Is Asia GM’s Lifeline?
With declining Stateside sales, GM places its bets East
By Nick Syn
GENERAL MOTORS IS what you’d call, “beleaguered”, or at least it is in Europe and in the US. Like a sumo wrestler sat atop the company’s shoulders, GM’s Stateside haemorrhaging in particular, is nothing short of crippling, and even the recent announcement of 30,000 job cuts and the closing of 12 production facilities over the next three years has done little to shift the pall of doom and gloom.
GM’s North American (NA) operations posted a US$1.6 billion loss this quarter, which is about par for the course for the division’s performance in 2005. This comes from having to pay workers not to work, and shelling out for employee health care and retirement benefits that are, by Asian standards, lavish in the extreme.
The killer blow, however, is the widely-espoused view that GM’s NA product line-up consists of cars that no one seems to want, fuel-chugging SUVs in particular. The company even recently resorted to selling cars at heavily reduced prices just to get inventory levels under control. Incentivising isn’t a new tactic and loads of US-based manufacturers practice it but GM had to offer its cars at employee rates just to get them off showroom forecourts.
GM’s market share has been steadily declining, and now roughly only one out of four cars sold in NA are from GM. This might not seem too bad but if you consider that in the 1960s, GM products accounted for just over half of all cars sold in the vast NA market, then a fifty percent loss in market share over about the
same number of years is not good news.
Still, as stormy as things are in Detroit, it’s important to note that GM is a vast company, one that employs over 300,000 people with a presence on practically every continent. And somewhere, somehow, it’s got to be doing something right.
Actually, you only have to look to Asia, to see some rosy numbers. Third quarter profit from GM’s Asia Pacific operations hit US$176 million, and market share is slowly but surely climbing. And while this healthy figure still gets submerged in red ink from the NA operations, a look at a facility like GM’s Thai production centre in Rayong, makes for a small but telling example of why Asia holds the key to GM’s
continued viability.
Completed in 1999, the Thai plant is modelled after GM’s facility in Eisenach, Germany, the latter reputed to be one of the most efficient in the world. The facility employs just over 3,000 workers, and they churn out roughly 100,000 cars and trucks a year.
Automation is not at all prevalent, unsurprising given the relative affordability of labour, but having real people build your cars also makes for a greater degree of flexibility. The plant churns out numerous Chevrolet models, the Optra sedan and estate, and the Colorado pick-up truck, as well as an Isuzu version of the latter vehicle.
This flexibility helps if you need to grow your product range, John Thomson, Chevrolet Thailand’s vice-president for sales and marketing mentioned the need for an “Asian utility vehicle” to be included in GM’s current line-up, so that’s something to expect in the future. It’s therefore hard not to see Asia as anything but a dream market for a company like GM, which finds itself in a situation where the big question is not about dreaming up new ways to make people buy the company’s cars, but rather how to get product into the marketplace quickly enough to satisfy demand and consolidate its foothold. As populations in this part of the world grow in affluence, GM, through its more affordable brands like Chevrolet, is well-poised to take advantage of first-time buyers and upgraders moving up from more budget-oriented automotive fare. In China, GM enjoys top dog status and at the Thai plant, there are plans already in motion to increase production output to approximately 160,000 units a year, starting in 2006, when
a new painting facility comes on line.
Recently, GM CEO Rick Wagoner announced that the company will, for the first time in its near-100 year history, sell more cars overseas in 2005 than in its home market. This works out to be 4.5 million units at home and 4.6 million abroad. With growing markets overseas, and the opportunity to set up in places free from disruptive union squabbling, and with a large pool of bargain basement labour to boot, it’s a wonder that GM isn’t high-tailing
it out of NA and Europe altogether.