GM, Ford suspend Russia production

U.S. car giants General Motors and Ford suspended operations on their production lines in Russia Wednesday as the deepening economic crisis squeezes Russian consumers’ demand for new cars.

GM said its brand new plant outside St. Petersburg would halt manufacturing until August 31.

“Having carefully studied the state of the Russian car market and the extent of reduction in the demand from the creditworthy population, we have decided not to force a production increase at our Russian plant this year,” Chris Gubbey, GM Russia’s president, said in a statement.

The company said no major layoffs would occur among the plant’s 1,000 employees, though it was unclear whether that might signal smaller-scale cutbacks or unpaid furloughs.

Meanwhile, Ford shut down its St. Petersburg area factory until July 13, spokeswoman Yekaterina Kulinenko said.

Foreign auto makers had rushed to tap the country’s rapidly expanding middle class after years of oil-fueled prosperity and Russia was on the way to become Europe’s largest car market, with sales rising some 25 percent annually.

But the global financial crisis has caused car loans and other credit to all but dry up. Rising unemployment has also helped curtail the market’s rapid growth.

Depite Russian government incentives to bolster the domestic industry by offering zero-interest loans on cheap Russian-made cars, the outlook is still bleak for Russian carmakers.

Carmaker GAZ will lay off 7,000 people to cut costs, an official in the Nizhny Novgorod region, where GAZ is based, was quoted as saying by the Interfax news agency.

The plant currenty employs 11,500 people. Unlike its peer AvtoVAZ, GAZ has not received any government funding and has to struggle on its own.

New car sales in Russia dropped 47 percent in the first five months of 2009 compared to a year ago, according to the Association of European Businesses.

Copyright 2009 The Associated Press.