General Motors Company
) plans to hire 1,500 workers at its St. Petersburg plant in
Russia, known as GM Auto, as a part of its expansion plan announced
with the Russian government to more than double the plant's annual
production to 230,000 vehicles by 2015 from 98,000 vehicles
With this, the factory's headcount would increase to 4,000
people from 2,500 presently. The plant, which produces Chevrolet
Cruze sedan and hatchback as well as Opel Astra hatchback, will
begin producing the Astra sedan following the expansion.
The Government Plan
Last year, GM along with Renault SA and
Ford Motor Co.
) has promised the Russian government to boost production capacity
in exchange for exemption on customs duty for parts.
Under the plan, GM decided to spend $1 billion in the country
over five years in order to raise annual production capacity in the
country to 350,000 vehicles by 2015. The plan also included
expanding the company's Avtovaz joint venture in Togliatti,
How Expansion Helps Opel
With the expansion, GM will not only meet its commitment to the
Russian government but would mitigate losses at its German
subsidiary Opel. Since 1999, Opel's loss amounted to more than $16
billion with $747 million in 2011. As a result, the luxury
car-making unit is under pressure from its parent company to
mitigate the continuous losses.
Opel's management has already sought plant closures as a way
out. Recently, it announced plans to close its factory in Bochum,
Germany. However, Opel has met with several ordeals with regard to
its plant-closing plans as they are frowned upon by the political
framework of Europe, mainly Germany. Therefore, expanding overseas
-- mainly in China and Russia -- seems the best way-out for Opel at
Why China? The answer is simple. GM has already achieved the top
spot in the country by selling more than 2 million vehicles a year.
However, the automaker sold only 5,000 units Opel in the country,
indicating significant growth potential. In fact, Opel aims to
boost its annual sales in the country to 20,000 units.
Why Russia? The answer is that it is the second-largest auto
market in Europe following Germany and GM has a strong presence
with its Chevrolet lineup as the top-selling foreign brand in the
country in 2011. However, Opel needs to deal with strong
competition from big automakers such as Ford, Renault and
) in the region.
GM and the Debt Crisis
A few months back, Opel revealed that it expects to report an
operating loss of €1 billion ($1.3 billion) in 2012 due to fewer
car sales than anticipated based on weakening market conditions in
Europe due to the Eurozone crisis and ailing condition of the
In order to reverse the losses in Europe (totaling more than $12
billion), particularly from the Opel brand, GM has recently formed
a global alliance with
). The pact will help both the automakers reduce at least $2
billion in costs.
Last month, the European Automobile Manufacturers' Association
or ACEA reported an 8.7% fall in new car registrations to 1,107
million units in the European Union. In the first five months of
the year, sales fell 7.7% to 5,442 million cars on the
GM revealed an 8.4% slide in sales to 98,873 cars in May. This
translated into an 11.3% fall to 453,696 cars in the five-month
Automakers are still concerned about car sales in Europe in the
near term due to the continuous negative impact from the debt
crisis. Some automakers have projected that the European auto
market will shrink 5% in 2012.
GM, a Zacks #3 Rank (Hold) company, reported a $100 million fall
in profits to $1.6 billion in the first quarter of 2012 from $1.7
billion in the same quarter of 2011, before special items, due to
lower profits from its European operations.
On per share basis, adjusted profits were 93 cents during the
quarter, down 2 cents from the first quarter of 2011. However, it
exceeded the Zacks Consensus Estimate of 84 cents. Adjusted
earnings before interest and taxes (EBIT) dipped to $2.2 billion in
the quarter from $2.0 billion in the year-ago quarter.
Revenues in the quarter went up 4% to $37.8 billion on a 3% rise
in unit sales to 2.3 million vehicles globally. It was higher than
the Zacks Consensus Estimate of $36.4 billion. The automaker
occupied a worldwide market share of 11.3% during the quarter,
compared with 11.4% a year ago.
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