Sunday, December 7, 2008

GM Broke Here, Flush Abroad

Foreign Profits Up 28%: 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 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 an enormous 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.

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