By Jeff Bennett And John D. Stoll
General Motors Co. is closing its plant in Russia and stopping
sale of many of its products in that market, a strategic shift
aimed at meeting European profit targets and pouring capital into
ventures that carry less risk.
The move, announced Wednesday, comes in response to regulatory
pressure, economic uncertainty and a dire outlook for Russian auto
sales. Industry volumes fell 10% in 2014, and declines widened in
January and February as the economy weakened and the ruble
continued to soften.
Global auto makers have long seen Russia as a promising emerging
market, but regulations enacted earlier in the decade set high
production and local-sourcing quotas, raising the risk attached to
multi-million-dollar investments that are routinely made to keep a
production and sales operation afloat. While many auto makers have
slowed production in recent months, Ford Motor Co. and Renault SA
are among a number of companies reinforcing their commitment to
Russia of late--both companies have equity partners or joint
ventures that would make abandoning the market a complicated
task.
Faced with a litany of demands on its capital and little
indication Russia will turn around, GM executives decided the
company's money is better spent elsewhere. GM Chief Executive Mary
Barra has said the company will do what it takes to meet a 2016
European profit goal after more than a decade of losses, even if it
means abandoning business plans once seen as essential.
As a result, the auto maker's St. Petersburg plant, employing
1,000 people, will cease production by the middle of the year. GM
will also end its deal with GAZ, a contract manufacturer building
Chevrolet vehicles.
"It's is not just the current conditions but also the long-term
prospects for the market as we look ahead at our investment
requirements, " GM President Dan Ammann said in an interview. "We
need to be in a sustainable business model."
GM will pull the Opel brand from the market by the end of the
year and significantly curtail the amount of Chevrolet models it
sells. GM will export from the U.S. pricey Chevys, including the
Corvette sports car and Tahoe SUV; and Cadillac models will
continue to be imported and sold in Russia.
GM's Russia business has been in decline, with market share
falling from 9.2% in 2013 to 7.4% last year. The overall demise of
the Russian market contrasts a Western European car industry
gaining steam after a long period of malaise.
Mr. Ammann said there is still a business case to be made for
importing luxury vehicles to Russia. Daimler AG and other high-end
auto makers have said recently that demand for their products has
held up.
The GM-joint venture with Russian auto maker AvtoVaz will
continue to build and market the Chevrolet NIVA.
RBC Capital Markets auto analyst Joseph Spak said the Russia
move will be good for the short-term, making it more likely to meet
the 2016 profit goal while it also reallocates capital. But, in
doing so, GM may be impairing its future.
"Longer-term Russia still screens a large emerging car market,"
Mr. Spak said in a note to investors. He said GM rival Ford is
going in the opposite direction, indicating they want to be an
important player in the region by investing in an eventual
recovery.
Mr. Ammann cited Russia's regulatory environment as a drawback.
Under the country's Decree 166 rules, auto makers must commit to a
variety of stipulations including producing as much as 300,000
vehicles at an existing plant to avoid tariffs on imported
parts.
"Absent the regulatory standards you might find a way to muddle
through by deferring investments," Mr. Ammann said. "But the
requirement to meet the localization standards makes the equation
very difficult."
GM will record special charges of as much as $600 million
primarily in the first quarter. The special charges include sales
incentives, dealer restructuring, contract cancellations and
severance related costs. Approximately $200 million of the net
special charges will be noncash expenses. The $600 million charge
follows a $200 million charge in the third quarter related to
Russia.
The Russia decision is the latest in a series of moves that pull
back Chevrolet's presence in Europe. GM had earlier positioned the
iconic American brand for big growth in Europe, but reversed that
decision recently so that more focus could be paid to a surging
Opel.
Write to Jeff Bennett at jeff.bennett@wsj.com and John D. Stoll
at john.stoll@wsj.com
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