We just learned that General Motors is in talks to sell its European division, Opel, to French automaker PSA Peugeot Citroen. Though many are not in favor of the potential move, with some calling it short-sighted and foolish, I’d like to think that there is more to this particular development than initially meets the eye: could GM’s desire to sell Opel have the makings of bringing the Chevrolet brand back to Europe?
A Major Weakness
As it current stands, GM’s biggest, hairiest weakness is that it is the only major automaker without a global brand. Come to think of it, every other automaker — including Ford, Toyota, Honda, Hyundai, Kia, Volkswagen, Mazda and even tiny Subaru — has a global brand presence with the exception of The General. In fact, Chevrolet was just that for GM until the automaker decided to pull the plug on the brand’s presence in Europe at the end of 2013.GM is the only major automaker without a global mainstream brand
The reasoning behind the move was the GM already had a mainstream brand in Europe in Opel that was performing relatively well, and therefore didn’t need another one in Chevrolet. In addition, Chevrolet needed to vastly improve its image in the region thanks to the short-sighted decision in the 1990s to import shoddily-engineered and terribly-made Daewoo vehicles into Europe as Chevrolets, after GM’s acquisition of the defunct Korean automaker. In addition, GM was also looking at costs associated with modernizing Chevy’s product lineup and making adjustments to the Chevy dealer network in the region. Collectively, the efforts would have necessitated an investment of roughly $3 billion, according to executives familiar with the matter.
Instead of taking the plunge, The General decided to pull the plug on Chevy in Europe. Currently, the brand only sells low-volume Camaro and Corvette in Europe while leaving mainstream vehicle segments to Opel and U.K.-only sister brand, Vauxhall.
A Change In Leadership
It’s worthy to note that the decision to pull the plug on Chevy’s presence in Europe’s mainstream segments was made under ex-CEO Dan Akerson, with ex Vice Chairman Steve Girsky being a heavy influencer. Girsky was also responsible for the partnership between GM and PSA to co-develop vehicles, a move that have since been described as a big mistake. A few days after the decision to pull the plug on Chevy Europe was made public, The General announced that Mary Barra would succeed Akerson as CEO.
Since taking over as GM’s top executive and later taking on the chairman position, Barra has been under the gun from investors, GM employees, and Wall Street alike to increase shareholder value. Though the company has reported decent financial performance and earnings results, it hasn’t shattered expectations in the investment arena.
So the question is, did GM’s strategy for Europe change under Barra’s leadership?
Personally, I can see the following scenario playing out for The General in the European market: GM sells off Opel-Vauhall to PSA Peugeot Citroen, gaining billions in instant revenue as well as earning incremental revenue as it becomes a minority stockholder in PSA as part of the transaction.
By selling Opel-Vauxhall, GM will also rid itself of the prohibitively-high cost structure associated with Opel-Vauxhall manufacturing plants, which is the primary reason that the Opel division has not been profitable in over a decade. Closing plants is also not really a feasible option for GM, as Europe’s protectionist labor laws make doing so expensive to the point of being prohibitive. So by selling off its European arm, GM will effectively be able to wash its hands on the expensive, lagging division.
Having done that, GM can simply re-introduce Chevrolet into the European market, importing the vehicles from its South Korean manufacturing base while establishing a new dealer network for Chevy in Europe.
All In All
If GM does en up selling off Opel-Vauxhall, it will have significantly reduced its cost European structure by no longer owning any (or significantly fewer) plants in the region while also re-introducing Chevrolet as a truly global mainstream brand with high-quality vehicles like the Spark, Sonic and Trax on the low end of the spectrum, as well as the Bolt EV, new Cruze, Malibu and Equinox on the small and medium end.
The move will very likely result in significantly higher efficiencies across Europe that lead to minimized global costs, as well as improvements in financial performance in the short term, while also giving The General a pretty sizable and, more importantly, affordable opportunity to break Chevy into Europe’s mainstream segment in the long term. After all, Ford, Hyundai, Kia, VW and Toyota have show, it is significantly more efficient and advantageous to run a single global brand than two very separate, disparate ones.
That said, the move could present some problems, such as letting go of highly-valuable GM-Opel vehicle development, engineering, and design operations in Germany… though we’re certain that The General could negotiate to keep those that part of the operation for itself.