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GM Withdraws Opel From Russia

GM Withdraws Opel From Russia.

Most Other Manufacturers Hang On, Hoping For Fairer Weather.

Cut your losses and take a big write-off, or hang on in there, take market share from those retreating, and hope to cash in when the market recovers?

That’s the dilemma facing auto manufacturers in Russia. General Motors has decided to cut its losses and pretty much withdraw all its assets from Russia. The rest, so far, have decided to tough it out, take current losses on the chin and hope to feel smug when Russia eventually becomes Europe’s biggest market.

GM said it would withdraw Opel by the end of this year, and most of the mainstream Chevrolet vehicles. It will stick with Cadillac and upmarket Chevys like the Corvette and Camaro. GM will halt production at its St Petersburg plant by the middle of the year, although it will continue to make the Chevrolet Niva with AVTOvaz.

Morgan Stanley liked GM’s decision, saying it highlighted the company’s “capital discipline”.

“We applaud GMs decision to scale back in Russia and believe management understands the limits of how far its brands can go, especially in troublesome markets,” Morgan Stanley analyst Adam Jonas said.

“After more than a decade of losses in Europe, we believe these actions can help right the ship making us more confident in GM’s goal to become profitable in the region in 2016,” Jonas said.

Ford Europe, which has a local partner Sollers, is hanging on in there. So is Renault, which through its affiliate Nissan of Japan and its control of local AvtoVAZ has more than 30 per cent of the Russian market. Renault and Nissan indirectly own 50.01 per cent of AvtoVAZ, which makes the Lada, among other vehicles.

Russia looks disastrous
Bernstein Research analyst Max Warburton isn’t impressed

“Brazil doesn’t look good, while Russia looks plain disastrous (for Renault). Russian car sales fell 24 per cent in January, with Renault sales down 32 per cent. How much could Russia lose in 2015? Russia …….. will lose hundreds of millions of euros in 2015. Renault is going to have to sell a lot of Twingos in Europe to offset the pain,” he said in March.

Peugeot-Citroen and Mitsubishi have a joint venture plant in Russia, and said they will halt production for the second time this year and cut 100 jobs.

Volkswagen will reduce output at its Kaluga plant, and shed 150 workers.

PricewaterhouseCoopers reckon Russia car sales could shrink another 35 per cent in 2015, after falling 10 per cent to 2.49 million in 2014.

In late March, Russia said it would spend the equivalent of $424 million to support the auto industry, after announcing $166 million of aid the previous week. The money will be used to subsidise interest on car loans and finance the purchase of trucks and commercial vehicles by state institutions.

The Russia economy will have to wait for a resurgence in the oil price, and an end to hostilities with Ukraine and the sanctions that go with this, before beginning to rally. Given that this will likely take many years, it makes GM’s decision look the most prescient.

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