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Muhammad Bazil
Muhammad Bazil
Articles (192) 

General Motors in Russia?

July 04, 2012 | About:

General Motors (NYSE: GM), despite being one of the largest and oldest vehicle manufacturers in the world, has experienced major financial and organizational problems. With a financial bailout from the government over four years ago, General Motors has had to look for viable ways to ensure that it does not go under again. In an extremely bold move, the company has decided to expand its operations in Russia where it opened its first branch in 2008. In General Motors’ plan to expand, an estimated $1 billion will be pumped into the project over the next five years. So what exactly does this move mean? In my honest opinion, I believe that this expansion into Russia will doubtless help in giving General Motors the necessary boost required to regain its rightful place among the heavyweights in the motor vehicle industry. I would urge the critics who may be so quick in writing off General Motors to take a step back and carefully review what moving into Russian territory means for this car manufacturer.

Less competition from other manufacturers

Many analysts have given the opinion that Russia’s car production potential has not been fully tapped, and the expansion of General Motors into this country will help in doing exactly this. With the vast amount of experience and knowledge that General Motors will bring to the table, competition from other vehicle manufacturers in the region is likely to be less stiff. While its chief competitors such as Ford (NYSE: F), the Chrysler Group (privately owned) and Toyota (NYSE: TM) have focused majorly on the American and European markets, the sales made by General Motors are sure to exceed expectations. Honda (NYSE: HMC) on the other hand has focused majorly on the Asian and African markets. Due to the fact that General Motors has also ventured into the manufacture of more affordable vehicles, it is bound to win the hearts of many in the country as the economic pressure increases globally.. Since it is also expected that the expansion will lead to an increase in the production numbers, which are expected to peak at about 350,000 vehicles annually in Russia alone by five years’ hence, General Motors’ dominance in this market is all but too certain. As one of the most popular cars in Russia is from General Motors I believe that it is safe to assume that this manufacturer’s position in the industry is not currently under a serious threat from other competitors.

Adapting to the changing times

With times changing in every aspect of the phrase, General Motors, like many other car manufacturers, has had to adapt in order to maintain its foothold in the market. The expansion into Russia by General Motors could not have come at a better time. This is due to the fact that it had been suffering considerable losses through its German based subsidiary Opel. With this subsidiary expected to announce a $1.3 billion operating loss in this year alone, its parent company has had to come up with a workable strategy that allows for its continued operation. Despite the fact that some of the suggestions put forward to deal with these losses have included shutting down of some of the manufacturing plants, General Motors’ management has thought otherwise. By venturing out into Russia on this scale, General Motors has found a way of covering losses, since the Western Europe market has remained quite weak to say the least. With news reports indicating that the Russian automobile market has started recovering from its slump, General Motors is sure to make a killing from its sales.

To all shareholders who may have been wondering what the next step for General Motors is, they should put a clear picture of Russia in mind. Being the second largest car manufacturing region, coming second only to Germany, Russia will be able to give General Motors the capability to attain greater heights in terms of production and distribution of motor vehicles. Increased revenue will also mean a corresponding increase in share price, a fact that I’m sure gives many investors plenty of smiles. I believe that the answer to the above question is that the future of General Motors is brightest in Russia, and that the move to expand into this country will be rewarded in the very near future.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

Rating: 2.8/5 (5 votes)


Power of Incentives
Power of Incentives - 5 years ago    Report SPAM
another perspective on the topic:

- earlier this year, GM took 7% of the capital of french manufacturer Peugeot

- peugeot just announced this week that its russian factory (75/25 JV with Mitsubishi) is starting full scale production.

- peugeot sales in russia are up 25% (or was it 35%?) in Q1 yoy

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