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General Motors pulls Opel out of Russia

Free fall: Western sanctions over Ukraine, inflation and low local content all factors in GM’s Russian retreat

Plummeting sales, continued uncertainty forces GM to idle plant and yank Opel, Chevy

Opel logo20 Mar 2015

GENERAL Motors has announced that it is drastically curtailing its operations in Russia, as the country reels in the face of a collapsing currency, rampant inflation and continued political unrest.

Opel, who relied heavily on Russian sales to boost its European sales, will exit the Russian market completely by December this year and, according to a statement, GM will focus on the premium end of the market with imported Cadillac and select Chevrolet models.

“This change in our business model in Russia is part of our global strategy to ensure long-term sustainability in markets where we operate,” said GM president Dan Ammann. “This decision avoids significant investment into a market that has very challenging long-term prospects.”

Opel Group CEO Karl-Thomas Neumann – who highlighted the difficulties in Russia at the recent Geneva motor show – said “we do not have the appropriate localisation level for important vehicles built in Russia, and the market environment does not justify a major investment to further localise.”“The Russian market has developed differently from what we expected. It is definitely a setback. We had to act and protect our business.” He also thanked the GM employees in Russia for their “hard work,” following up the statement later on Twitter, saying it was a “difficult day”.

GM will idle the $500 million (AU$653 million) St Petersburg plant just eight years after its completion, and will pull out of a joint deal with local carmaker GAZ to build Chevrolet models. A deal with Russia’s largest automaker Avtovaz to build a single model, the Chevrolet Niva, will continue.

The decision to shut down the plant – which builds the Chevrolet Cruze, Chevrolet Trailblazer and Opel Astra – comes only three years after GM initiated plans to increase its output from 98,000 to 230,000 cars by this year.

Some 500 St Petersburg workers were offered voluntary redundancies last September, while reports suggest that the plant’s production was cut to just 16 days between August and October last year.

GM will take a US$600 million (AU$784 million) charge against its first-quarter earnings for dealer restructuring, contract cancellations and severance-related costs. The St Petersburg plant, which employs 1600 workers, will be shuttered by mid-2015.

Overall, the Russian market shed 10 per cent in 2014 to record 2.49 million sales, while the forecast for 2015 is far worse, with PriceWaterhouseCoopers analysts predicting a slump of 35 per cent.

Opel sales fell 20 per cent last year, while Chevrolet slipped 29 per cent.

Sales figures for the brands in the first two months of 2015 are more dramatic, losing 82 and 79 per cent respectively year-on-year, against a 38 per cent overall market loss for the same period.

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