General Motors is changing its business model in Russia, which is facing economic and political turmoil that contributed to GM’s lower-than-expected vehicle sales in the country.
General Motors said it would focus its business on the premium segment of the Russian market with Cadillac, its global luxury brand along with Corvette, Camaro and Tahoe. The automaker will import the cars from the United States to Russia.
General Motors said will position Cadillac for growth in Russia over the next several years as it prepares numerous product introductions.
According to the automaker, it would reduce the presence of its Chevrolet brand, and it would completely pull its Opel brand in Russia by the end of this year.GM discontinued the sales of Opel in China last year.
The sales performance of Chevrolet and Opel dropped significantly in Russia. Chevrolet’s sales declined 74% while Opel sales dropped 86% year-over-year in February.
GM said it will stop the production of its auto factory in St. Petersburg by mid-2015. It would also discontinue the contract assembly of Chevrolet vehicles at GAZ this year.
According to the automaker, the GM-AVTOVAZ joint venture will continue to build and market the current generation Chevrolet NIVA. GM said Chevrolet and Opel will work closely with dealer networks in the country to identify future steps to keep their obligations to existing customers.
“We can assure our customers that we will continue to provide warranty, parts and services for their Chevrolet and Opel vehicles. We want to thank our customers and dealers for their loyalty to the Chevrolet and Opel brands,” said Karl Thomas Neumann, CEO of Opel Group
General Motors aims to ensure long-term sustainability
GM President Dan Ammann explained that the automaker’s decision to change its business model is part of its global strategy to ensure long-term sustainability in the markets where it operates. He said, “This decision avoids significant investment into a market that has very challenging long-term prospects.”
Neumann added that the company does not have the appropriate localization level for important vehicles that are produced in Russia. He emphasized that environment of the auto market in the country does not justify a major investment to further localize.
General Motors maintains target profitability in Europe
Furthermore, Neumann said they have to take decisive action in Russia to protect GM’s business. He also confirmed the automaker’s target to return its European business to profitability by 2016. He said the company plans to increase its market share in entire Europe to 8% by 2022 and to achieve a profit margin of 5%.
The automaker estimated that it would record net special chargers of approximately $600 million primarily in the first quarter of 2015 as a result of the business model restructuring in Russia.
General Motors said the special charges include sales incentives, dealer restructuring, contract cancellations and severance-related costs. The automaker estimated that around $200 million of the net special chargers would be non-cash expenses.