General Motors Co. GM is facing a challenging situation in Russia on account of declining sales due to a weak economy. Consequently, the automaker will stop production at its lone assembly plant in the country, per media reports.
General Motors will shut down the plant in St. Petersburg as it aims to restructure the business model in Russia. The automaker had started this facility in late 2008. It is the company’s only wholly-owned production facility in Russia. General Motors has invested $300 million in this plant, which has an annual capacity of 70,000 vehicles.
The automaker has been facing problems in Russia over a period of time. In Jan 2015, General Motors announced the suspension of production at the St. Petersburg auto assembly plant from mid-March to mid-May. Also, it declared a hike in the prices of its products due to a weak and volatile Russian ruble. In Dec 2014, General Motors halted the delivery of vehicles to dealerships in Russia due to volatility in the ruble exchange rate.
General Motors also intends to withdraw its Opel brand from Russia by Dec 2015. Moreover, the production of Chevrolet vehicles by Russian firm GAZ will be discontinued from this year.
General Motors has been forced to scale down or shut its manufacturing operations in some other regions as well due to production constraints such as high costs and unfavorable currency translation effects. In Feb 2015, the automaker announced that it will stop the production of the Spin in Indonesia and close the Bekasi factory, thus leading to the layoff of 500 workers. After the restructuring, the Indonesian unit of General Motors will only operate as a sales unit. Operations in Indonesia are challenging for the company as it faces significant competition in the region from Japanese rivals.
General Motors has also decided to stop vehicle and engine production, and cut down engineering operations in Australia by 2017 end due to the strength of the Australian dollar against the American dollar, high production costs, limited domestic market and stiff competition.
General Motors currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the auto industry include American Axle & Manufacturing Holdings Inc. AXL, Autoliv, Inc. ALV and PACCAR Inc. PCAR, all carrying a Zacks Rank #2 (Buy).
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