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General Motors Leaves U.S. Workers by the Wayside as it Accelerates Operations in China

By Jason Simpkins
Managing Editor
Money Morning

For decades, General Motors Corp. (NYSE: GM) was an icon of American industry. But over the past decade its sales in China have steadily increased, while dwindling sales at home have turned the company into a relic.

Now facing bankruptcy, GM has an opportunity to shift its operations to China, its fastest growing and most profitable market. The company is already attempting to move its manufacturing operations to the Asian powerhouse, and that has given rise to speculation that it will move its headquarters as well.

Of course, if GM – which has already received $15.4 in government loans – were to pick up stakes, the political fallout would be epic. What could be more “un-American” than a 101 year-old American automotive company that’s being propped up by taxpayer dollars moving to a communist nation?

But the reality is that American consumers aren’t buying GM vehicles and Chinese consumers are. That means if the company is going to remain viable, China, not America, is GM’s land of opportunity.

GM CEO: Bankruptcy ‘Probable’

GM still has two weeks before the government imposed deadline to demonstrate sustainable viability expires on June 1. But even GM Chief Executive Officer Fritz Henderson has admitted that bankruptcy is “probable” at this point. And in the minds of analysts, it’s almost certain.

“[Bankruptcy] is looking like a real high probability,” Brett D. Hoselton, an analyst with KeyBanc Captial Markets, told the New York Times. “Chrysler is the best indicator at this point of where we’re heading with GM.”

GM reported a first-quarter net loss of $5.98 billion, compared to a loss of $3.3 billion a year earlier. Revenue fell to $22.4 billion, a 47% drop from 2008. The company burned through $10.2 billion in cash in just three months. GM has now lost $88 billion since 2004.

Last year, GM lost its crown as the world’s largest carmaker to Japan’s Toyota Motor Corp. (NYSE ADR: TM). And a company that 40 years ago produced one out of every two vehicles sold in the United States, has seen its U.S. market share slide to just 19%.

On Friday, GM notified 1,100 of its 6,000 U.S. dealerships that it is terminating their contracts, and it plans to cut its network down to 3,600 dealers by next year.

This company is sick,” Charles Ballard, an economics professor at Michigan State University told Michigan NBC television affiliate WILX 10, “they’re likely going to file for bankruptcy.”

Investors are equally pessimistic. GM stock has plunged 70% since the Obama administration announced it would give the company 60 days to restructure outside of bankruptcy court. GM has lost 94% of its equity value in the past year.

Is China the Right Cure for GM?

So if GM is sick, what then is the medicine? Many analysts believe it’s a healthy dose of China.

While its U.S. sales have plunged, sales in China continue to grow exponentially. In fact, GM sold more vehicles in Asia in the first quarter than it did in the United States. Only 26% of GM’s first-quarter sales came from the U.S., a 36% decline from a year ago.

And while global car sales continue to plunge, auto sales in China are expected to grow between 8% and 9% this year. China actually overtook the United States as the world’s largest auto market for the first time in history in the first quarter.

And unlike the United States, there is actually a strong demand for GM model cars. In China, where the company is neck and neck with Volkswagen for the market-share lead, GM set a monthly sales record of 151,084 vehicles in April. That’s a 50% increase from its April 2008 results.

Within 10 years, this will be our largest market in the world,” Kevin Wale, president of GM China, told TIME magazine.

GM has been so successful in China it is reportedly negotiating plans with U.S. lawmakers that will send the carmaker’s production overseas, the U.K.’s Telegraph reported.

GM will start shipping cars to the United States from Shanghai in 2011. The company plans to export slightly more than 17,000 vehicles in the first year before ramping up to 50,000 by 2014.

Backlash from GM’s China Plan

While many carmakers import components from China to save on labor costs, GM would be the first company to import whole cars from the Mainland.

Of course the plan doesn’t sit well with unions.

“GM should not be taking taxpayers’ money simply to finance the outsourcing of jobs to other countries,” Alan Reuther, a Washington lobbyist for the United Auto Workers (UAW) union wrote in a letter to U.S. lawmakers.

Indeed, the UAW and others argue that the whole point of bailing out the U.S. auto industry was to save American jobs and help prop up the sagging economy.

Two weeks ago, GM CEO Henderson said his company would cut an additional 21,000 factory jobs, close 13 plants, eliminate about 2,600 dealerships and close its Pontiac division. GM aims to shed 23,000 jobs – 38% of its workforce – by 2011.

But the company expects to open a new factory in mainland China within the next few years and continues to build upon its 21,000 Chinese employees. 

“I think that’s wrong,” Keith Pokrefky, a Michigan autoworker, told NBC’s WILX. “I think that’s wrong for America. I think it’s wrong for American jobs. It’s un-American.”

On the other hand, GM argues that it is only logical to produce cars where they’re going to be sold.

GM’s philosophy has always been to build where we sell, and we continue to believe that is the best strategy for long-term success, both from a product development and business planning standpoint,” GM’s China office said in a written statement to the Associated Press

Plus, GM already imports cars from other countries, just not China. The Chevrolet Aveo and Pontiac G3 come from South Korea. The Pontiac G8 comes from Australia. The Saturn Astra comes from Belgium, and the Vue from Mexico.

Harvard Business School professor Clayton Christenson – who was also a consultant to Richard Wagoner, the architect of GM’s China strategy – told TIME that inexpensive, Chinese-made Chevys, exported to the United States could be the “disruptive” force the company needs to resuscitate North American sales.

“It’s exactly the right thing for them to do,” Christenson said.

While China keeps its data on labor costs under lock and key, analysts estimate that wages and benefit payments per factory worker are less than a tenth of what they are in North America, TIME reported.

MSU professor Charles Ballard says that while the notion of outsourcing more jobs to China may not be pleasing, it is also in GM’s best interest.

“I think everyone needs to keep in mind that if this company fails, that's the worst case scenario," Ballard said. "It would be really good for the people of Michigan and for Lansing for GM to become a viable company. Right now, it's not."

And perhaps that’s the root of the issue. There was a time when what was good for GM was good for America. But somewhere along the line, the interests of the two diverged. Now, they’re too far entangled for there to be an amicable solution to this problem, and the Obama administration is left with a political powder keg.

The government stepped in to fire former GM chief Richard Wagoner, but it doesn’t want to be too heavy-handed in its treatment of the private sector. It has already spent months sidestepping questions about whether or not it would nationalize U.S. banks.

“We didn’t think in America that the President could fire the CEO of a private company,” one Chinese executive told TIME. “For us Chinese it was very confusing.”

But if the Obama administration lets GM move ahead with its plans, it must confront the unpleasant reality that it is subsidizing the outsourcing of U.S. jobs with taxpayer money.

“Production location is a corporate decision, but when it's on the taxpayer dime, there are different sensitivities, so the notion of billions for a rescue package and offshore production, I think, could be politically combustible," Harley Shaiken, a professor at the University of California at Berkley who specializes in labor issues, told the AP.

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Join the conversation. Click here to jump to comments…

  1. micky | May 18, 2009

    If that's the case…..
    Lot of work for lawyers as GM will be dishonest toward US Tax payers and US stock Holders.

  2. Uncle B | May 18, 2009

    The much enlightened and better educated communist Chinese intelligentsia are waging an economic war against the Capitalist, corporate beasts in the world, and are winning hands down, so far! The have an unending, self-perpetuating army of little yellow peasant women, each weighing about 98 pounds, each earning about 85 cents U.S. an hour, all pooping in slot toilets on the factory floor, dormitories on the factory floor, eating at cafeterias on the factory floor, living on veggies and rice, and willing to work 10 hour shifts, 7 days a week, until the burn out and are returned, by train, to their peasant village farms to retire and die, at no cost to anyone! They are intelligent, and operate some of the worlds most sophisticated, computer driven , hydraulically and electrically assisted factories in the world, powered by a Nuclear Power build-up greater than any in the world. China has found a use for its daughters! They no longer languish in death hospitals waiting for an early death by starvation, they have become front-line soldiers in an economic war aimed at the heart of unregulated vulture capitalism, and the Western World's economies! We will be enslaved by them and our lifestyles will be diluted to their level by their efforts, and the sad fact is this is an already irreversible movement, slid under the door of capitalism, by invitation to share the fruits of this sad exploitation on the Shanghai stock market, where greed overtook common sense of the Western investor, upon whom the boot of communism is about to fall, and when it does, they to will hold huge amounts of paper money "Yuan" and that currency will be controlled by the commies -fait a complete! China wins control of the world, and we will be a communist people.

  3. Bev Mabry | May 18, 2009

    I AM SICK of hearing of more US companies outsourcing to China!!! How on earth do these American CEO's think Americans will ever get on our feet again if jobs keep going overseas – and illegals are allowed to stay here & work?!

    Hello. I think these CEO's and decision-makers who send American jobs to China are un-American and traitors!

    While you tell poor Americans to pick themselves up by the bootstraps – you're taking away the bootstraps! Shall we all move to China to have jobs? Or just wait until they own America?!

  4. Gary Wardell | May 21, 2009

    I am all for made in China; sold in China.

    My problem is with made in China; sold in USA.

    FICA taxes are paid by USA workers. Products made in China but sold in USA should have an additional tax on them that goes into FICA for the same amount that would have gone into FICA if the product had been made in the USA.

  5. Bill | May 22, 2009

    WTF?!? What is it with GM importing cars from anywhere to sell here. If China is THE hot market to be in, then fine. My question is why can't we make the product here in America and export it to China? The problem with GM and other US car makers was the Treaty of Detroit back in the 50's that guaranteed everyone pensions and the like for life. Those obligations would likely be wiped out in any bankruptcy proceeding anyhow. With the reduced cost structure, GM should be able to make cars just as cheaply as anyone else or export or domestic sales. I think they have their heads up their backside and are just looking for the easy way out. Before you know it they will outsource/offshore everything, and we will have helped pay them to do it. I'll say this. If they bring one car over here from China, I'll never by another GM product. Ever.

    • Morgan | August 27, 2012

      We will never be able to make cars as cheaply as China – not because of unions – but because of executive's compensation and bonuses. Really, how much money does any one individual need??? It can't be millions since many corporations have seen fit to eliminate jobs and withhold raises from their employees for the last several years. If middle America is able to get by without a COL adjustment and they earn much less, then it seems our executives should as well. When is America going to start holding executives accountable for how they run a company, and not give them huge severance packages to CEO's when they have screwed up a company so bad that people and the economy suffer? Where are those executives who once felt America was the greatest country in the world and worth investing in??? We used to be the #1 country in research and innovation – we led the way. Unfortunately, money has replaced pride.

  6. hong doctor | June 3, 2009

    I am really angry now. I am an immigrant and I know if GM goes to china the quality of the car will go down. they do not have the quality control like in America. I will be sad for one year because of this. Chinese cars have many problems. I drive a GM car now and will not buy a GM car from China.

  7. muahhaah | October 15, 2009

    Just wondering how much more you average Americans will get bent by your own greedy corporations ???
    Understand that Companies DOES NOT HAVE A COUNTRY !
    They go where the monney is !
    There are no American Corporations but just CORPORATIONS !
    Stop licking your own asses and wake up before those greedy animals give all the power to the comunists in China !
    The comunist gouvernement in China must be rolling on the floor right now seeing how they destroy capitalism without even lifting a finger !
    I guess that after they dry up America and the rest of the world they will declare all Companies inside "public" firing or killing their CEO and simply take control of all their wealth !
    HEY AMERICANOS STOP BEING IDIOTS and wake up before you become the next China !
    You would not want seeing chinese ppl in Mercedeses and your kids at 50c an hour job !
    If you realy cant see this coming then it is beacose you are so stupid that you deserve it !
    HAHA 40 Millions illiterate ! WOW AMERICA WOW !
    And by the way Sorry for my horible english !

  8. Morgan | August 27, 2012

    Shame on GM. They accepted government money – from hard working tax payer dollars – so they can move jobs to China and put thousands out of work in America! ARE YOU KIDDING ME?for a bail out so that the company could keep America working, and then they turn around and move manufacturing to China! This is retaliation for the Treasury department putting limits on CEO's .

  9. Morgan | August 27, 2012

    Shame on GM. They accepted tax payer dollars so they can eliminate thousands of US jobs at a time when OUR economy needs a boost. First of all, if people in the US are not buying GM cars, perhaps it is because they were not progessive enough and did not cease the opportunity to invest in research into more efficient fuel economy when it had the chance. There is a reason people were buying Toyota's and Hondas. They are dependable and they get good gas mileage. But GM insisted that people wanted big cars. That's just plain mismanagement. Also, I can't believe that with all the lawyers that must have been involved in these bailouts, that no one thought to eliminate executive bonuses and raises (which the CEO's had NO problem doing to their workforce) until the money was paid back, and write into the contract that if the company shifted jobs overseas it must first pay back the loan, with interest. Could this possibly be the decision of the CEO in retaliation for his salary being capped and feeling that his $7.7M salary is just not enough? Do you think Chinese CEO's are earning $7.7M in salary???? Maybe corporate America needs to rethink THEIR salary and bonus structure so more jobs can be preserved for the middle class.

  10. fred wright | August 29, 2012

    Maybe we can blame this on Bush,because the idiots in charge now can do no wrong.

  11. Joe Chapin | October 29, 2012

    Have you ever heard of UNIONS. They have driven the prices so high that people won't pay them. Labor is the most expensive part of any vehicle. If you consider $75 an hour to push the button on a machine that screw on the lug nuts, you might begin to understand. Yes Corporations are designed to make money for their investors, otherwise, no investors, no corporation. But UNIONS are designed to kill Corporations and governments by raising labor costs to atrocious levels so the UNION fees will go up. If the workers want a raise, get rid of the UNIONS, and save America.

  12. Virginia Dotson | October 29, 2012

    Well GM lost my business. Just saying!

  13. Donny | November 1, 2012

    As far as the Unions causing the problem,try calling a plummer out to your house.They will charge you $100 dollars an hour and there non-union.Maybe the goverment should have been more strict on who and why when giving our money away.

  14. Kenneth Hopkins | February 27, 2013

    Tax payer bail them out we get s…t on last GM car i will buy

  15. Ken | May 26, 2013

    So this is how GM thanks Americans for buying their vehicles all these years. GM's slogans are " yes we can" screw america and "Chevy runs deep in China".

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