General Motors Co (GM) on Wednesday announced plans to largely withdraw from the Russian market by the end of the year, becoming the most prominent company to date to express a lack of confidence in the deeply troubled economy.
The move reverses years of GM investments in Russia, where car sales had boomed. Now, however, the country is struggling with low oil prices and sanctions on its banks, and its economy is expected to contract 4 percent this year.
“This decision avoids significant investment into a market that has very challenging long-term prospects,” GM president Daniel Ammann said in a statement.
Since Russia annexed Crimea last year and its economy has faltered, other multinational companies have left. GM said it would shutter its main factory in the nation and wind down sales of Opel brand cars. The decision will cost US$600 million this year in severance pay to Russian workers and other one-time expenses, the company said.
For a time, the Russian automotive market had been expected to surpass that of Germany in sales volume. However, last month, car sales were down 38 percent across the board compared with a year earlier.
“This change in our business model in Russia is part of our global strategy to ensure long-term sustainability in markets where we operate,” Ammann added.
Largely exiting Russia as it goes into recession, even as the rest of Europe is projected to eke out some growth, will help the automaker return its overall European division to profitability by next year, the company said.
Multinational companies have been nervous about their Russian operations. Last summer, Russian regulators singled out McDonald’s Corp in a campaign of politically hued inspections, raising fears of a potential backlash against US sanctions on Russia for its role in the Ukraine crisis.
No signs of wide-scale regulatory pressure, though, have emerged. Instead, the Russian economy has simply slowed because of falling oil prices and sanctions, so that Russian consumers are no longer such a coveted group.
Russians’ inflation-adjusted incomes are declining this year for the first time since 2009, and for only the second time during the tenure of Russian President Vladimir Putin. Due to the collapse of the ruble in December last year, Russians’ incomes have plummeted: The average salary peaked in 2013 at US$800 per month and is projected this year to be about US$400.
Hamburger chain Wendy’s Co has wound down business in Russia, as has the clothing store Esprit Holdings Ltd.
The announcement from GM suggests that the car manufacturer is abandoning its bets on a rising Russian middle class, as it will cancel low-end models, but still market the Cadillac and other expensive cars to the rich.
GM plans to focus on premium brands in its lineup, like Corvette and Tahoe, along with Cadillac, while shuttering its car assembly plant in St Petersburg, Russia, which had been mass-producing midsize Opel vehicles. Opel sales are due to end this year.
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