March 18, 2010 at 3:57 pm

Neil Winton: European Perspective

Chevrolet Europe might be wise to throttle back a bit

A truck carrier full of Chevrolet Sparks. (Chevrolet)

Geneva, Switzerland -- Chevrolet Europe's plan to rapidly boost sales has stumbled after initial strong and unexpected success was thwarted by collapsing business in Russia, and experts say its new targets are probably too ambitious.

The little Chevrolet Spark will lead the new sales pitch, and this cute and well-made city car was the center of attention on the company's stand at the recent annual Geneva Car Show. The Spark will undoubtedly win many hearts when it goes on sale later this year. Expect to be able to buy the Spark in the U.S. in late 2011.

But Chevrolet Europe's ambitious plans have been forced into reverse, mainly because of collapsing markets in Eastern Europe, and Russia in particular. The fact that Germany, Europe's biggest market is likely to drop by about a third this year, while the whole of Western Europe slides by up to 16 percent, won't help either.

Wayne Brannon, Executive Director of Chevrolet Europe, was leading the charge at the Geneva show and said despite the recent setback the plan remains for sales to eventually hit one million a year. He didn't say when. Sales did double to 500,000 in 2008 from 2005, amazing some forecasters who had not expected this ambitious target to be met until 2011, but markets fell foul of the worst recession in 60 years, and the rest is history. Brannon now reckons that sales will hit 425,000 in 2010, about the same as last year's, and maybe double by 2015, or more likely a couple of years later.

Plan A

This is how the plan was supposed to operate. Small and affordable Chevrolets, mainly built in the former Daewoo plant in South Korean and bearing no relation to the familiar huge gas guzzlers typical of the brand in the U.S., were targeted at Eastern Europe's emerging markets. This started out with some names that will be unfamiliar to Americans. There was the tiny Chevy Matiz (replaced by the Spark), the Kalos (now the Aveo in the U.S.), Lacetti and Tacuma.

The range now includes the Spark, the Aveo, the Cruze -- a Ford Focus sized model shortly to launch in the U.S. -- the Captiva compact SUV, and spiced up by few Chevy Corvettes and Camaros. Next year comes the Chevrolet Volt, and later the Orlando.

Brannon said the increased model range will allow Chevrolet to compete in 66 percent of market sectors by 2012, up from just under 30 percent now.

Russia the key

Russia in particular and big eastern markets like Ukraine and Poland were the key to success. These markets were full of eager car buyers, many of whom hadn't ever bought a new auto before. The plan called for sales in the East to account for maybe 70 percent of sales, with 30 percent in the West. And before the crash, Russia was on its way to becoming Europe's biggest market.

Then sales dropped off a cliff.

Russian car sales dived 50 percent to 1.45 million in 2009, according to Deutsche Bank.

"Until recently, Russia was viewed by most auto industry observers as the next big market in Europe -- possibly even bigger than Germany. Although it is true that Russia has strong potential for growth, the financial crisis has underlined many structural weaknesses that will likely impact the future trajectory of the market," according to PriceWaterhouseCoopers' Autofacts.

At least the Russian car market looks likely to resume its growth in 2010, helped by the government's recent $350 million cash for clunkers subsidy, according to Autofacts.

Walt Madeira, manager of European vehicle sales forecasts for automotive consultancy CSM Worldwide, said the plan is too ambitious.

Big ask

"I would think 425,000 this year is going to be difficult. Anything above 375,000 I would say is very good, but they will be hard-pressed to do even that. Long term, I would say 600,000 by 2015 or 2016 is more likely," Madeira said.

Brannon's prediction of a doubling by 2015 would mean sales of about 850,000. That's a difference of 250,000.

"We know Russia had a terrible year and is much slower coming out of the slump compared to the rest of Europe. The scrapping program is aimed to help Russian manufacturers like Lada. Chevrolet's sales projections assume a recovery in Russia. If it was a three million market, they might end up selling 300,000 or 350,000 but that doesn't seem to be the case. Russia doesn't look like it's recovering as fast as China, Brazil or India," Madeira said.

Cannibalization

Chevrolet was at pains to point out that there was very little cannibalization between its sales, and those of its Opel-Vauxhall subsidiary, which is still owned by GM Europe after months of failed negotiations, when it seemed these storied brands would end up being sold to a Russian financed consortium.

Chevrolet insists that only about one percent of its sales are at the expense of Opel-Vauxhall. Chevy reckons that Opel-Vauxhall sells in a higher valued segment, but the latter surely are simply mass market brands competing with the cheap and cheerful offerings of the likes of Germany's VW, Fiat of Italy, and the French Peugeot, Citroen and Renault.

"In my analysis, there is cannibalization between the brands. Their dealer network infrastructure will often be side by side and if a dealer can't sell one, he'll try and sell the other," Madeira said.

Professor Ferdinand Dudenhoeffer of the Center for Automotive Research at the University of Duisberg-Essen thinks the whole Chevrolet project is heading nowhere. He said Chevrolet in Germany is slashing prices to move the metal.

Dudenhoeffer said at the lower end of the market, (where the Spark would operate) Renault's cut-price brand Dacia is doing well.

Weak brand

"Do they have better models? No way because VW, Nissan-Renault, Kia-Hyundai, Fiat and many others have far better sales. Do they have a specific advantage in technology? It's just GM. Do they have better cost structures? No way. Sorry I can't see it, in a few years Chinese brands like BYD and Geely will be in Europe. They will increase sales by chasing Chevy drivers. The brand is very weak," Dudenhoeffer said.

Dudenhoeffer says in Germany at least Chevrolet has no real brand image.

"What is the idea behind Chevy? Some Germans think of the gas guzzlers they see on holiday in Cuba, some think of Corvettes, some think of small and non-differentiated small cars. There is absolutely no brand image in it. They just sell cars with a lot of incentives -- in principle, the old GM story," Dudenhoeffer said.

Putin miffed

Dudenhoeffer also said Chevrolet didn't do itself any favors as a company seeking success in Russia by getting on the wrong side of Prime Minister Vladimir Putin. Last year, when GM pulled out of deal to sell GM Europe's Opel-Vauxhall to a consortium backed by Magna of Canada and the Russian bank Sberbank, Putin reacted by describing the conduct as "scornful".

Jonathon Poskitt, European Sales Forecast Manager for J.D. Power, is a bit more positive.

"The one million units figure is certainly an aggressive target and would require a number of things to go right for the brand to achieve this," Poskitt said.

Poskitt agreed that market conditions right across Europe are tough as government scrapping incentives expire, while Russia will take some years to return to its former level.

"As Russia does make progress, Chevrolet will, of course, benefit from its significant presence there. There is room for Chevrolet to increase brand awareness in Europe and it will be helped by building on a solid portfolio of models and by entering new segments," Poskitt said.

He didn't see much "cannibalization".

"I see Chevrolet competing more with the likes of Hyundai/Kia, Fiat, Suzuki, Mitsubishi, etc. than Opel," Poskitt said.

Too ambitious

CSM Worldwide's Madeira thought a more modest approach for Chevrolet would make more sense, describing his forecast of 600,000 by 2015-16 as attainable. This is a quarter of a million units a year under the company target.

"That would be very modest growth. That's what they should really target for Europe. If you try and double volume in a short time and don't achieve it, that's very frustrating. If you set the bar lower and achieve it, you get some positive momentum," Madeira said.

Neil Winton, European columnist for Autos Insider, is based in Sussex, England. E-mail him at neil.winton@btinternet.com">neil.winton@btinternet.com.