chevrolet will only retain a presence in western and Eastern Europe with specialist products like the new Corvette, although the brand will maintain its current significant presence in Russia. As part of the new strategy GM is also planning to expand Cadillac's presence in Europe. |
Outlook | IHS Automotive has previously expressed doubts about how Opel/Vauxhall and Chevrolet could successfully co-exist in the European market and GM's senior management has taken a similar view. It is the correct strategy for GM to focus on its main European heritage brand and it is further confirmation of GM's commitment to Opel and Vauxhall's European production network. |
General Motors (GM) has announced the results of its comprehensive review of its European brand strategy with the news that it will focus on the Opel and Vauxhall brands in its core European markets, with the Chevrolet brand being withdrawn from these same markets by 2016. According to a company press release the Chevrolet brand will from that point only maintain a very limited presence in Western and Eastern Europe with specialist products such as the new Corvette. GM said that from 2016, "The company's Chevrolet brand 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." Instead, Chevrolet will continue to have a broad presence in Russia and CIS states. Explaining this rationale GM said, "This will improve the Opel and Vauxhall brands and reduce the market complexity associated with having Opel and Chevrolet in Western and Eastern Europe. In Russia and the CIS, the brands are clearly defined and distinguished and, as a result, are more competitive within their respective segments." Another key component of the new strategy is that the presence of the Cadillac brand in Europe will be enhanced, backed by the range of new models that the company is introducing such as European market-friendly CTS. The company will look to improve and enhance its dealership network across the region to support a new product-backed assault on the market. Commenting on the decision to withdraw Chevrolet as a mainstream European brand, GM Chairman and CEO Dan Akerson said, "Europe is a key region for GM that will benefit from a stronger Opel and Vauxhall and further emphasis on Cadillac. 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."
As a result of the decision GM expects to record net special charges of USD700 million–1 billion primarily in the fourth quarter of 2013 and continuing through the first half of 2014. The special charges include asset impairments, dealer restructuring, sales incentives and severance-related costs, and will pave the way for continued improvement in GM's European operations through the further strengthening of the Opel and Vauxhall brands. Approximately USD300 million of the net special charges will be non-cash expenses. Chevrolet's European brand head Thomas Sedran looked to reassure existing and future customers Chevrolet customers in Europe. He said, "Our customers can rest assured that we will continue to provide warranty, parts and services for their Chevrolet vehicles, and for vehicles purchased between now and the end of 2015. We want to thank our customers and dealers for their loyalty to the Chevrolet brand here in Europe."
Outlook and implications
This move follows a full-scale review of European brand strategy commissioned by GM's senior management. Detailed discussions will have taken place between all the interested parties and GM has taken clear and decisive action over what was becoming an increasingly difficult problem. It became clear at the recent Frankfurt Motor Show that brand overlap in Europe between Opel/Vauxhall and Chevrolet was being much discussed although the fact that Opel and Chevrolet's European brand heads appears to have differing ideas on the subject perhaps indicated how deeply the problems surrounding this issue were entrenched (see Europe: 19 October 2013: Chevrolet and Opel brand heads disagree on overlap in Europe – report). At the time, Opel CEO Karl Thomas Neumann voiced his concern over brand differentiation. He said, "Chevrolet had a lot of budget product. Chevrolet now has some product which is, in my opinion, too close with the Opel product." Neumann specifically mentioned the example of the Chevrolet Trax in the German market, essentially a rebadged Opel Mokka with less standard equipment. It appears that Neumann, who is also the overall CEO of GM Europe, has been pushing hard for Opel and its UK subsidiary Vauxhall to have a clear run at the at European market and it appears he has won the fight. In June IHS Automotive wrote on this subject, "The lesson from VW is that co-existing brands have to be clearly defined in terms of their target consumers, price points and product line-ups. It remains to be seen whether there is enough space in a contracting European market for both Opel and Chevrolet to be afforded clear and distinct identities that do not rely on Chevrolet being defined as a value-orientated brand."
In truth, the strategy to introduce Chevrolet as a mainstream European brand was flawed form the beginning. The brand is seen as very much a US institution by European consumers, and it was also associated with the traditional image of the US car – big, heavy and powerful, with models like the Corvette sports car being the most high-profile Chevrolet model in Europe before the brand's official launch in 2005 in the region. Therefore it was somewhat confusing to consumers that the vast majority of Chevrolet Europe products were compact and sub-compact models like the Lacetti, eventually replaced by the Cruze, and the Spark, made by GM Korea. That these models were offered alongside heritage products like the Corvette was perhaps even more confusing. The products have failed to stand out enough in the market and led to the Chevrolet brand as being perceived as a relatively low-cost, value-orientated brand even if GM wanted to position it as solidly mid-ranking. As Opel/Vauxhall already occupied this position it was always a difficult mission to reconcile a clear positioning strategy for both brands. Given the downturn in the European market, which has also squeezed mid-market brands from the top by new products from premium carmakers moving into their traditional market territory, and from the bottom as a result of huge strides made by the likes of Hyundai, Kia and Skoda in the past decade, maintaining both Opel and Chevrolet was becoming increasingly problematic. In the first 10 months of 2013 Chevrolet's sales fell by 18.3% y/y to 121,621 units in the EU 27 countries, according to ACEA data. Opel/Vauxhall meanwhile actually outperformed the overall market with a 2.9% y/y fall to 682,105 units. GM's management should be praised for making a brave and bold decision that would appear to be the correct one for its goal of continuing its meaningful sales and manufacturing presence in Europe. However, this will be of little comfort to 800 members of staff employed directly by Chevrolet Europe.