General Motors Goes Big in China – Is That Really So Bad?

General Motors Goes Big in China – Is That Really So Bad?
By Gary Wartik,
January 10, 2014

A taped interview with then-GM president Dan Ackerson, while he visited China in 2011, went viral during December 2013, upsetting a number of Americans.  Mr. Ackerson was in China to unveil a new GM factory, during which he stated that henceforth, 70 percent of GM’s world production would occur in China.  The narrator of the video referred to GM as becoming “China Motors.”  The narrator also raised the question as to whether the US government was wise to have spent $60 billion to help save GM back in 2009, only to have it turn into “China Motors.”

The saving of General Motors and Chrysler Corporation by the federal government resulted in saving some 1 million American jobs, both at GM and Chrysler and at their respective parts suppliers.  Was General Motors thus worth saving?  There seems to be an affirmative national consensus on that point.  What the video failed to mention was that the large increase in production in China was not for export, but to meet growing Chinese demand for GM vehicles.  What the video announcer also failed to note was that the net investment in GM by the US government ultimately turned out to be $9 billion, reflecting the difference between the initial $60 billion loan and what the government ultimately received for its GM stock sold during 2012 and 2013.  The stock was issued after GM’s bankruptcy as collateral for the government loans.

China is a huge, growing market.  When I was there in 2007, I toured the Volkswagen plant in Shanghai and noted the number of VW’s on China’s roads.  As well, I saw far more Buicks in China than I ever saw in Southern California.  At the time I had a 2005 Buick, so I was acutely aware of the differences between the limited number of Buicks I saw at home and the numerous ones that I saw in China.  I would much rather see American brands on Asia’s roads than Chinese or Russian vehicles on those roads. There is a direct economic benefit to American workers and shareholders when domestic brands are exported or assembled overseas.

Next, one should keep mind that the vast majority of GM shareholders, along with Ford Motor Co., are American investors.  Thus, when GM does better, so do those who own its stock.  That could be you and me, our neighbors and friends.

GM made the decision to expand into the Asian market, and I believe from a strategic standpoint, that remains a smart move for the company and for its American shareholders.  While we would prefer to build cars here in America and export them to China, due to domestic cost factors, that is not as economically viable as building them abroad where they will be driven.

There is a reverse case in point.  The majority of Hondas and Toyotas (with the exception of the Toyota Prius) sold in the America are now made here because it is more cost effective to do so.  That is the dynamic that is occurring in China.  It is more cost effective to assemble vehicles in China that will be sold in Asian markets.  That is all part of the give and take of international trade. That trade and trade-off is good for the industry, American workers and shareholders, and thus it is good for our country.

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