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GM to China: "We need the cash."

Saturday, 18 October 2008 13:21

The latest Chinese export: Dollars to Detroit. By Bertel Schmitt, CEO Sinamotive Group (HK) Limited.

by BertelSchmitt

The latest Chinese export: Dollars to Detroit. By Bertel Schmitt, CEO Sinamotive Group (HK) Limited.

Bob Lutz, GM's vice-chairman, said GM is making plans to move money from Chinese operations to the U.S. in order to compensate for North American losses. Since nobody seems to want to buy the Hummer brand, which GM put up for sale, repatriating profits from China is one of the few options left for GM.

Draining the financial blood from the huge, vibrant and growing China market while the rest of the world is in shambles doesn't sound like an intelligent idea. But as they say: desperate times call for desperate measures. "We do not rule out such a possibility under current conditions," Lutz said.

GM had rolled up the Chinese market since they started producing vehicles here in 1999. Not so anymore. Shaking off a decade of falling market shares, the Volkswagen Group again is China's market leader in passenger vehicles. GM is also being trumped by Toyota in the passenger segment. Pulling out marketing and development funds from China sound like a recipe for disaster. However, GM has to choose between a possible disaster in China and a sure disaster at home.

Already, General Motors Corp. Asia Pacific President Nick Reilly said the company's vehicle sales in China fell in August and September from a year earlier. He also isn't too sure about GM's previous forecast of of 11% to 12% overall sales growth in the Chinese auto market for 2008. "The market is too unpredictable to forecast with any credibility," Reilly said. (Translation: Prepare for the worst.)

The move will not be popular with GM's joint venture partners, especially when cash is king and credit is an endangered species.

General Motors has several JVs in China through mergers of local companies jointly held with the Shanghai Automotive Industry Corp (SAIC) - one of China's top three automakers. SAIC also is a strategic joint venture partner of Volkswagen. Volkswagen's first Chinese car, the Santana, was built with SAIC, and it still is. If GM's money flows back to Detroit, SAIC may like the Germans even better. Volkswagen doesn't need the cash. Like a second coming of the economic miracle, the VW shares defy gravity and financial malaise, while the rest of the world is falling into economical and psychological depression.

About the Author:

About the author: After having worked as a Marketing Consultant for Volkswagen AG for three decades, Bertel Schmitt changed sides in 2005 to found Hongkong, Beijing, and Hamburg based Sinamotive, a company specialized in sourcing low cost high quality auto parts in China. The company supplies many European wholesalers. Schmitt also is author of a blog about the Chinese auto industry.