General Motors has decided to cease sales of mainstream Opel and Chevrolet models in Russia due to the worsening economic situation in the world's largest country.
Opel will exit Russia by the end of 2015, while Chevrolet "will minimise its presence" in the country to high profit, made in the USA products, such as the Chevrolet Tahoe, Suburban, Camaro and Corvette. GM will continue selling imported Cadillac models.
The company's plant in St Petersburg will be idled by the middle of 2015, while the outsourced assembly of Chevy products at GAZ facilities will cease by the end of the year. A joint venture with Avtovaz to produce the current-generation Chevrolet Niva (above) and Lada Niva will continue.
Thanks to costs, such as severance pay, sales incentives, dealer restructuring and contract terminations, GM estimates that its retreat from the Russian market will lead to a hit of around US$600 million ($787 million) to the company's bottom line.
Dan Ammann, president of GM, told the press: "This change in our business model in Russia is part of our global strategy to ensure long-term sustainability in markets where we operate. This decision avoids significant investment into a market that has very challenging long-term prospects."
Opel's CEO, Karl-Thoman Neumann, added, "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".
Russia's central bank estimates that country's economy could contract by up to 5.8 percent this year if oil prices remain in the US$45-$55 ($59-$72) range. Since July of last year the price of crude oil has dropped from around US$100 ($131) a barrel to as low as US$45 ($59).
Last year, GM and other car makers were forced to temporarily halt sales of cars in Russia due to the rapidly plunging value of the rouble. Since the middle of 2014, the rouble has lost almost half its value against the US dollar. According to Reuters, Russia spent nearly US$80 billion ($105 billion) of its cash reserves in 2014 defending the value of the rouble.
Back in 2013, GM management decided to withdraw Chevrolet from most European markets in order to remove a source of internal competition with its mainstream Opel and Vauxhall brands. It was noted at the time that both Opel and Chevrolet would continue on in Russia, as bow tie brand was the fifth most popular marque in the nation.