More Evidence That GM Should Relocate To China

GM says it will sell 1.4 million cars in China this year. It sold about 180,000 in the US in July. The critical difference between its costs in the two markets is that many of GM’s Chinese vehicles are made in facilities owned by joint ventures with local car companies. Others are produced in manufacturing facilities with low labor costs. And, GM’s sales are growing in China and dropping in the US.

GM’s expenses in it home market may be falling because it has gone through Chapter 11. Unfortunately, the firm’s sales in its home market were down about 20% last month, so its restructuring cost improvements may end up doing little good.

The No.1 US auto company might be better off setting up joint ventures with other large car companies with factories in America to produce its vehicles. Ford (F), Toyota (TM), and Chrysler already have substantial manufacturing capacity some of which is underutilized.

It becomes more clear as each quarter passes that GM’s future is in Asia and Latin America. The old world car markets of Europe and the US have not only shrunk considerably during the recession; they may not be coming back.

Americans have learned that one of the best tools to help them live more frugally is to keep their cars an extra year or two. Repairs and maintenance are less expensive than a $30,000 purchase. Banks will not give them car loans in many cases. Money is too tight and financial firms are running so frightened that they are close to shutting down lending to even credit worthy borrowers.

GM’s US operations may never recover to the sales levels that they enjoyed just a few years ago. That means more cost cuts are in the wings. There are still too many auto plants in America. GM can take advantage of that. It just needs to find a suitable partner.

Douglas A. McIntyre