Bitter rivals at home, GM and Ford taking different roadsabroad

A Ford Mondeo undergoes a quality inspection at the Ford Sollers assembly plant, a joint venturebetween Ford Motor Co. and OAO Sollers, in Vsevolozhsk, Russia. Ford is now the controllingpartner in the venture.

Photo credit: BLOOMBERG

David Welch

Keith Naughton

Bloomberg

April 25, 2015 - 12:01 am ET

General Motors and Ford Motor Co., Detroit's two venerable rivals, usually compete toe-to-toe ineverything they do.

But in Russia, they are headed in radically different directions. GM is cutting losses, having taken a$428 million one-time charge as the company winds down many of its Russian operations this year.

Ford, meanwhile, is spending more money on new models and plants, increasing its bet even as thefalling ruble and low oil prices have hammered car sales in the market.

Their divergent paths hint at where each company is headed not only in Russia but around the globe.

GM tried to expand in many regions before its 2009 bankruptcy and is now shuttering some weakoverseas businesses while Ford is trying to make up for having arrived late to the booming carmarket in China.

"GM chose the nuclear option," said Warren Browne, president of WP Browne Consulting in Detroitand former head of GM's Russia operations. "Ford is trying to navigate it. In growth markets, it's notalways growth. You can't ignore turmoil, but how many other markets have Russia's potential?"

Under CEO Mary Barra and President Dan Ammann, GM no longer feels the need to chase sales andglobal market share at the expense of profit. The company has targeted a 20 percent return oninvested capital, so riding out the economic downturn and political turmoil under Russian PresidentVladimir Putin doesn't fit the strategy.

"As we looked at the Russian market, the challenges today, and when it could recover, it just wasn'ta good return on investment," GM Chief Financial Officer Chuck Stevens said in an interview onBloomberg Television. "We don't think the market is going to recover anytime soon."

GM's pullback

GM will stop selling mainstream Chevrolet and Opel cars in Russia and pursue sales only ofprofitable higher-priced autos, including Cadillac luxury models and select Chevrolets, such as theTahoe large SUV, Camaro muscle car and Corvette sports cars.

The largest U.S. automaker also is pulling its Chevy brand from Europe and exiting Thailand andIndonesia.

"GM was minimizing risk in a market with many unknowns," said Michael Robinet, a consultant withIHS Automotive of Southfield, Mich. "GM is focusing on those markets that have less risk and morecertainty, like China and India."

Ford executives are determined to keep investing in Russia so they don't repeat the mistake theymade in China, where the company followed GM and Volkswagen AG and lags far behind both insales to this day, said people familiar with the company's internal discussions, who asked not to beidentified because the conversations were private.

A Chevrolet Aveo on the production line at the GAZ Group plant in Niznhy Novgorod, Russia, in Feb.2013. In Russia, GM will stop selling mainstream Chevrolet and Opel cars and only pursue sales ofprofitable, higher-priced light vehicles.

Photo credit: BLOOMBERG

Ford venture

In the past month, Ford bought preferred shares in its joint venture with Russian automaker Sollersand is now the controlling partner, consolidating the outfit's financial results into its own.

The company has acknowledged challenges in Russia. In July, Ford said it wrote down its entire$329 million investment in the joint venture with Sollers.

"I don't think Ford has the flexibility that GM does in Russia because the Ford relationship is a jointventure with Sollers and the joint venture has a huge loan extended from Sberbank," said MattStover, an analyst in Boston at Susquehanna Financial Group. "Given that structure, they can't hitthe brakes in the same way GM is doing."

Ford has invested $100 million in a plant in Yelabuga, started building its Transit van and will spendan additional $274 million to build an engine plant there. This month, the company started makingits Mondeo family sedan, bringing investment in its plant in St. Petersburg to $400 million since2002.

'Stay focused'

The company said it has six models for sale in Russia that are built by its Ford Sollers joint venture,which is adding the Fiesta subcompact and one more model this year.

Even today, Russia is Europe's fourth-largest market for new vehicles, according to Ford.

"We're going to stay focused," CEO Mark Fields told reporters in January. "It's an important marketfor us."

Ford has suffered pretax losses of more than $2.5 billion in Europe over the last two years, withRussia accounting for a significant portion of the deficit. The automaker said last year thedeteriorating situation in Russia would prevent it from achieving a goal to make money in Europethis year.

Last year, GM sold 189,000 cars in Russia, making it the fifth-largest producer. Ford sold 66,000vehicles in Russia last year, according to data compiled by Bloomberg.

China expansion

Ford was a late arriver in China and said it controlled just 4.2 percent of that market last year. Thecompany's sales in China surged 19 percent last year, as it delivered a record 1.1 million vehicles onstrong demand for its Kuga SUV and Mondeo sedan.

Last year, Ford introduced its Lincoln luxury line in China, which Fields said could eventually be thebrand's No. 1 market.

Meanwhile, GM has about a 15 percent share in China, its biggest market, and continues to increasesales. GM's had to decide to make a significant investment in Russia or scale back.

The company produced less than half its cars for the market locally. When the ruble collapsed, GM'simported cars became very expensive. The company would need to invest far more to make carslocally and avoid risk from the ruble.

"It would have taken a significant amount of investment in Russia for us to fix that business model,"Stevens said. "And we felt that those dollars would be better invested elsewhere."

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