By most accounts Russia will be the largest car market in Europe sometime within the next five years. General Motors (NYSE: GM) sells about 250,000 vehicles in the market, but is anxious to get a stronger foothold. Things have not worked out.

Several companies have been competing to get a piece of Russian car maker Avtovaz. Yesterday, Renault announced that it would pick up a 25% interest in the company. According to MarketWatch, the European car company will pay $1.25 billion for its stake.

The announcement is a blow to GM, which has to increase its sales overseas. The U.S. car market is slowing and is expected to drop as much as 7% next year. The No.1 U.S. car company also faces increasing domestic competition from Toyota (NYSE: TM) and Honda (NYSE: HMC), so it faces smaller share in a shrinking market.

GM has had real success in China where its is the leader in car sales along with VW. But local car manufacturers want a larger slice of sales there. GM's vehicle business in Europe is mature. That leaves South America, India, and Russia as the largest potential markets.

In October, GM's share price was up 40% for the year. Due to a fear of falling North American sales, it is now down about 8%. It needed the Russia deal.

Douglas A. McIntyre is an editor at 247wallst.com.

General Motors gets beat in Russia originally appeared on BloggingStocks on Sun, 09 Dec 2007 12:40:00 EST. Please see our terms for use of feeds.

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.

GM looks toward Russia originally appeared on BloggingStocks on Wed, 05 Dec 2007 10:39:00 EST. Please see our terms for use of feeds.