General Motors Company (NYSE:GM) Giving Up On Russia

The western automakers including General Motors Company (NYSE:GM) are giving up on Russia. The company informed that it would shut Russian plant and also wind down Opel brand. Few years ago, Russia was considered as a growing market with numerous opportunities for automakers.

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It was the time when the U.S. market was weakened after the financial crisis and no growth was seen in Europe market. At that time, all the major automakers wanted to have a pie of Russia’s auto industry.

The dismal environment

The hopes of General Motors and other automakers from Russian market are fading. The carmakers are revising their Russian sales goals, the impact of which is evident on their financial numbers. General Motors confirmed that its Opel segment would exit the Russian autos market. It will halt production at its facility based in St. Petersburg by the end of FY2015.

Auto sales in Russia are declining at an increased pace as the weakening currency and fragile economy are hit by Western sanctions arising from the tensions in Ukraine. At this moment, the buyers do not want to go for large purchases.

The decisions

General Motors Company (NYSE:GM) stated that its Chevrolet and Opel brands would quit the Russian market and cooperation with Russian automakers will be terminated. The company reached the view that the market no longer offers attractive opportunities over the short term, medium term or long term. For most of the car makers, the growing market of Russia has now become a liability.

In the long-term, the decision could hurt General Motors and other carmakers’ financial performance, as they tap out sales in China, Europe, and the U.S. However, in short-term the cash suck due to Russian market has to end. General Motors stated that it would halt production at its car plant and wind down Opel brand. The new measures would result in approximately $600 million in special charges and will be reflected in 1Q2015.

About the Author

John is a special projects and general assignment reporter, noted for breaking several exclusive stories.

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