General Motors announced Wednesday it will not be selling its European subsidiary Opel (and its British counterpart Vauxhall) to Canadian parts supplier Magna (and its financial partner Sberbank). The General cited several reasons for the decision, including its own improved financial position as well as an improved business environment in Europe. And let’s not forget the fact that this comes just one week after the EU’s Directorate-General for Competition began an investigation into the Magna deal. But all those don’t get down to the real reason as to why GM decided to keep Opel:
I believe GM kept Opel because without it, GM would be completely uncompetitive in Europe.
Opel is a very popular mainstream marque in Europe, competing with the likes of Volkswagen and Ford. In fact, it’s the region’s third most popular brand (after those two, respectively) and holds a roughly eight percent market share in Western Europe. By selling Opel, The General would essentially be taking itself out of the European car market.
For an organization the size of GM, that’s not good news: huge car makers, especially those that compete globally, depend on economies of scale – the ability to reuse resources such as engineering, purchasing, and manufacturing to bring (and keep) costs down. By not competing in the European market, GM would be putting itself in a disadvantaged position where it would be less capable of taking advantage of that scale.
What about Chevy?
While the Chevrolet brand is sold in Europe, it’s products are extremely uncompetitive – with most of the vehicles being rebadged Suzuki models from early in the decade.
So besides the scale issue, GM would have been faced with even higher costs resulting from building up the Chevrolet brand from what is essentially zero! Chevy would need a new product line (most likely sourced from the US). That would call for things such as modifications for European crash-test safety standards, marketing for the new vehicles, and emissions certification, besides many others.
So here’s what I think happened: after opening the bidding floor on Opel, GM’s financial wizards have tallied up the expenses that would be involved in reinventing Chevy in Europe (along with its product line) and decided it was cheaper to keep Opel and bear the restructuring costs. It would be worth it since, afterall, Opel makes some of the best vehicles on the market! From the Astra and Insignia to the GT (Saturn Sky/Pontiac Solstice) and Antara (Saturn Vue), Opel vehicles are class leaders.
In the end, keeping Opel/Vauxhall means GM gets to keep its dominant position in the European market. The real question going forward is what will become of the Chevrolet brand in Europe? The Chevy Cruze is the newest addition to the line-up and has received positive reviews. Will GM align the European Chevy product line with that of the US? Will it bring Europe such models as the Malibu and the next-gen Aveo? Look for a post related to this matter soon!