General Motors will close its Russian manufacturing plant and slow down its Opel brand in the nation in an attempt to overcome an ongoing downturn in the automotive business sector, the U.S. car producer reported on Wednesday.
Following some years of over 10 percent growth, auto deals in Russia dropped in 2014 as the economy shrank on account of Western sanctions over the Ukraine crisis and a decrease in oil costs.
Russia’s currency, the rouble also fell last year, constraining purchasers to postpone huge buys and producers to come up with approaches to cut expenses.
The U.S. auto producer announced it would stop manufacture at its St. Petersburg factory which builds the Chevrolet Cruze, Opel Astra and Chevrolet Trailblazer models by the end of the first semester of 2015. The move will imply the loss of 1,000 jobs.
It will reduce the Opel brand by December and quit assembling Chevrolet autos at GAZ, a Russian vehicle plant, diminishing its presence on the Russian business sector to focus on premium auto sales.
GM President Dan Ammann noted:
“This decision avoids significant investment into a market that has very challenging long-term prospects.”
GM further said it would record about $600 million in special charges linked with the restructuring of the Russian business, mostly in the first quarter of 2015. Russia represented 1.9 percent of GM’s worldwide deals in 2014, down from 2.6 percent the previous year. The Russian auto market is projected to drop by 24 to 35 percent in 2015.
Oleg Datskiv, general executive of online car portal Auto-dealer.ru. Was quoted by Reuters as saying:
“At least 70 percent of cars currently sold in Russia are sold at a loss. Auto groups only stay in this market to protect their share in anticipation of growth.”
GM reported it would concentrate on the premium section in Russia, which has been in ‘better shape’ than the mass business, with Cadillac and a few U.S.-assembled Chevrolet vehicles. Opel sold 912 cars in Russia in February, a 86 percent dive on year-back levels, said a representative at Opel’s headquarter in the German town of Ruesselsheim. Opel has increased prices a few times to adapt to the feeble rouble, which dropped more than 40 percent against the dollar in 2014, prompting volumes to tumble and losses-per-car to climb, the representative explained.
Contrasted with some other foreign brands, Opel is affected by a low level of integration in the local market. It imports more than 50% of all parts required to set up autos there. By comparison, around 75 percent of auto parts for Renault-Nissan vehicles sold in Russia originate from local suppliers. This rate is around 60 percent for Germany’s Volkswagen.
Image Source: Detroit Free Press