NEW YORK -- General Motors' decision last month to end production and most sales in Russia reflects a greater inclination by its executives to place bets where the company can win -- and cut bait when it can't, GM President Dan Ammann says.
The move surprised some industry watchers, even in light of plunging demand from Russia's severe economic downturn. Between Opel and Chevrolet, GM had a respectable 7.4 percent market share in Russia last year. And it's one of the vaunted BRIC countries -- Brazil, Russia, India and China -- that have long been viewed as the future drivers of global automotive sales growth.
In an interview ahead of this week's auto show here, Ammann acknowledged that the preferred path "would typically be to defer investment and hunker down, contain losses and see what happens." But today's GM executive team is more selective about where it deploys the company's capital, he said.
"I think it's a much clearer realization that resources are scarce," Ammann said. "We have a wide range of things that we could invest in. The technology investment requirements of the business are only going to go up."
Beyond the tough market, GM was faced with making "substantial" investments to meet Russia's regulations for localization of parts sourcing and production quotas, a pending expense that GM "couldn't get comfortable with," Ammann said. GM will take a $600 million charge mostly in the first quarter in wind-down expenses.
Some analysts question whether the move ignores a longer term growth opportunity. But others say it signals a more disciplined and pragmatic approach to growth.
The move "is a positive development that highlights management's capital discipline and understanding of its brand limitations," Morgan Stanley analyst Adam Jonas wrote in an investor note, calling the move "decisive and necessary."
"It is symbolic of GM's newfound commitment to be more disciplined with its capital," Jonas said. "While the old GM would have struggled to come to terms with reality, the new GM has recognized that it can't win everywhere."
It's the latest in a series of moves by GM to exit money-losing ventures that in the past might have been left to bleed red ink. In February GM announced plans to close an assembly plant in Indonesia and terminate about 500 workers, just two years after investing $150 million in the plant. That market is dominated by Japanese automakers, leaving GM with about 1 percent market share.
In late 2013, GM said it would make Australia an import-only market, shuttering its manufacturing operations there by 2017. Around the same time, GM decided to end most Chevrolet sales in Europe, focusing more fully on its core Opel brand in the market.
Ammann says GM is moving more decisively to exit unprofitable business lines in part because of improvements in recent years to its financial accounting systems that have allowed it to more precisely track profits and losses from market to market, down to specific product lines. Ammann led that systems overhaul as GM's CFO, before his promotion to president in January 2014.
The effort has given GM the transparency to "surface issues sooner" and make swifter decisions, Ammann said.
He likened the more judicial use of capital to GM's approach to vehicle production in recent years, matching supply to demand rather than overbuilding and figuring it out later. The strategy, as he summed it up, is "to constrain the supply a little bit more, be more selective, and make sure we're really thoughtful about how we're placing those bets."