General Motors to pull Opel out from Russia

Article by Andrew Christian, on March 23, 2015

General Motors has unveiled its strategy to offset the effects of the current crisis in Russia to its operations in the country. Its Opel division will exit Russia, shutting down its site in St. Petersburg by the end of 2015. Likewise, Chevrolet will scale back its presence in Russia, selling only “iconic” US-made models like the Corvette, Camaro and Tahoe.

GM will concentrate on selling premium Chevrolet and Cadillac vehicles in Russia. GM president Dan Ammann said in a statement that the change is part of the carmaker’s global strategy to ensure long-term sustainability in markets where it operates. He said that the decision avoids significant investment into a market that has “very challenging” long-term prospects.

Opel Group chief executive Karl-Thomas Neumann remarked they still expect a return to profitability next year and will stick to its long-term goals as defined in its DRIVE!2022 strategy. The carmaker expects to record up to around $600 million in net special charges -- including sales incentives, dealer restructuring, contract cancellations and severance-related costs -- primarily in the first quarter of 2015.

About $200 million of the net special charges will be non-cash expenses. RBC Capital analyst Joseph Spak said in a recent note to investors that he views GM’s move as “a near-to-mid-term positive but potentially a longer-term negative.”

He noted that the Russian market is plagued with a number of challenges like regulatory pressures, economic uncertainty and the low number of local suppliers.

He remarked that the plan to withdraw Opel and most of its Chevrolet models from Russia could help GM achieve a goal of turning a profit in next year. Moreover, Joseph Spak noted that GM’s move is “in stark contrast to Ford,” which continues to view Russia as possible the next largest market in Europe. He estimates Chevrolet controlling about 5 percent of the Russian car market with Opel just having has a 3-percent share.

Topics: gm, opel, russia

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