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 GM said on Thursday that by the end of 2015 it will drop its
mainstream Chevrolet brand in Europe, except for certain vehicles,
like the Corvette sports car.
It made the decision, which the board approved in October according
to a person familiar with the plans, so it could instead focus on
rebuilding its Opel brand after failing to garner significant market
share for Chevy in the region.
Meanwhile, Australian media reported on Friday that GM has decided
to end its manufacturing operations there as early as 2016. While GM
has not confirmed those plans, a source told Reuters that GM Korea,
which stands to lose Europe as an export market for the Chevy
vehicles it builds, may in turn boost exports to Australia.
One banker said the decision to cut Chevy in Europe was 10 years
late, but at least the company finally made the right move. The
banker, who asked not to be identified discussing a sensitive topic,
said GM still has about half the operating earnings of global rivals
Toyota Motor Corp <7203.T> and Volkswagen AG <VOWG_p.DE> even though
their sales are similar.
"GM is under-earning relative to its size," said the banker, who
described GM's current moves as finishing unfinished business from
its 2009 bankruptcy reorganization. "Maybe it's them finally
deciding that they have to restructure the company in a much more
comprehensive way."
Morgan Stanley analyst Adam Jonas called the moves part of a more
coordinated approach at a Detroit-based company that now seems more
willing to upset some of its constituents — dealers in Europe and
employees in Korea — in its quest to improve its long-term financial
health.
"Maybe this is new GM," he said. "The old GM had this culture of
very powerful fiefdoms that could hide around the company's lack of
internal financial transparency and controls, and fight wars with
each other and Detroit.
"The new GM is kind of uncluttered a lot of those arteries, made the
internal accounting far more transparent and the controls vastly
improved," Jonas added. "And that, with new leadership at the top,
means what we're witnessing is — oh my goodness — a coordinated
global strategy."
Analysts and investors said GM's about-face in Europe, where it had
previously insisted Chevy could work alongside Opel, and its move to
gradually shift work away from its Korean operations finally show a
willingness to tackle a bloated bureaucracy left over from its
bankruptcy reorganization.
"It's actually showing that management's really committed to
rationalizing its cost base," said Leah Bennett, co-chief investment
officer with San Antonio, Texas-based South Texas Money Management,
which owns GM shares. "They're operating more strategically at a
global level."
Bennett called GM's recent moves positives, but warned the cash-rich
company will be under greater pressure in the coming year from
activist investors. She said that attention will only intensify once
the U.S. Treasury completes its planned exit from its GM shares at
the end of this month.
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BETTER LATE THAN NEVER
The move in Europe to drop Chevy was called the correct decision by
most analysts and investors.
The signs it was in the works were in place, starting in June when
GM announced that long-time executive Susan Docherty, who was
leading Chevy in Europe, would be leaving later in the fall. Her
replacement was restructuring expert Thomas Sedran, whose fate GM
has not disclosed given the new plan.
Chief Executive Dan Akerson in interviews over the next several
months spoke of a need for a fresh perspective about Chevy's place
in Europe and the need to end the confusion between the Opel and
Chevy brands.
That is a far cry from earlier comments that Chevy would be GM's
global mainstream brand. GM Vice Chairman Steve Girsky said Chevy,
the fourth-bestselling nameplate globally, will still be a global
brand even with a small presence in Europe, citing strong sales in
the United States, China, Brazil, Russia and Mexico.
"We get more bang for our buck spending the money in Opel and
redirecting the resources to Chevrolet in other parts of the world,"
he said in a Thursday interview.
Guggenheim Securities analyst Matthew Stover said Chevy does not
need to be sold everywhere for GM to have global success as long as
the company is cutting costs by building all its cars on fewer
vehicle platforms, using common parts.
Morgan Stanley's Jonas said GM can make up for its lost European
Chevy sales in markets where the brand is stronger, and perhaps the
U.S. automaker may reintroduce Chevy in Europe 10 years from now
when the landscape is very different.
Some analysts also wondered whether GM will use Chevy's exit from
Europe as a way to further distance itself from its Korean
operations, which shipped 187,000 vehicles to Europe last year.
Sources told Reuters in August that GM had begun gradually cutting
its presence in South Korea after mounting labor costs and militant
unionism triggered a rethink of its reliance on the country for a
fifth of its global production.
"GM over time is going to distance itself from Korea," Stover said.
"It's not a competitive place to make low-priced cars anymore and
that's what they make there."
(Reporting
by Ben Klayman in Detroit, editing by G Crosse)
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