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Gmâ??s Simple Solution: Move Production to China

As it presently stands, the crisis unfolding in the North American automotive industry has the potential to shake the economies of the United States and Canada to their respective cores especially if General Motors or Chrysler goes bankrupt. For the moment, Ford looks as if they may be able to ride the storm out, but they’ll quickly sink if either company fails.

All three automakers have been scaling back on advertising, future product plans and releases, and various marketing schemes including GM’s recent announcement that they wouldn’t hold a press conference at next week’s Los Angeles Auto Show. Auto shows, especially ones the size and caliber of L.A., are perfect opportunities to introduce new models and concept vehicles to members of the press who, in turn, give the car companies plenty of free publicity. GM had planned to roll out the Chevy Cruze, Cadillac CTS coupe, and other models in L.A., but they’ve decided to wait until January when it is Detroit’s turn to host a show.

Stay with me…I know that I am digressing!

US, Canada, and Mexico Will Suffer

Should GM or even Chrysler fail, the reverberations would be felt throughout the industry, indeed across the many provinces, states, and small towns dotting Canada and the United States. Mexico, which is geographically part of North America, but separate as far as the auto industry is concerned would suffer too – there are enough Big Three factories in the United States of Mexico that our southern friends would experience massive lay offs, a mortal blow to any third world nation.

An even greater domino effect would kick in depending on how big the fall is. Chrysler, General Motors and Ford each use the same suppliers, but so do Toyota, Honda, and Nissan for their many North American built cars. Every single one of the 500,000 or so Toyota Camrys sold on this side of the Pacific are built right here – if key suppliers went under because the Big 3 (or a portion thereof) went down, the impact on the Japanese brands would be enormous. Subaru, Hyundai, Kia, and BMW are some of the other “foreign” brands with assembly lines here.

A Leading International Producer

One way for GM to gain some leverage in either obtaining federal assistance, union concessions, or both is to simply transfer some or all of its production overseas. A harsh move, but one that is bent on survival. Think of it: through 2007 General Motors sold more than 9.2 million cars worldwide. In the United States alone that number was about 3.5 million, leaving 5.7 million vehicles built beyond America. Though GM builds more vehicles elsewhere, the most profitable vehicles are sold in North America — big SUVs, trucks, and luxury cars that provide the bulk of GM’s profits.

In China, GM has been growing at an explosive rate where the Buick brand sells twice as many vehicles there as it does in the United States. General Motors is now the biggest producer of passenger vehicles in China, with more than one million vehicles produced in 2007 alone.

The Detroit News (AP) reported yesterday that GM is looking at raising its stake in one of its Chinese joint ventures. SAIC, Wuling Automobile, and General Motors have a separate manufacturing partnership in place (SAIC-GM-Wuling) where the company produces select GM models. As a side note, those cars aren’t counted in GM’s annual sales numbers, but if they were then GM would be ahead of Toyota in the global sales race.

Upping Its Stake In a Chinese Venture

Chinese state run newspapers are saying that GM is interested in increasing its 34% share in the joint venture perhaps buying out the 15.9% controlled by Wuling. Regardless of how it all plays out, either one of GM’s joint ventures or its wholly owned companies could expand production to start building some of the cars produced in North America and ship these models across the Pacific to sell in GM showrooms. GM would quickly extract itself of an impossible labor situation while telling the U.S. Government thanks, but no thanks, as they move production overseas.

Building cars in China would be much more profitable for the company as the automaker would have much lower labor costs which would more than cover the expense of shipping cars back to the U.S. American suppliers could still be used, at least for the short run, until Chinese auto suppliers took over. Sure, the logistics sound awful, but give it five years and the move could be done.

Dumping the UAW and the CAW

Is this the direction I would like to see GM go? No, absolutely not. I can think of a myriad number of political reasons why this idea is terrible, one being our dependency on a communist country to supply our products (oops, too late for that!) Still, when your back is to the wall and you’re fighting for survival (or at least telling us you’re getting ready to be knocked down for the count) taking drastic measures may be the only thing at your disposal.

In short, General Motors wants to sound the death knell to two problematic labor unions – the UAW and the CAW – unions whom they blame for at least a significant portion of their current woes. Certainly, GM management has to share some of that blame as does the federal (American) government whose ridiculous CAFE, safety, and anti-pollution requirements have put a tremendous drag on the auto industry.

About the Author

Matthew C. Keegan is a freelance writer who resides in Cary, North Carolina. Matt is a contributing writer for Andy’s Auto Sport an aftermarket supplier of quality parts including custom air fresheners and carpet.

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