SOUTHFIELD, Michigan -- General Motors, facing continued losses in western Europe, broke ground on the expansion of its factory in St. Petersburg, Russia, that will more than double annual production capacity from the current 98,000 vehicles to 230,000 vehicles by 2015.
The plant will make the new Opel Astra compact alongside Chevrolet models as the automaker seeks to revive its money-losing European unit, by capitalizing on Russia's booming car market.
"We've got to bring our best game, our best products to this market," GM CEO Dan Akerson said Thursday from St. Petersburg. The CEO spoke prior to a ceremony on Friday to mark the start of the plant expansion.
GM is introducing 12 new vehicles in Russia this year after increasing combined Chevrolet, Opel and Cadillac sales in the country by 53 percent last year to 244,000.
The automaker is making the effort as competitors also stake out claims to the fast-growing market as western Europe struggles with a fifth-straight year of declining vehicle sales.
Akerson, who is trying is trying to fix GM Europe, which has lost $16.4 billion since 1999 for its U.S. parent, will add five Opel models in Russia, while expanding Chevrolet and Cadillac brands globally.
The Detroit-based company posted a first-quarter adjusted operating loss in Europe of $256 million and also had $590 million in writedowns.
GM, which didn't specify its investment at the St. Petersburg plant, will expand employment there by 60 percent to 4,000, GM said in a statement on Friday.
The Russian auto market reached 2.9 million vehicles in 2008 before falling to 1.5 million in 2009, according to PricewaterhouseCoopers. Vehicle sales in the country, which gained 39 percent to 2.65 million last year, will probably increase to more than 3 million this year or next, Akerson said.
"We're making money here with Opel."
"We're going to push north of 10 percent share this year," Tim Lee, president of GM's international operations, which includes Russia, said during an interview in April, referring to the company's market-share targets in Russia. "We're selling 300,000 units" this year. GM held 9 percent of the market in 2011, according to a filing.
Increasing Opel sales in Russia will be a short-term help for GM while it works to implement a long-term fix for its western European operations, Akerson said. "Anything we can produce and ship here is going to be an offset," he said of Opel. "We're making money here with Opel."
GM announced last week that it wants to close its Bochum, Germany, assembly plant and to delay pay raises to workers as part of efforts to stem European losses. The company is in talks with labor unions about the proposed closure.
"We hope we can exit this uncertainty and negative bias in western Europe over the next couple of years and have a real good European business," Akerson said. Part of the strategy calls for Opel's "rapid market share growth" in Russia and increasing annual sales of the brand in China to 20,000 from 5,000.
GM sold about 67,600 Opel vehicles in Russia last year, down from 98,800 in 2008. That 32 percent decline was less than the market's 48 percent plunge. Opel is "on that kind of trajectory right now" to return to 2008 sales levels in Russia, Lee said Thursday in a telephone interview. "We should be where we were with Opel volumes."
While GM doesn't have "near term" plans to build Cadillac vehicles in Russia, Akerson said the automaker wants to expand the brand in the country as part of his goal to increase sales globally. Growing Chevrolet in Russia is GM's primary push, he said.
"It's clear that foreign brands are our primary competitors," he said. GM should be able to capture 10 percent to 15 percent of the Russian market in upcoming years, Warren Browne, the former managing head of the company's Russian operations, said in a telephone interview. "It will be one of the highlights of growth for them over the next two or three years."
Browne, now a vice president for consultancy AutomotiveCompass, said of Russia: "It will probably end up being the shining star of profitability for the region."
GM faces increasing competition in Russia from other automakers. While Chevrolet was the best-selling foreign brand in Russia last year with sales gaining 49 percent to 173,484, sales have fallen behind Renault this year through May in what's turning out to be a close race between the U.S. and French brands. The two were separated by 932 deliveries, according the Association of European Business.
The alliance of Renault and Nissan announced plans in May to take majority control of Russia's largest automaker, AvtoVAZ. Separately, Volkswagen and Ford have announced deals last year to increase production in Russia to take advantage of tax incentives for attracting foreign investment.
Automakers may import components with zero or 3 percent duties in return for investment agreements to build at least 300,000 cars locally a year.
PricewaterhouseCoopers estimates the Russian auto market, driven by improving economic conditions fueled by the oil and gas industries, will grow 7 percent this year and reach 3 million units in the near future, Rick Hanna, global auto leader, said in a telephone interview. "It's now the second-largest market in Europe behind Germany," he said.
Sources: Bloomberg and Automotive News Europe