General Motors' European Crisis: A Deadly Mistake at the Wheel

Strategic Insights -

General Motors' chairman, Jack Smith, revealed at the Detroit Motor Show that the company had taken its eyes off Europe to focus on its global ambitions. This strategic mistake has led to miserable financial results in key European territories. For years, GM harvested profits in Europe by supplying characterless saloons to companies, but the changing car market in Europe has left GM weak in both upmarket and ultra-compact vehicles.

GM's European profits collapsed from $754 million in 1996 to a mere $254 million last year, with a net margin of 2.8 percent. Professor Garel Rhys, director at the Centre for Automotive Research at Cardiff Business School, stated, "Every dog has its day, but it seems growth has come to a shuddering halt." The company's obsession with Volkswagen has contributed to its decline, as it has been trying to match the quality and ride of the admired new VW Golf.

Key Takeaways:

  • GM's European market share fell to 12.1 percent last year due to the delay in launching the new Astra, allowing VW to gain ground.
  • The Opel Astra's sales suffered as a result of the delay, while VW's Golf maintain a high loyalty rating of nearly 90 percent.
  • GM is importing cars from America to fill the gaps in its product range, including the Sintra to compete with Ford's Galaxy and VW's Sharan, and the Cadillac Catera for the UK market.
  • GM's higher-end Saab unit cannot produce in sufficient volume to meet the challenge in the higher-end market.
  • The company plans to cut up to 10 percent of its European labor force of 80,000, raising doubts about its build-quality and ability to launch a new product line.
  • Automotive Industry Data estimates that European sales of ultra-compact cars will triple from 500,000 to 1.5 million units annually by 2005.
  • VW will have four or five brands in the baby-mini category by 2005, including the Seat Arosa, VW Lupo, Lupino, and Audi A2.
  • GM has dismissed its "O Car" as a paper project in the ultra-compact category.

Statistics:

  • GM's European profits collapsed from $754 million in 1996 to $254 million last year.
  • Net margin of 2.8 percent in 1997, compared with CEO Jack Smith's stated aim of 5 percent.
  • European market share: GM 12.1 percent, Ford 11.4 percent, and VW 25 percent last year.
  • VW's Golf loyalty rating: nearly 90 percent.
  • Opel Astra loyalty rating: around 70 percent.
  • Ford's European market share: 18 percent in the UK last year.
  • Ford's net profit in Europe: $273 million last year, rebounding from a $291 million loss in 1996.

Sources:

  • "Miserable financial results from GM's key European territories confirm the magnitude of the error" (No date specified in the original text)
  • Professor Garel Rhys, director at the Centre for Automotive Research at Cardiff Business School (No date specified in the original text)
  • Automotive Industry Data, a British-based research firm (No date specified in the original text)
  • "The Lopez affair really brought GM's inferiority complex out into the open" (No date specified in the original text)
  • GM's annual report (No date specified in the original text)
  • David Trotman, Ford's British-born chairman and chief executive, quoted in a separate article (No date specified in the original text)