A GM failure could mean a world of hurt
Nearly three-fifths of the employees at General Motors Corp. work for a company that makes cars that are admired, popular and profitable.
They just don’t work in the United States.
GM has a bigger presence outside the U.S. than in it, employs more people in other countries than here, and actually makes money selling cars everywhere from Sao Paulo to Shanghai. Its U.S. revenue has sunk 24% in the last three full years, but in the rest of the world, GM can boast a 28% increase.
Now, as lawmakers mull whether to provide billions of dollars in loans to keep the Detroit-based company from collapse, GM’s global reach has become in many ways its most overlooked asset and a key to its ultimate survival.
“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, for example.
Still, if the automaker’s U.S. operations fail, as GM says they will without an immediate cash infusion, it could set off a chain reaction that would not only put U.S. parts suppliers out of business, but could throw off production schedules overseas and freeze up GM’s foreign plants.
That, in turn, could have a ripple effect on its overseas competitors.
“I am very concerned about GM because we share suppliers with [GM subsidiary] Opel,” said Klaus Berning, head of sales and marketing for Porsche, which produces all of its vehicles in Europe.
GM says it has been the world’s top-selling carmaker for the last 77 years, edging out rival Toyota Motor Corp. last year by a narrow margin. But where GM sells the bulk of its cars has changed dramatically.
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.
And of the company’s 252,000 employees, 152,000 work abroad, building Chevys, Opels, Vauxhalls, Holdens and Buicks in 33 countries.
“Those overseas businesses over the last several years almost uniformly have been quite profitable, and they have, in almost every case, been able to send dividends back to help us address funding issues in the U.S,” GM Chairman and Chief Executive Rick Wagoner told members of the House Financial Services committee Friday, lobbying for a favorable vote this week on an aid plan.
Yet because the U.S. continues to be GM’s largest single market in terms of revenue, with $115 billion in sales last year, and because it was founded by William Durant in Flint, Mich., more than a century ago, this truly global car company is still looked upon as a quintessentially American one.
Indeed, in two days of hearings last week, members of Congress repeatedly asked Wagoner, as well as the heads of Ford and Chrysler, to promise not to spend any of the bailout money on foreign operations.
So while 61% of Americans in a recent poll viewed the U.S. automakers as damaged beyond repair, and as Congress works to save the image of GM the American company, GM is a rising star in China.
The automaker’s China operations include 11 plants and roughly 20,000 employees, not to mention a $250-million research campus in Shanghai.
On the line, workers like Ma Jianming, a technician in the quality department of the company’s Shanghai Cadillac plant, can’t imagine the company falling on hard times. Not with annual sales growth of at least 27% over the last four years.
“Many friends came to ask me if our company would be affected or even go bankrupt if our U.S. group goes bankrupt,” Ma said. “But this is not the case. . . . We are still working overtime these days.”
Five years ago, GM made almost no cars in China, and it sold roughly twice as many cars in the U.S. as it did in the rest of the world.
But with a rising middle class fueling demand in countries like Brazil, India and Russia, GM and other automakers see 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.
That’s created a team in which designers in Australia report to executives in Detroit, and purchasers in Poland negotiate prices for parts bought all over the world.
It’s a path also followed by Ford Motor Co., which, like GM, has seen huge international growth in recent years. And it’s a strategy that international rivals Toyota Motor Corp. and Honda Motor Co. have refined for decades.
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.
“If you’re sick in your arm, your whole body is suffering,” Lindland said.
Today, GM’s immensely complicated worldwide operations work in concert. The Pontiac G8 for sale in Van Nuys was designed in Australia, and Mexican executives can rise to high leadership positions in Detroit.
To reach the top of the corporate food chain, Wagoner logged more than a decade outside the U.S., working for GM in Brazil, Canada and Switzerland.
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 away car buyers in South America. “Bankruptcy is not in the interests of our employees, shareholders, suppliers or clients,” he said.
To stave off a collapse, GM last week proposed selling off brands, reducing production and eliminating tens of thousands of jobs. And although its foreign picture is brighter, it’s not immune from global economic slowdown.
GM laid off 1,000 workers in South Africa this year, said spokesman Pat Morrissey, 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.
In Eisenach, Germany, GM’s Opel unit made a record 180,000 cars last year and was hoping to top that mark this year. But with sales flagging, the company was forced to furlough workers at reduced pay for three weeks in October. Now workers there worry about layoffs.
That could devastate Eisenach, which lives and dies by the automotive industry, said Jurgen Hinkel, a member of the workers’ council at the Opel plant. “It’s just a small town with relatively [little] industry” besides the automotive sector, Hinkel said.
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.
But with no assurances from Detroit, some of GM’s foreign workers are starting to worry.
“Some people here are saying it’s the end of the world and that in a few years we will all be out of work,” said Horacio Ortega, who earns about $470 a month at the GM truck factory in Toluca, Mexico. “Other people will tell you that everything is going to be OK. . . . The truth is that all of us here are very worried.”
But others are more optimistic.
“Next year, things will get better,” said Fernando Beltran, who also works on the assembly line there. “Do you think people can live without cars?”
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Times staff writers Henry Chu, Don Lee, Cecila Sanchez, Chris Kraul, Noha El-Hennawy and Sergei L. Loiko contributed to this report.
