General Motors will shut down its car plant in St. Petersburg "indefinitely" and scale down its Opel brand there as a response to regulatory pressure and a bleak outlook for Russian auto sales.
Car sales in Russian have dropped recently following Western sanctions over Ukraine and weak rouble, according to a company release. Automakers have been forced to come up with creative ways to cut costs while still attracting customers who aren't rushing to make big purchases.
"This change in our business model in Russia is part of our global strategy to ensure long-term sustainability in markets where we operate," said GM President Dan Ammann. "This decision avoids significant investment into a market that has very challenging long-term prospects."
GM wants to return to profitability in Europe by 2016 after more than 10 years of losses. Issues in Russia remain a problem in meeting that goal however.
Sales for new GM models dropped in Russia to 38 percent year-on-year in February, according to the Association of European Businesses.
Poor sales played a huge role in GM's decision to shut down the auto maker's St. Petersburg plant, which currently employs about 1,000 people. The plant is expected to cease production by the middle of 2015, according to the release
GM will also end its current deal with GAZ, a contract manufacturer building Chevrolet vehicles.
Opel will leave the market no later than December 2015 and the company will instead focus on premium segments with Cadillac and few U.S.-built Chevy vehicles.
"We do not have the appropriate localization level for important vehicles built in Russia and the market environment does not justify a major investment to further localize," Opel Group CEO Karl-Thomas Neumann said statement.
Chevy and Opel will work together with their dealer networks in Russia to determine future steps while honoring its obligations to existing customers.
"We intend to offer all our dealers to become authorized service repairers for their brands," said GM Financial News Director Dave Roman to AutoWorldNews.