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GM to drop Chevy in Europe to focus on Opel

FRANKFURT/DETROIT--In a strategic about-face, General Motors will drop the Chevrolet brand in Europe by the end of 2015 after it failed to build significant market share, and the company will focus instead on its Opel and Vauxhall lines to try to return to profitability there.

The world's second-biggest carmaker behind Japan's Toyota Motor Corp said on Thursday that the decision would result in one-time charges of up to US$1 billion, but it should lead to production, marketing and distribution savings.

GM shares were up 1.1 percent at US$39.13 in afternoon New York Stock Exchange trading.

Reintroduced in Europe in 2005, Chevrolets were to compete at the budget end of the market with the likes of South Korea's Hyundai, Volkswagen's Skoda and Renault's Dacia while turning GM's mainstream nameplate into a global brand.

But the Chevy brand, by far GM's biggest in its home U.S. market, failed to make much headway in Europe as its largely South Korean-made cars struggled against rivals, some of which are customized for European markets.

Hurt also by a brutal downturn in European demand, Chevrolet responded by slashing prices and introducing more high-end models. But that pitted it against Opel and Vauxhall, and Chevy's sales showed little progress at about 200,000 cars a year.

“Getting rid of Chevy seems to be a little about-face for them,” said Scott Schermerhorn, managing principal and chief investment officer with Granite Investment Advisors, whose largest investment position is in GM stock.

“They talked about a global brand, which is led by Chevy,” he added. “However, given the state of the market, focusing on the brands that sell well and no longer trying to swim upstream in growing the Chevy brand over there makes sense.”

While RBC Capital Markets analyst Joseph Spak described the decision as “flip-flopping” that nonetheless made sense, one investment banker said it was about time GM threw its support completely behind Opel, given the brand's storied heritage.

“It's been a long time and a waste of a lot of money to eventually come to the right decision,” said the banker, who requested anonymity because of the sensitivity of the topic.

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