General Motors' Exit from Europe
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Case Code: BSTR520 Case Length: 15 Pages Period: 2013-2018 Pub Date: 2017 Teaching Note: Available |
Price: Rs.500 Organization: General Motors Industry: Automotive Countries: Europe Themes: Divestment Strategy, Corporate Portfolio Management, International Management, International Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Automotive Industry in Europe
The automotive industry was one of the most important contributors to the economy of Europe. Germany particularly was a leading automobile producer in the world. In fact, many analysts considered that the automobile industry had its origins in Germany. The country was also a leader in making passenger cars among all the member countries of the European Union (EU). The German automotive industry was responsible for more than 29% of the total EU automobile market share. According to reports by analysts, Germany produced more than 6 million vehicles, including passenger and commercial vehicles, every year. Besides, German automobile companies accounted for the manufacture of 5.5 million automobile units in overseas markets. France was the fifth largest country in the EU in the production of automobiles. On an average, the French automotive industry had an annual output of about 3.5 million vehicles by 2016...
General Morors' Entry and Expansion in Europe
GM entered the European market three years after its inception. It started making Chevrolet cars in Denmark in 1923 and in Belgium in 1925. It acquired Vauxhall in 1925 and Opel in Germany in 1929. In fact, Vauxhall and Opel were two independent brands with separate product lines and competitors outside of each other’s home markets. However, GM started to combine the product lines of the two brands in 1970, promoting Opel or Vauxhall, depending on the market conditions. For instance, Vauxhall was promoted in the UK and Opel in other countries. This strategy facilitated manufacturing synergies, wherein Opel cars were manufactured in Vauxhall factories and vice versa. If the two brands were sold simultaneously, they were promoted as ‘Vauxhall-Opel’. This happened after the merger of the Vauxhall and Opel dealer networks in 1980. Opel was promoted in the UK with the Manta, Senator, and Monza ranges. In places other than Europe, Vauxhall’s Bedford brand was used as heavy commercial vehicles...
What Went Wrong?
Europe used to account for about 20% of the global sales volume for GM, somewhat less than North America. However, the last year GM Europe reported a profit was in 1999. Analysts pointed out that GM had resorted to the divestment strategy in Europe after nearly two decades of losses since 2000, at an estimated total cost of US$ 20 billion...
GM Exits Europe
PSA stated in February 2016 that it had the idea of purchasing GM’s European Opel business, which included Vauxhall. This statement ignited anxiety over job cuts in France, Germany, the UK, and Spain. Analysts opined that this deal would generate the second-largest carmaker by sales volume in Europe after Volkswagen...
Political Apprehensions
The deal between PSA and GM brought in its wake the added complication of political issues. The deal would have to be accepted by workers unions, especially in France and Germany, where workers had a say in the major decisions of companies. The French government would be a key shareholder in this deal because it had taken a stake in PSA in 2014. Analysts felt that the European countries had a typical political attitude in saving their employees from job cuts. For instance, in Italy, the government had interfered in bank-rescue rules to protect middle class savers. France had blocked foreign acquisitions of its companies...
The Road Ahead
PSA had seen a lacklustre response to its electric vehicles before the deal with GM. Analysts opined that the deal would offer a huge boost to the development of the electric vehicle market. PSA would benefit from its access to GM’s electric car know-how, with the two companies being projected to team up on electric car technology after the deal. Analysts opined that PSA would become Europe’s second largest carmaker behind Volkswagen after the deal, accounting for 17% of the total market share...
Exhibits
Exhibit I: GM Segment Profit (Loss) To Net Income Attributable To Stockholders
Exhibit II: GM Global Sales in Number of Vehicles for the Year 2016
Exhibit III: Top 10 Car Groups Market Share in Europe for the Year 2016
Exhibit IV: General Motors Revenues from Europe
Exhibit V: New Passenger Vehicle Registration Data in EU and European Free Trade Association (EFTA) Countries in 2016
Exhibit VI: General Motors’ Market Share 2005-2016
Exhibit VII: General Motors Global Brand Strategy
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