General Motors Corp. said Tuesday it is cutting production in Russia as demand declines in a market only recently described as potentially the largest in Europe.
The cuts affect GM’s new plant outside St. Petersburg and its venture with Russian manufacturer AvtoVAZ in Togliatti. GM’s Chevrolet is the best-selling foreign brand in Russia.
In St. Petersburg, GM will slash the work week to three days after restarting the assembly line on Feb. 9 following repeated shutdowns, company spokesman Sergei Lepnukhov said. “This will last for the next few months,” he said.
GM opened its new $300 million plant outside St. Petersburg in November with plans to produce 70,000 Chevrolet and Opel cars a year. But with the Russian market already contracting, the plant closed down for an extended holiday from Dec. 20 to Jan. 19. Production resumed for only one week before being shut down again.
In Togliatti, the GM-AvtoVAZ venture is cutting back to one shift and laying off some 400 workers, about one-third of the work force, company spokeswoman Lyudmila Murycheva said.
The steps were necessary “due to the current situation on the market,” she said.
The production cuts in Russia come as GM cuts 2,000 jobs at two U.S. plants and halts production for several weeks at nine other U.S. factories. The U.S. car industry is facing the worst sales slump in 26 years.
Foreign car sales in Russia increased 26 percent in 2008 — continuing a trend of several years — but were down 15 percent in November and 10 percent in December.
Foreign automakers had been looking to the Russian market to bolster flagging sales in the more saturated Western countries, but those hopes have been dimmed as Russia’s economy is hammered by the financial crisis. Falling oil prices have sapped the mainstay of the country’s economy.
A credit crunch has also hit car sales in Russia as many banks have stopped granting affordable car loans. The swift devaluation of the ruble, which makes imports more expensive, and rising unemployment have exacerbated the problem. Before the global financial crisis struck, Russia’s car market was on track to become Europe’s largest.
Ford, Renault, Scania, Toyota and Volkswagen have opened plants in Russia within the past six years.
Like GM, Ford and Renault also shut down for a month over the New Year’s and Orthodox Christmas holidays, two weeks longer than usual. Both companies said Tuesday that they had resumed production as scheduled and were working at normal capacity.
Hyundai, Mitsubishi, Nissan, Suzuki and Peugeot Citroen have announced plans to launch new production in the next three years. It was not yet clear whether the financial crisis would delay or scuttle any of these projects.
The Russian government — and some regional administrations in particular — have offered substantial incentives to foreign producers to set up assembly plants or manufacture auto parts in Russia.