GM to Change Business Model in Russia

General Motors has announced plans to change its business model in Russia. GM will focus on the premium segment of the Russian market with Cadillac and U.S.-built iconic Chevrolet products such as the Corvette, Camaro, 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,” said GM President Dan Ammann. “This decision avoids significant investment into a market that has very challenging long-term prospects.”

The Chevrolet brand will minimize its presence in Russia, and the Opel brand will leave the market by December 2015.

“We do not have the appropriate localization level for important vehicles built in Russia and the market environment does not justify a major investment to further localize,” said Opel Group CEO Karl-Thomas Neumann.

The GM Auto plant in St. Petersburg will halt production by the middle of 2015. GM is planning to idle the plant. Furthermore, the contract assembly of Chevrolet vehicles at GAZ will be discontinued in 2015.

The GM-AVTOVAZ joint venture will continue to build and market the current generation Chevrolet NIVA. GM’s global luxury brand Cadillac will be set up for growth in Russia over the next several years as it prepares for numerous product introductions.

Chevrolet and Opel will work closely with their dealer networks in Russia to define future steps while ensuring the company will honor its obligations to existing customers in the coming years.

“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 Neumann. “We had to take decisive action in Russia to protect our business. We confirm our outlook to return the European business to profitability in 2016 and stick to our long-term goals as defined in our DRIVE!2022 strategy.”

By 2022, the company said it plans to raise its market share in total Europe to 8 percent and to reach a profit margin of 5 percent.

As a result of the decision to change the business model in Russia, GM said it expects to record net special charges of up to approximately $600 million primarily in the first quarter of 2015. The special charges include sales incentives, dealer restructuring, contract cancellations and and severance-related costs. Approximately $200 million of the net special charges will be non-cash.