With warnings from credit agencies that GM's (NYSE: GM) cash flow may drop as its debt rises, the company needs to expand beyond the US more than ever. It has a large presence in China, but many experts believe that Russia will soon be the largest car market in Europe. The Wall Street Journal says "sales of foreign-brand cars have risen more than 60% this year, thanks to an increasingly affluent middle class and an oil-fueled consumer boom."
GM is trying to buy a large stake in Russian car company Avtovaz. Fiat has also expressed an interest in the company. GM's sales in Russia will double this year to about 250,000, but having a manufacturing partner in the country could cut the costs of importing vehicles. It could also allow the US car maker the chance to make money from a local brand as well as its own cars.
While the rewards for GM are obvious, the risks are simple. GM may get into a bidding war for Avtovaz and the No. 1 US car company already has a less-than-desirable balance sheet. Pushing cash into Russia may weaken it more. The other issue is that Russian economic growth is based on oil and very few other factors. If the price of crude drops significantly, buying power in the country could fall off quickly.
GM may think it needs to be in Russia, but it could easily put too much money in the pot and get burned.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
12-05-2007 @ 1:24PM
vcs745 said...
With GM entering the Russian market, I do believe that the Dough Boy Putin will now get around in a brand new Cadillac, just as a good llittle commie must do!
12-05-2007 @ 3:09PM
Gumby said...
From Russia with more Yugoskis!!!
12-12-2007 @ 11:17AM
vcs745 said...
I'm glad that GM isn't getting into the Russian market like they hoped....it would have been a bad move in the long run....Putin is a communist and he will eventually "nationalize" everything just like he has done with gas & oil.
12-11-2007 @ 8:46AM
charles davie said...
SORRY! IM NEW AT THIS. QUESTION? EARLY OCT. JCI- JOHNSON CON. STOCK DROPPED. DID THAT STOCK SPILT OR LOSE?