Opel

GM puts Chevrolet out of its misery in Europe

December 6, 2013: 1:10 PM ET

GM's decision to stop selling Chevrolet vehicles in western Europe suggests the automaker hasn't yet devised a credible strategy for stemming the rush of red ink in the region.

By Doron Levin

131206130124-chevy-aveos-barcelona-620xa

Chevrolet vehicles in Barcelona, Spain

FORTUNE -- The blob devouring General Motors' profits in Europe may have just gotten a little smaller. After eight years, GM (GM) will throw in the towel by 2015 on trying to sell Chevrolets to French, German, Italian, and other western European car buyers.

A minuscule market share of about 1.1%, Europe's continuing economic doldrums, and GM's horrific financial losses have convinced the Detroit-based automaker that selling Chevrolet-branded vehicles to Europeans is either 1) hopeless in the short term or 2) way too costly given other corporate priorities.

GM's decision suggests the automaker hasn't yet devised a credible strategy for stemming the rush of red ink in Europe. Resolving the European morass has been assigned to Steve Girsky, the former Wall Street automotive analyst who serves as GM's vice chairman and some say is a contender to run the company one day.

In fairness to Girsky and Dan Akerson, GM's chairman, the initiative to sell Chevrolets in Europe came four years before GM's 2009 bankruptcy and long before they arrived at the company. Akerson fired Joel Ewanick, GM's global marketing chief, in July 2012 after the latter signed a $600 million marketing contract with the Manchester United football club to promote the Chevrolet brand.

MORE: El-Erian: Jobs report is even better than you think

Many wondered in 2005 whether GM should try to sell Chevrolets in Europe when its main brand, Opel, was already struggling.

"The decision to focus on growing Chevrolet's presence in Europe was made years ago when Opel's future was in question," GM Vice Chairman Steve Girsky told the Wall Street Journal. "It has become clear that Chevrolet's results have become unacceptable, and we have to make a resource allocation decision here. Opel is gaining momentum, and the Chevrolet resources will be redeployed to help that and grow the brand elsewhere."

Girsky said GM will have to write off somewhere between $700 million and $1 billion through next year. Since 1999, GM has lost more than $18 billion in Europe, including more than $200 million as of its latest quarterly disclosure.

A GM spokesman said the company will continue to sell Chevrolets -- most of which are manufactured in South Korea -- in Russia. The automaker will also find a way to sell its new and highly praised Corvette sports car on the continent.

The spokesman, Dave Roman, added that there is "no change" in GM's agreement with Manchester United.

With high hopes for Chevrolet in China and South America, GM thus far isn't backing down on its intent to make Chevy "a global brand" that will be recognized and respected far beyond the borders of North America, where it is neck-and-neck with Toyota (TM), behind No. 1 Ford (F).

MORE: Google's Eric Schmidt wants a ban on Amazon drones

GM has achieved many improvements since bankruptcy, notably its profitability in North America, sales in China, and the rebound of the Cadillac luxury division. But Europe remains a big cloud hanging over the automaker and its stock. GM had a chance to get out of Europe altogether in the run-up to bankruptcy but changed its mind at the last minute about selling Opel.

Shareholders can grow famously impatient when they sense that a company's management is reluctant to confront difficult issues. Pulling the plug on Chevrolet took longer than it should have -- but it may be a sign that GM won't shy away from bolder moves in Europe.

Search This Column
View all entries from this: Week, Month
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.