General Motors Co. said it will retrench in Russia, stopping sales of its mainstream Opel brand and most Chevrolet models in a market where auto sales are plummeting as political turmoil prevails.
GM's move is the most drastic to date by a global automaker since the ruble's collapse last year, after the U.S. and Europe sanctioned Russia after its annexation of Crimea. As inflation surged, car sales dropped 38 percent in February in what Russia's Association of European Businesses said was "only the beginning."
With its pullback, to be completed by December, GM is the latest Western company to cut operations in Russia and reduce exposure to the region's volatile economy and political instability. Late last year, Google Inc. moved some operations from Russia, citing concerns about new regulations from President Vladimir Putin's government.
GM will take charge of about $600 million, mostly in the first quarter, for sales incentives, contract cancellations and severance-related costs, the Detroit-based company said Wednesday in a statement. In Russia, GM will continue to sell Cadillac models and select U.S.-made Chevrolets, such as the Camaro muscle car, Corvette sports car and Tahoe sport utility vehicle.
Shares of GM, the biggest U.S. automaker, rose 21 cents to close Wednesday at $38.50. They had risen 9.7 percent this year through Tuesday.
To meet Russian import rules, GM needed to invest more and increase production there, said Dave Roman, a company spokesman. That required investment that GM didn't want to make, especially considering that the company's sales in Russia fell 37 percent last year to 189,000 vehicles, he said.
"This decision avoids significant investment into a market that has very challenging long-term prospects," GM President Dan Ammann said in the statement.
As part of the move, GM will idle production at a manufacturing facility in St. Petersburg by the middle of this year. It also will cease an agreement with Russian producer GAZ Group to assemble Chevrolet vehicles this year.
"They're saying it's not going to be a profitable situation there," said Michael Robinet, managing director of auto-research firm IHS Automotive in Southfield, Mich. "They're looking to deploy capital in other places with better returns and lower risk."
GM employs 4,000 people in Russia, including 1,600 at the St. Petersburg plant, which builds the Opel Astra and Chevrolet Cruze small cars.
Ford Motor Co., the No. 2 U.S. automaker, plans to ride out the storm in Russia. On the company's Jan. 29 earnings call, Ford Chief Executive Officer Mark Fields said the company is introducing new models and expects the Russian market will have good long-term prospects.
"We've cut production. We reduced overhead. But also, we're introducing six new products between midyear last year and the end of 2015," Fields said. "So, I guess I'd term it there's never a bad time to introduce good products in any market. And that's our approach."
Renault SA and Nissan Motor Co., which have made the required investments, are also committed to the Russian market for the long term, said Mia Nielsen, a spokesman for the Renault-Nissan alliance.
"We're the most localized carmaker in Russia," she said.
Companies in other industries have made some moves away from Russia.
BASF SE, a German chemical maker, was poised to give up $12.7 billion of sales for stakes in OAO Gazprom's Siberian gas fields. BASF backed out of that swap in late December because of the "currently difficult political environment." Gazprom is the world's biggest natural gas exporter.
Carlsberg A/S, the Danish beer company, said last month it was lessening its dependence on Russia after the ruble lost about half its value in two years. Carlsberg's acquisition of Russia's Baltika breweries in 2008 was the biggest in the brewer's history, but the business there has worsened. Carlsberg generates about 25 percent of its operating profit from Russia, compared with a peak of about 50 percent shortly after the 2008 takeover.
Information for this article was contributed by Jing Cao, Mark Clothier and Keith Naughton of Bloomberg News.
Business on 03/19/2015