March 7, 2017

Why Did General Motors Company (NYSE:GM) Keep Opel For So Long?

Despite losses in Opel investment, General Motors Company (NYSE:GM) had justified its investment over many years, on the basis that it provided engineering, which could be used to develop small cars in other markets, a line of business it thought had growth potential, but with the gas plentiful and cheap, not small cars, but the pickup trucks and sport-utility vehicles, are driving much of General Motors’s North American sales.

General Motors’ recent decision to abandon the European car market, by selling its Opel brand, the chief executive of the company Mary Barra is making good , on her vow to refashion the 109-year-old goliath’s, sell everywhere to everyone ethic into one driven by share price.

“They want to change the culture, get out of a money-losing business and send a message that they really want to focus on places they think that on the long-term basis, they can generate a return,” said Matthew Stover, an analyst with Susquehanna Financial Group.

General Motors Company (NYSE:GM)’s exit from Western Europe, to shift the focus elsewhere doesn’t come without risk, as including giving up the market share and the expertise.

Last year, General Motors Company has sold 1.2 million cars in Europe, Opel is headquartered in Germany, where, is considered the industry’s birthplace, and also a primary source for engineering and design innovation.

“The risk is that they will need that volume in Europe to absorb investment costs for vehicles they also sell around the world,” Stover said. “The Cruze here in North America shares a common platform with products in Europe.”

“The next ‘five-year business plan’ always showed a great hockey stick with profits just around the corner,” Lutz said.

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