Over the next five years, General Motors Company (NYSE:GM) will invest $1 billion in the Russian car industry. The official announcement was released in the last few days of 2012 and it is reported that GM will concentrate more on Russia than ever before. Considering the dismal car market in Western Europe and North America, Russia is set to be the next big automobile market for General Motors and other companies. In this article, I will discuss how GM’s plans in Russia will help the company increase its long-term profitability.
General Motors Company (NYSE:GM) intends to expand its presence in the “automobile capital” of Russia, the city of Nizhny Novgorod, by manufacturing 30,000 Chevrolet Aveo annually. The new investments will be channeled to the industrial enterprises of the city and Toliatti AvtoVaz. Next year, GM plans to invest $200 million in the modernization and expansion of the all-terrain Chevrolet-Niva, which is very popular in Russia.
According to the Automotive Logistics Russia, Russia remains the only light amidst the darkness of the crisis in the European market. The European market recorded a sharp drop in sales. In Russia, the first half of 2012 saw sales volume growing by 40%. In this context, GM does not intend to cede ground to its main competitors – companies as Ford Motor Company (NYSE:F), Nissan, Volkswagen and Renault. For Europe, the Russian auto market has been playing a similar role as the Chinese market for Asia, representing a colossal space for demand growth in the process.
According to New York Times, Russia will see an increase in the number of cars per capita to match the current European level. This is due to a special attitude of Russians towards car ownership, which automatically suggests affluence and a certain elevation in social status.
According to analyst Vlad Ivanenko, the Russian middle class consists of people who are well off in a sufficient manner and can afford fine cars despite the economic crisis. Russian demand for cars will only increase as the possession of cars is seen as a status symbol. GM was not mistaken in their expectations. It is logical to adopt and implement programs for long-term cooperation, and make big investments worth $1 billion.
Meanwhile, experts from the European Union (EU) are sure to be able to turn Russia’s largest sales market in the Old World. According to the Association of European Businesses, for every thousand Russians, there are 250 cars. For comparison, the figures are 11 in India, 49 in China, 500 in Germany and 600 in the U.S. Therefore, the growth potential of the Russian market is big and relevant for General Motors Company (NYSE:GM). Investing in Russia is akin to investing in the future of the company.
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