GM’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.
Nissan, Renault Seek Stake In Chrysler
Chrysler has been in the news a lot lately, thanks mostly to owner Cerberus Capital Management publicly pronouncing that the automaker is for sale. Just one year after acquiring Chrysler from the company now known as Daimler AG, Cerberus wants to ditch Chrysler.
General Motors is the one Chrysler suitor who has been getting all of the attention lately, but that arrangement may not be made. Cerberus already owns 51% of GMAC, which is GM’s financing arm, and would love to purchase the remainder from GM. In exchange, Cerberus would unload Chrysler to GM who would presumably keep Jeep while cutting the Chrysler and Dodge brands.
General Motors Can’t Arrange Financing
The problem with General Motors is that the automaker is struggling financially itself and finding it difficult to arrange the financing to acquire Chrysler. Part of the acquisition costs of taking over Chrysler would be the cost to shut down excess plants while providing lucrative, but costly severance packages to tens of thousands of workers. GM is in no position to buy Chrysler unless the federal government intervenes. Right now, the feds are busy putting out fires caused by the mortgage meltdown, and has been paying scant attention to what is unfolding in Detroit.
The newest wrinkle in the Chrysler sale is that Nissan and Renault are reportedly interested in getting a piece of Chrysler. Right now, French automaker Renault owns 44% of Nissan, while Japanese automaker Nissan owns 15% of Renault. The two automakers have a unique business relationship that has successfully married two dissimilar brands with both companies sharing one CEO, Carlos Ghosn.
A Nissan-Renault-Chrysler Triumvirate?
The terms of the Nissan-Renault bid have not been completely spelled out, but it would likely involve having Renault buying 20% of Chrysler and having Nissan foot the bill. Renault has several billion dollars of debt to contend with, while Nissan is awash in cash and could provide the funding for Renault.
An arrangement between Nissan, Renault, and Chrysler makes sense for two reasons:
Nissan and Chrysler have several new agreements already in place. These include Nissan building a small car for Chrysler’s Latin American network as well as providing a midsize car for Chrysler through the one of the company’s Tennessee factories. Chrysler has promised to provide the platform for the next generation Titan pick up truck which will likely be updated in 2011.
Renault could use Chrysler as a way to reenter the highly competitive US market. Back during the 1980s, Renault owned American Motors Company – which at that time owned Jeep – but sold the company to Chrysler who kept Jeep while tossing the AMC brand. Renault could supply some models for Chrysler and Dodge or even reintroduce its own branded cars through the Chrysler LLC dealer network. For its part, Renault could gain access to selling Jeep models across Europe.
GM Needs Some Cash…Fast!
As for GM, the company may not be left entirely out in the cold should Renault and Nissan get their way. Cerberus has been looking at acquiring the rest of GMAC, something GM could allow in exchange for some much needed cash and perhaps their own stake in Chrysler. Whatever takes place will likely happen fast – Chrysler being on the ropes does nothing to bolster consumer confidence, a surefire way to scare off potential buyers who are already being hammered by the worst financial crisis of this young century.
(Source: The Detroit News)
GM Plans To Double Its Global 4 Cylinder Engine Production
Stressing the need to produce more fuel efficient vehicles, GM has announced that the company will be doubling its small four cylinder engine global capacity (1.0L to 1.4L) with more than half of that increase taking place in North America.
New Engines To Power The Cruze And The Volt
The centerpiece of GM’s new strategy is an all-new 1.4L turbocharged engine which will power the Chevrolet Cruze 
while a normally aspirated version of the same engine will be placed in the company’s upcoming plug in hybrid, the Chevrolet Volt.
By 2011, GM says that one-third of its engine production will be four cylinder powerplants, with 21% of that total being turbocharged engines. That latter increase will reflect a seven-fold boost in GM turbo production.
“Power-dense four-cylinders such as the 1.4L Turbo are an integral part of GM’s portfolio of advanced propulsion technologies, including cam phasing, direct injection, Active Fuel Management, clean diesels, hybrids, flex-fuel vehicles, six-speed transmissions and electric propulsion,” said Tom Stephens, executive vice president, GM Global Powertrain and Global Quality. “GM is focused on delivering vehicles that look great, are fuel efficient and fun to drive.”
Michigan Gains A New Engine Plant
As part of the company’s new commitment to four cylinder engine technology, GM also announced today a major investment in a new engine plant to be located in Flint, Michigan. The $370 million investment will produce both versions of the 1.4L engine, with the plant being the exclusive home of the engine that will power the Volt.
“We are proud that General Motors has chosen Michigan as the best place to develop and produce the revolutionary Chevy Volt and other next-generation vehicles and components,” Governor Jennifer M. Granholm said. “Our competitive business climate, outstanding workforce and aggressive strategy to diversify our economy put us in a strong position to win this project and be the state that helps GM produce the cars and trucks that will help end our nation’s dependence on foreign oil.”
GM will construct a new 552,000 square foot plant and that investment will include new machinery, equipment and special tooling to support production of the new 4-cylinder engines. In addition to the $349 million facility investment, GM will spend an extra $21 million for vendor tooling to assist the new Flint operations. Construction on the new facility is slated to begin at once, with completion in 2010. The project is expected to retain about 300 hourly jobs.
(Source: General Motors)
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