Howes: In Russia exit, 'global' GM taking step backward
When former General Motors Co. CEO Jack Smith cut the ribbon on the company's joint venture with Russia's largest automaker in 2002, he capped a campaign begun soon after the fall of the Berlin Wall.
The Detroit automaker was the first global player to invest in the former East Germany, clearing a site in Johann Sebastian Bach's hometown of Eisenach for what became the template of GM's global expansion in emerging markets.
Then came China and Thailand, Argentina and Brazil, Poland and Russia — each forays into the "closed markets" the former GM chairman knew in a long career marked by the economic isolation of a world partially cloaked in communism.
"I thought we had a once-in-a-lifetime opportunity," Smith told me then in an interview in Moscow, days before he would be in Togliatti to dedicate GM's venture with AvtoVAZ. "Who's to say I was right? I have an unshaken faith that these are growth markets."
Not anymore, as his former aide, CEO Mary Barra, is demonstrating. Her decision to pull most of GM's operations from Russia and take a $600 million first-quarter charge to pay for it is a selective step toward dismantling a piece of the GM that Jack built.
GM plans to stop selling its Opel-and Chevrolet-brand models in Russia, leaving only iconic (and much smaller volume sellers) Cadillacs, Camaros, Corvettes and SUVs there. The automaker will idle indefinitely its plant in St. Petersburg, impacting 1,000 employees.
GM's faith in Russia essentially is gone, an unintended consequence of President Vladimir Putin's land grabs in Ukraine, the collapse of the ruble, skyrocketing interest rates, imploding oil prices, protectionist regulation and the impact of it all on the Russian economy and what was one of Europe's largest car markets.
The No. 1 Detroit automaker that long prided itself on its global reach is selectively retreating from markets that either are failing to produce acceptable profit margins, requiring massive investment with little promise of sufficient returns or both.
See Russia. And Australia and Indonesia, where GM will quit assembling vehicles. And Thailand, amid a restructuring. And Europe, where GM is withdrawing Chevrolet (minus its iconic Camaro and Corvette) and ceding the market to its German-engineered Opel brand.
Looking for another sliver of evidence to determine whether there really is a "new GM" emerging from bankruptcy, one with at least one corporate eye trained on Wall Street skeptics? This is it, a price in the quest to fulfill its stated ambition to be the world's most valued automaker.
No wonder Wall Street is applauding the move, even as global rivals marvel at how quickly Barra and her president, Dan Ammann, are mostly abandoning a market the competition is determined to stick with, albeit carefully.
It's an audacious move — and very un-GM, considering its long history of absorbing huge losses from the United States to Europe to South America in the name of going global, seeing long-term and being, well, GM.
It's also not without potential long-term consequences. Before the economic troubles exacerbated by Putin's political opportunism, Russia was trending to be a 3-million-units-a-year market that could soon overtake Germany as Europe's largest.
"Toyota's not going to leave," says Warren Browne, former managing director for GM Russia and now a consultant to the industry. "BMW's not going to leave. Ford's not going to leave. This is of their own making. There are six ways to navigate other than to pull the complete plug."
Commitments to expand capacity of its St. Petersburg plant and to meet tougher local-content rules for Russian-made parts can prove costly when a market collapses, as it has there over the past year. GM's choice: pay up, brutally cut costs or leave.
The abrupt pull-out at a time of domestic distress there is likely to tarnish any attempts to return under the circumstances GM enjoyed as an early foreign investor. How would customs officers greet gleaming Camaros and Corvettes destined for Moscow? How would prospective dealers, jilted by GM, eye a return? Or would-be employees? Or the government, with its heavy hand?
"We can express regret," Kremlin spokesman Dmitry Peskov, said, according to Reuters. "But on the other hand there never is a vacuum on the market. If one company leaves, other companies fill this gap." GM "unfortunately has put itself at a disadvantage for when the market picks up."
Maybe so — and in Putin's Russia, they'd probably make sure the disadvantage is costly and painful. But GM is trying to play a different game geared more to delivering the results it promises.
Barra's Russia gambit is one way to show whether, in fact, she can.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays and can be found at http://detroitnews.com/staff/27151.