General Motors will pull its Opel brand from the plunging Russian market by the end of the year and idle production at its plant in St. Petersburg, the automaker said.
In addition, Chevrolet will scale back its presence in Russia, selling “iconic” U.S.-built models such as the Corvette, Camaro and Tahoe as GM’s new strategy in Russia focuses on selling premium Chevrolet and Cadillac vehicles.
GM plans to idle its plant in St. Petersburg after production stops by the middle of this year. The factory assembles the Opel Astra, Chevrolet Cruze, and Cadillac ATS, CTS, Escalade and SRX models from kits, according to Automotive News Europe's European car assembly plant map.
Contract assembly of Chevrolet vehicles at Russian carmaker GAZ will also be discontinued in 2015.
“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.”
Car sales are falling fast as Russia's fragile economy and weakening currency are hit by Western sanctions over the conflict in Ukraine and buyers delay making large purchases.
Russia accounted for 1.9 percent of GM's global sales in 2014, down from 2.6 percent in 2013. GM's market share in Russia fell to 3.4 percent in the first two months, down a massive 5.8 percentage points from the year before, according to data from the Moscow-based Association of European Businesses.
GM’s sales in the country through February fell 75 percent to 32,936 in a market that was down 32 percent overall. Chevrolet sales were down 71 percent to 21,868, while Opel deliveries plunged 82 percent to 10,891.
Opel CEO Karl-Thomas Neumann said, “We had to take decisive action in Russia to protect our business. We confirm our outlook to return the European business to profitability in 2016 and stick to our long-term goals as defined in our DRIVE 2022 strategy.”
GM expects to record net special charges of up to approximately $600 million primarily in the first quarter of 2015. The special charges include sales incentives, dealer restructuring, contract cancellations and severance-related costs. Approximately $200 million of the net special charges will be non-cash expenses.
GM signaled during a March 9 conference call to discuss its plans for a $5 billion stock buyback that its Russian operations were under “serious review.”
RBC Capital analyst Joseph Spak said in a note to investors today that he sees the move as “a near-to-mid-term positive but potentially a longer-term negative.”
Spak notes the myriad difficulties of the Russian market, including regulatory pressures, economic uncertainty and the low number of local suppliers, which pressures margins. He said GM’s plan to pull Opel and most of its Chevy models from the market could aid GM’s goal of turning a profit in 2016 as the company refocuses on other markets.
GM's approach stands “in stark contrast to Ford, which has similarly acknowledged difficult conditions in the country, but continues to view Russia as potentially becoming Europe’s largest market," Spak wrote.
Reuters contributed to this report.
