GM's Opel unit leaves Russian market

Opel, the European arm of US auto giant General Motors, announced it will withdraw from the Russian market, where its sales are falling, and will close its factory in St. Petersburg (AFP Photo/Sebastian Derungs) (AFP/File)

Moscow (AFP) - Faced with plunging sales and dismal future prospects in the Russian market, US auto giant General Motors announced Wednesday it was withdrawing its Opel brand from the country and closing its factory in St. Petersburg.

The announcement by the Detroit-based group, a year to the day after Russia annexed Crimea, is yet another sign of a biting economic crisis prompted by falling oil prices and western sanctions over the Ukraine crisis.

After initially following competitors in reducing staff levels, Opel, the European arm of US auto giant General Motors has thrown in the towel.

"We've come to the assessment that the perspective for the Russian market isn't good, not only in the short term, but in the medium and long term as well," Opel chief executive Karl-Thomas Neumann told the business daily Handelsblatt.

General Motors and Opel subsequently issued a statement announcing a change to the group's business model in Russia.

"GM will focus on the premium segment of the Russian market with Cadillac and ... products such as the Corvette, Camaro and Tahoe," the statement said.

"The Chevrolet brand will minimise its presence in Russia and the Opel brand will leave the market by December 2015."

The decision "avoids significant investment into a market that has very challenging long-term prospects," said GM President Dan Ammann.

The new strategy will see the Opel factory in Saint Petersburg, which employs around 1,000 people, closed by mid-2015.

The group's production in Russia will be limited to its joint venture with Russian company Avtovaz to produce the Chevrolet Niva, successor to the robust, all-terrain Soviet Lada Niva.

- 'Decisive action' -

Opel CEO Neumann explained: "We do not have the appropriate localisation level for important vehicles built in Russia and the market environment does not justify a major investment to further localise."

"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," Neumann said.

As a result of the decision to change the business model in Russia, GM expected to record net special charges of up to $600 million (566 million euros) primarily in the first quarter of 2015, the statement said.

This decision "wasn't expected but seems logical: the market is falling sharply and if it rebounds it will do so slowly," said Vladimir Bespalov, analyst with the VTB Capital bank.

"Some small actors in the market may also decide to leave but there probably won't be as big a departure as that of GM."

The Russian market ran into crisis at the end of last year with the collapse of the ruble, hitting consumers hard as prices soared.

GM suffered a 75 percent drop in sales year on year in January and February in Russia, taking a much harder hit than the car industry in general which saw average 32 percent drop over the same period.

Other multinationals like Volkswagen and Ford have said they plan to ride out the economic storm in Russia.