GM Begins Paying Price of Withdrawal From Russia
Executive Summary
GM estimates the overall cost of closing its Russian business at $600 million, with a significant portion earmarked for reimbursing former dealers for their investments. But some dealers have filed lawsuits claiming the compensation is inadequate.
ST. PETERSBURG – Facing the threat of seven-figure penalties, General Motors begins signing long-awaited compensation agreements with its former Russian dealers who bore significant losses due to the automaker’s sudden decision to abandon the country.
GM late last month signed the initial agreement providing Favourite Motors, one of its main ex-partners in Russia, with an undisclosed amount of compensation for Favourite’s investments in developing Opel and Chevrolet dealerships.
Under terms of the agreement, Favourite will continue to provide aftersales services for Opel and Chevrolet models and will continue sales of Cadillac automobiles in Russia next year.
Similar agreements may be signed between GM and other Russian ex-dealers by the end of the year.
GM’s Russian operations are to be restructured under the direction of Luca Patrignani, the newly appointed managing director of GM Russia and a former managing director of General Motors CIS. Patrignani also was responsible for Opel and Cadillac sales in Russia.
GM has estimated the overall cost of closing its Russian business at $600 million, with a significant portion earmarked for compensating former dealers for their investments over the past five years.
Russian Ministry of Trade analysts believe GM has chosen the right time to begin making compensation because it faces the threat of judicial proceedings which could lead to additional losses in the Russian market and harm its image.
At least four lawsuits seeking combined damages of RR1 billion ($16 million) already have been filed against GM by former Russian dealers and a parts supplier, and more claims could be filed in coming weeks.
The dealers contend the amount of compensation GM is offering falls short of their actual investments.
In addition to dealers, a lawsuit filed against GM by Autocomponent, a former supplier for the automaker’s Russian plant, seeks RR115 million ($1.9 million) in damages.
Filing of the lawsuits has resulted in the freezing of RR380 million ($6.1 million) of GM assets by a Russian court.
Despite the legal wrangling, GM still puts some hope in Russia, focusing on the premium segment of the market by significantly increasing sales of Cadillac cars and Chevrolet Corvette, Camaro and Tahoe models over the next few years.
The automaker is aware that despite Russia’s ongoing financial difficulties, sales in the premium segment remain relatively stable and demand for upmarket U.S. products, particularly SUVs, has significantly increased.
