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GM Broke Here, Flush Abroad
What happens if General Motors files bankruptcy for its U.S. operations while its plants in foreign countries turn a nice profit? The answer is … no one knows.
Ken Bensinger of the Los Angeles Times explains GM’s foreign connections and how its failure in the United States would create a downturn ripple effect globally. Among the noteworthy activities of GM abroad:
In the last three years, GM’s revenue has sunk 24% in the U.S., but in the rest of the world it boasts a 28% increase.
It employs 60% of its total work force in other countries. Of the company’s 252,000 employees, 152,000 work abroad, building Chevys, Opels, Vauxhalls, Holdens and Buicks in 33 countries.
Through the first nine months of this year, 4.3 million of the 6.7 million cars and trucks GM sold — nearly two-thirds — were purchased outside this country.
With a rising middle class fueling demand in countries like Brazil, Colombia, India, China, Russia and in the stronger Euro markets, GM sees a golden opportunity for meteoric growth. And they are getting an assist from foreign governments eager to develop industry.
In the United States, the Big Three face crushing healthcare costs and restrictive dealer franchise laws, and are burdened with a factory network built to produce the gas-guzzling sport utility vehicles now collecting dust on dealer lots. Abroad, however, GM operates clean and lean — paying competitive salaries, benefiting from government-paid healthcare coverage, and producing small, economical vehicles geared to those markets.
To maximize its profits, the company has spent the last few years working to significantly unify what were once very independent foreign operations, interlinking product planning, development, purchasing and production, GM officials say.
Such a globally-minded approach, said Rebecca Lindland, auto analyst with IHS Global Insight, carries a significant risk: Disruptions in one market can spell problems throughout the GM world.
Today, GM’s immensely complicated worldwide operations work in concert. The Pontiac G8 for sale in Van Nuys was designed in Australia.
In Bogota, Colombia, GM operates a 3-million-square-foot factory employing 3,100 workers who assemble up to 75,000 cars a year. Many of the cars put together there are partially built by GM subsidiary Daewoo in Korea and shipped over for final assembly.
The president of GM’s Colombia unit, Santiago Chamorro, worries that news of problems in the U.S. could scare car buyers in South America. “Bankruptcy is not in the interests of our employees, shareholders, suppliers or clients,” he said.
The global economic tailspin has had an effect on GM’s foreign operations. It laid off 1,000 workers in South Africa this year and idled production for several weeks in Brazil and Argentina.
In Russia, sales of Chevrolets were up 32% through October but have fallen of late, while overall industry sales in China fell 10% last month compared with a year earlier.
As in the U.S., GM has appealed to foreign governments for help. Last month, Opel requested about $1.25 billion in loans from Germany.
Leaders of France and Spain have already pledged aid to the auto industry, with one regional Spanish government promising a 200-million Euro loan to Opel to help it begin production of a new four-door hatchback.
And last week, GM, Chrysler and Ford asked the Canadians for help with operations there.
“A major argument for keeping GM out of bankruptcy is the strength of its foreign footprint,” said Kimberly Rodriguez, a partner at accounting and management consulting firm Grant Thornton, which works with auto companies.
Yet because of the deeply intertwined nature of GM’s global operations, if the company goes down here, she said, “there will certainly be problems for the company worldwide.”
Company officials declined to discuss what would happen in the event of a bankruptcy. GM’s foreign units are separate corporate entities, which means they would probably be shielded from a U.S. filing and could continue to operate without concerns of a U.S. court seizing their assets.
Meanwhile, Congress was spurred to action this weekend not to save GM from itself but the consequences of another 150,000 employees losing their jobs. The loan agreements for the three U.S. automakers suddenly looked more viable following the Labor Department news reporting 530,000 U.S. jobs lost during the month of November.
It makes one wonder why GM created a profitable model for its foreign operations but couldn’t or wouldn’t for Detroit.
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2 Responses to “GM Broke Here, Flush Abroad”
You forgot the pensions, the thirty-years-and-out foolishness, the true extent of the legacy costs that are killing the Detroit Three here at home — government health care not being “the” only issue of distinction. (It's so bad here that commonly we'd expect the UAW to actually demand large pay increases if federal health care were ever given to us.)
It's a failed model and the Demmies are going to keep it afloat with Obama's acquiescence (even if he provides the requisite sound bites to scold the companies) and beat up on management while going easy on the UAW, largely out of concern about the consequences of job losses at this time — plus a taxpayer bailout of PBGC and so on.
Nobody but outright fools will be proud of Amcars or American Leyland, which is what the result of a bailout will be.
“It makes one wonder why GM created a profitable model for its foreign operations but couldn’t or wouldn’t for Detroit.”
The model _was_ profitable for GM, long ago. Back then, there was no competition — the USA was a captive market and Detroit and the UAW could count on profits and generous-to-lavish pay and benefits for the employees. Once the competition recovered from World War II destruction, it became competition, something Detroit and the UAW refused to do. Detroit and the UAW have routinely been in denial that their model was obsolete in past _decades_ and want to be kept going while making only piecemeal, tardy efforts at reform on the companies' death beds.
Meanwhile, what does Washington want to do? Play “run an auto company”? Does it want to try to force “its” company (even if nominally multiple companies and nominally one or more private corporations) to engage in all kinds of political nonsense instead of letting the companies reorganize and just taking sound steps where it hasn't before? Not only in the area of constraining environmentalist extremism, but in making common sense reforms, such as making it legal for the Detroit Three (and other companies, of course) to import smaller vehicles that sell well in other countries and so should be available at a reasonable price to people here, with minimal delay and only transport costs as a source of concern? Why can't good-selling cars in Europe or Japan (including those made by Detroit makers) be sold here _already_? (Why do we have stupid Diesel-related environmental laws that preclude our having small and efficient Diesel vehicles here, for example?) The market for smaller vehicles isn't the enormous one that dreamers are envisioning, and it's immoral to try to coerce people into substituting smaller for larger vehicles if they prefer the larger, but there are attractive vehicles elsewhere that would appeal to many younger and single people, for example, as well as those on budgets.