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GM to pull Opel, most Chevy cars from Russia

Melissa Burden
The Detroit News

General Motors Co. said Wednesday it plans to stop selling Opel and most Chevrolet vehicles in the Russian market by the end of the year and will indefinitely idle its St. Petersburg plant.

The move, which could cost 1,000 people or more their jobs, comes a week after the company said Russia was under "serious review" and is the most aggressive to date by an automaker in Russia. Auto sales have been impacted by the collapse in Russian currency and the economic environment in Russia, now expected to be in a recession this year.

The Detroit automaker said restructuring in Russia will lead to about $600 million in special charges, taken mostly in the first quarter. Special charges include sales incentives, dealer restructuring costs, severance related costs and contract cancellations, GM said.

GM said it will focus on the premium market in Russia and will still sell Cadillac and U.S.-built Chevy models such as the Camaro, Corvette and Tahoe.

"This change in our business model in Russia is part of our global strategy to ensure long-term sustainability in markets where we operate," GM President Dan Ammann said in a statement. "This decision avoids significant investment into a market that has very challenging long-term prospects."

GM sales in Russia fell about 28 percent last year, according to a European trade group. Auto sales also are predicted to continue declining.

Russia a few years ago was seen as a major emerging market for GM and its Chevy brand. In 2013, Russia was one of the five top global markets for Chevy brand sales. GM sold 123,000 Chevys, 1,300 Cadillacs and 65,000 Opel vehicles in Russia last year.

Opel Group CEO Karl-Thomas Neumann said the company does not have the "appropriate localization level for important vehicles built in Russia" and the economic environment does not justify spending the money to localize.

"We had to take decisive action in Russia to protect our business," Neumann said in the statement.

GM will idle production at its manufacturing plant in St. Petersburg by the middle of the year where it builds the Opel Astra and Chevrolet Cruze. The company said a contract to assemble Chevy vehicles with the Russian firm GAZ will end this year. The company said its GM-AVTOVAZ joint venture will continue to construct and market the current generation Chevrolet Niva.

GM spokesman Pat Morrissey said the changes in Russia could impact up to 1,300 employees. GM employs 1,000 at the St. Petersburg plant and 300 in an office in Moscow, and some will be offered severance payments. He did not know how many would lose their jobs.

"It's too early to say what the future organization will look like, but it will be significantly different," Morrissey said.

In September, GM reduced production to one shift from two in its St. Petersburg plant and increased vehicle prices citing the volatility of the ruble, cutting about 500 jobs.

GM said the move does not change its goal to have a profitable European business next year and to have an 8 percent European market share and 5 percent profit margin by 2022.

Automakers have been dealing with Russia woes for awhile. Earlier this week, Nissan Motor Co. said it would halt production for 16 days. Late last year, GM said it has raised vehicle prices, cut jobs and for a time stopped sales to dealers in Russia. Ford Motor Co. cut jobs and reduced the value of its investment in Russia. Volkswagen AG at one point said the crisis has cost it more than $113 million.

In January, GM also said it would halt production from March 23 to May 15 at the St. Petersburg plant "due to a low demand and continued slowdown of the Russian automotive market."

Joseph Spak, an auto analyst with RBC Capital Markets LLC, said Wednesday in a note to investors that the move is good for GM in the near-term and should help them "better achieve European profitability in 2016."

Spak, though, said Russia long-term is still seen as an emerging car market.

"While GM still plans to have some presence in the country, their go to market strategy will be decidedly more high-end and de-emphasize the mass volume opportunity," he said in the note. "This is in stark contrast to Ford which has similarly acknowledged difficult conditions in the country, but continues to view Russia as potentially becoming Europe's largest market."

Staff Writer David Shepardson contributed.

mburden@detroitnews.com

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