What Will Remain Of GM In Europe?

-6.76%
Downside
44.59
Market
41.57
Trefis
GM: General Motors logo
GM
General Motors

General Motors (NYSE:GM) decided to sell off its Opel/Vauxhall operation to Peugeot for $ 2.3 billion earlier this year. However, the company will still maintain some presence in Europe. This will be constituted by high-end Chevrolet sports cars and some models made by its premium car brand, Cadillac. In this article, we will evaluate whether the company’s decision to do this is good for investors or not.

First, let’s take Cadillac. On the face of it, Cadillac doesn’t fit any of the arguments made by the company for the sale of its European operation. The brand is well integrated into the company’s global engineering and product strategies, unlike Opel and Vauxhall. Luxury cars are extremely profitable, relative to any other car segment. In the U.S. they make up around 10% of the overall sales with 20% of the revenue and close to 50% of the profits. Moreover, there is considerable scope for growing the market for this brand. In 2016, Mercedes-Benz, Audi, and BMW made up around 85% of Europe’s premium car sales. Cadillac sold 781 vehicles in the continent, up 33% from its 2015 sales number. Even high-end brands like Bentley and Ferrari outsold Cadillac. This clearly means that there is scope to grow the sales of this brand in the region, but the company will have to come up with a strategy that makes its cars more popular with customers in Europe than they currently are.

The case for Chevy’s sports cars is much clearer. Ford’s American muscle car, Mustang, sold around 15,000 units in Europe, an increase of 44% from 2015 sales. Chevrolet’s Corvette and Camaro occupy the same niche and are popular with the same audience. However, the company only sold around 1,800 units of the two models combined in Europe last year. This again offers the company an opportunity to grow its sales in a highly profitable segment and this time the market is much clearer. The U.S.-based auto maker plans to sell around 5,000 units annually for its vehicles combined by the end of the decade, a modest target given that the market is 15 million annual unit sales in size.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for General Motors

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