Deteriorating Market

GM Unit Opel to Leave Russia

opel-Handelsblatt
Good bye, Russia. Opel will end production at the end of this year.
  • Why it matters

    Why it matters

    Opel will need to come up with a solid plan to compensate the loss of Russian sales.

  • Facts

    Facts

    • Opel sold 82 percent fewer cars in the first two months of 2015 than in the same period a year ago.
    • The plant closing, planned for the end of this year, will cost the company about $600 million.
    • The manufacturer will terminate 180 dealer contracts.
  • Audio

    Audio

  • Pdf

As the Russian rubel has plunged, losing 40 percent of its value to the U.S. dollar over the last year, Russians are no longer buying cars.

Opel, the German-based European unit of General Motors, has been among the hardest hit by the slump.

In January and February of this year, Opel sold just 1,985 cars in Russia – 82 percent fewer than a year ago. Sales at Volkswagen plunged 40 percent in the same period, but VW has no plans to halt production – yet. Although Japan’s Nissan reported a smaller decrease, 32 percent, the automaker has decided to put production on hold until the end of March.

Sergei Tselikow, a car analyst with Autostat, expects Russian car sales to drop 40 percent in 2015, and one in four car dealers to go out of business.

In an interview with Handelsblatt, Opel Chief Executive Karl-Thomas Neumann said Russia’s deteriorating economy, a consequence of sanctions imposed after it seized Crimea and funded separatist rebels in eastern Ukraine, was key to Opel’s decision to close its factory in Saint Petersburg.

 

Handelsblatt: Only a year ago, you were full of optimism about the Russian market. And now Opel will be the first automaker to pull out of the country. Why?

Mr. Neumann: It was a difficult decision, but the situation in Russia is a great burden for us. The market has declined by more than half. The depreciating ruble has forced us to raise prices considerably. And then we also saw a sharp drop in sales. We concluded that the outlook for the Russian market is not good, and not just in the short term, but also in the medium and long term. If the economy is ailing and exchange rates are going haywire, you eventually end up with a perfect storm. That’s why we’re withdrawing Opel and the high-volume Chevrolet models from the Russian market. We will only continue to sell imported premium Cadillac models and more expensive U.S.-produced Chevrolets, like the Camaro.

What will happen to your plant in St. Petersburg, where Opel currently builds the Astra for the Russian market?

We will shut down the St. Petersburg plant for the time being, and we will have to lay off the 1,150 employees there. We will only retain a small work force to maintain the plant. We don’t know yet how many employees we will have in Russian in the future. We would like to preserve a certain distribution structure.

What financial burdens will result from the plant closing?

We anticipate exceptional charges of about $600 million (€557 million). These special costs include, for example, expenditures for restructuring the dealer network and the costs associated with settlements and canceling contracts.

When did you lose confidence in Russia? You sounded downright euphoric in early 2014, when you unveiled Opel’s growth plans for the Russian market.

At the time, we were all pleased that we could add Russia to our European Opel family. All the experts were predicting that Russia would be Europe’s biggest market by early 2020. But when you realize that things are not turning out as you had envisioned, you have to take action – and do it quickly.

Some of your competitors would disagree. Toyota and Hyundai have even announced new models for the Russian market.

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