GM looks to China, the UAW looks to the Feds

Posted by: David Welch on May 14, 2009

General Motors said this week that the company has plans to build more cars in China and other low-cost countries for sale in the U.S. And out came the drama. Some critics argue that if GM is getting government loans to stay afloat, it shouldn’t be cutting jobs here and adding work in China.

The United Auto Workers have had their say, as well. UAW Vice President Bob King has already criticized GM for its decision to build more cars in the China, Korea and Mexico while cutting workers here. And the union asked the U.S. Treasury Department to reject the company’s restructuring plan because it closes plants here while building more overseas. GM CEO Fritz Henderson then buckled to the pressure and told Bloomberg that GM could cut planned imports from China to keep help secure union concessions.

Unless GM was just using import talk as a bargaining chip to pressure the union—which is possible—this is problematic. For sure, the government and the UAW are playing a role in building a new GM, with Uncle Sam loaning money and taking an interest in GM while the union concedes thousands of jobs and cuts benefits. All that said, GM management has to be allowed to run the company. And there are two cold hard realities to business these days that support building cars in other countries and selling them here.

One is cost. Not even the Japanese and Koreans make fat profits on small cars in the U.S. The pricing isn’t there and the total cost isn’t that much different for making some larger models. Many carmakers lose money on their compacts. The other is the very global nature of the car business. Plants and workers are expensive. If one market goes soft, a company needs to be able to sell the production elsewhere. Toyota has done this for years, toggling between selling the production from its Japanese plants in the U.S. or Japan to keep those plants running near full tilt.

GM should be allowed to do the same thing. Of course, there is a slight problem, and one that the UAW will argue with plenty of merit. The Chinese government requires local partnerships and local parts content in the vehicles sold there. American imports get taxed at a fat 25% rate. So while GM could sell Chinese-made Buicks in the U.S. easily, sending American cars made by union hands over there is a lot more costly. GM does sell some American-made Cadillac models and the Buick Enclave suv in China. But with that tax rate, not to mention higher American labor rates, it only makes sense to export expensive luxury models from the U.S. to China. That won’t keep the union happy because that won’t translate into many jobs.

So here’s a solution: The Treasury Department should ignore the bleating from labor about building more cars in China and let GM make its own business decisions. So far, Treasury has mostly been willing to do that. But the government needs to get China to level the playing field so that our cars can sell over there.

Reader Comments

PK

May 14, 2009 3:39 PM

US Senator Chuck Grassley from Iowa would rather raise objections into 60,000 H1 workers from IT sector but would do nothing when it comes to millions of jobs lost to China (now and for many years now) in the manufacturing sector. It is interesting to note that most IT jobs are among higher paid and impacts the creamy layer of the working class where as many manufacturing related jobs are among lower end of the working class. It is also interesting to note that H1s are for the limited time of visa period and upto a maximum of 6 years where as the manufacturing jobs offshored are gone for ever since these companies invest heavily on infrastructure.

Hugo van Randwyck

May 14, 2009 4:25 PM

If the UAW agreed to a separate GM union, independent of the UAW, then GM would likely build more cars in America - and be more profitable.

Fulcrum

May 14, 2009 4:47 PM

Well, it didn't take long for someone to haul out the tired, twin red herrings of H1 visas and shipping jobs overseas. They have nothing to do with the article above. Just remember that GM has been importing profits to the tune of billions of dollars as a result of its Chian business being immensely successful. Without those profits, GM would have gone into the ground much sooner. Protectionism will not solve our problems, the loser is the American consumer. Why should we pay once to keep afloat a raft of autoworker perquisites when we don't get the same job security and benefits? And why should we be forced to pay the higher costs of the American-made vehicle? What if foreign countries clamped down on imports from the USA?

Karl

May 14, 2009 5:28 PM

Isn't it interesting that many of our Fortune 500 Companies are COLLAPSING? Perhaps the entire group of Publicly Held Companies in America, & around the world should take a look at what's happening. Maybe all of the GREED, LIES, DECEPTION, MANIPULATION, FRAUD, & CORRUPTION are catching up to a lot of these companies, wouldn't you agree? WELCOME TO THE U.S. ECONOMY- IN FRAUD WE TRUST!

Jeff B

May 14, 2009 5:36 PM

As I understand it. GM already imports from China the engine, drivetrain + other major components of the Equinox. Given what we know about poor quality imports from China in virtually every other industry, GM may be "allowed" to do this, but it may be a poor strategy. The Equinox is not exactly known for high quality. In the end, as long as the UAW seeks higher wages and benefits than the marketplace allows, the union workers and the companies who employ them will lose.

AZ Errol

May 14, 2009 5:41 PM

Saving jobs and manufacturing in the USA was the justification for the administration to get involved in supporting the auto industry. If manufacturing and jobs will be shipped offshore, then it's time to pull the plug on GM and probably Chrysler.

Robert

May 14, 2009 5:42 PM

It's hard to tell whether Mr. Welch who wrote this article is tone deaf or a provocateur! General Motors has received BILLIONS in taxpayer aid, and now wants to import cars from China. If General Motors had a clue (which they don't) they would start building these cars in China AFTER the economic crisis is over. TALKING ABOUT BITING THE HAND THAT FEEDS YOU! If GM does this I will start buying Japanese or European from now on - at least they hire labor in the United States.

Tim

May 14, 2009 5:46 PM

I agree with the author's suggestion. Allow GM to import smaller, Chinese made GM cars, but also make China cut its 25% import tariffs on US made GM cars to level the playing field. Free trade should also mean fair trade.

Bill

May 14, 2009 6:02 PM

Ever since the Reagan administration pressured Japanese automakers to build in the US rather than risk being locked out, all administrations have pressured foreign makers to make here, rather than purchase elsewhere. In the case of GM, they should have told us their plans before they asked for the money.

Taishan

May 14, 2009 6:29 PM

GM, as an auto company, is more than manufacturing. I know alot of people out there believe manufacturing is main body of the company, but it is one facet. There's rearch and development, marketing, supplier management, customer service, engineering and design, and then of course, manufacturing. I've never believed outsourcing manufacturing labor overseas have hurt the American economy and I don't believe GM making small vehicles in China will hurt the American economy either.

Jake Straw

May 14, 2009 6:39 PM

Why are we sourcing things from Communist China?

We have hollowed out our country to our competitors. China is a strategic and business competitor.

Bring American jobs back from China.

Joe

May 14, 2009 8:17 PM

The "outsourcing" of these Chinese made vehicles is not outsourcing at all. These are vehicles that for one reason or another would not be made here in the US anyway. Labor costs for a small car are about the same as for a large one, but the profit margins on small cars are razor thin or non existent. The automakers would lose their shirts if they built their economy cars in the developed world, that's why they build them in third world countries where the labor is cheaper. They wouldn't be able to sell them otherwise. By running their Chinese plants at full tilt and exporting the excess that the Chinese market can't absorb, GM gets greater efficiency and productivity from those plants. If they were to split production of those cars by making some there and some here, not only aren't the ones made here cost effective to produce, neither are the ones in China. GM loses money in both markets, then. It is better that GM as a whole survives and keeps some jobs here than for them to be forced into making bad business decisions that lose money, that may cause the company to have to cease doing business here altogether, just to please the government bean counters.

Lee Young

May 14, 2009 8:40 PM

Next thing you know the US car makers will want to sell cars to North Korea and the Taliban and money-power hungry Dick Chaney would be leading the charge. Screw the Communist Red Chinese. In fact, screw all of Asia, the Pacific rim, Middle East and Africa when it comes to them selling us their junk.

Clyde

May 14, 2009 8:48 PM

The auto union was needed years ago, however they became such a strong arm bully against management and got what they demanded. Now they and the line workers, as well as, management are paying the price of these actions. This is due to the total mess we have made of acting like a bunch of children, in this country.

This reminds me of a divorce lawyer who tells a man, I can rake your wife and kids over the coals. They will get nothing. We can really give them Hell. However, you do realize that in future years, down the road, it will be you who gets bitten in the rearend, from your children. When you end up in a nursing home, with no one to visit you. Then the lawyer goes on to explains to him that he needs to do the right thing.

Strategery

May 14, 2009 8:50 PM

Something is wrong with our "free trade" agreements when 1. China can apply a 25% tariff on imports, yet they have free access to US markets and 2. China can require that a local company is a partner with foreign dealings. Note that this is in addition to the fixed value of the Yuan, the absence of labor and environmental regulations, and low taxes; vs. the strict regulations and high taxes in the US.

In the end, the consumer will decide. Anyone who keeps buying the big 3 clunkers will lose all loyalty to Chinese imports and will not think twice about buying a Japanese or Korean vehicle. Also, many Americans do not trust the quality or safety of Chinese products; making these vehicles a hard sell.

Jeff C

May 14, 2009 8:58 PM

Any one think China is still a communist country? Just go over and take a look, it is even more capitalism than US.

rob

May 14, 2009 9:36 PM

Chinese products are junk. I could understand if cars were being imported from fellow democracy INDIA, but China? Ridiculous!

John

May 14, 2009 10:21 PM

Isn't it a fact that Japanese and Korean auto companys are own by the government? What is going to happen next, what industry?

Thienloi

May 14, 2009 10:26 PM

Quite stupid when just thinking about the manufacturing jobs from China. American hold the high value section in global value chain for many years, why do you complain too much ? You, customers, want to buy the reasonable price car or just buy the American car ? Ok, maybe you talk about the social responsibility. You think Americans should buy your country car. This help your economy. Just do compare.

andy

May 14, 2009 10:33 PM

Oh well, this is to be expected. GM sold more cars to China than to the US. I'm surprised they haven't moved the HQ to Shanghai.

get rid of detroit

May 14, 2009 11:02 PM

communist china? what about socialist U.S.? banks/car companies/insurers that should have failed, propped up. Sorry Jake Straw, but what person who puts together a car deserves 60k a year with lifetime of health and longevity benefits???

Mark

May 14, 2009 11:24 PM

China, which is still a developing country, meets all the requirements of the WTO and other international trade agreements. I do not understand what you mean by “the government needs to get China to level the playing field so that our cars can sell over there”. The playing field is already level. All imports from anywhere are taxed at the same rate on import duty. This is why a British built Rolls Royce Phantom costs US$800,000 in China which is more than double what it sells for in the US. China which is slowly building up its own auto manufacturing capacity is allowed to protect what is still an “infant industry”. Just because you Americans could not run your own companies efficiently, that is hardly their fault. Interesting that American car makers building vehicles in China for the Chinese market are doing very well. Any attempt to pressure China will see them start to get retaliation from the Chinese government in the Chinese market. So, yes, please do pressure China. I would love to see both Chinese manufacturers and companies like Volkswagen do even better that they are in China at present.

Franc T

May 14, 2009 11:37 PM

GM deserves not only a level playing field but a chance to get back on its feet. It matters for America and Americans really need to start doing a better of working for the long-term benefits of company and the communities they support otherwise this is only the beginning of the unraveling of the fabric of our rich manufacturing heritage.

Let us learn from the humbling experience and while we're chopping the pay of workers (that mind you was approved by the multi-millionaires running these dinosaurs) that we also need to get executive pay in line with Japanese counterparts.

Brian

May 15, 2009 12:01 AM

We have sold our souls to China. Our founding industrial fathers/mothers are rolling in their graves like rotisserie chickens. We aren't smart enough to realize that we can make things work here without shipping everything overseas. The short sighted nature of SEC companies looking quarter to quarter (to ensure the execs get nice bonuses and juicy options) have contributed to this mess. When is someone going to step up and truly innovate? How about lowering overhead costs? We don’t need corporate campuses anymore. We don’t need 10 floors of a downtown high rise. We need efficient work from home programs for professionals and smart manufacturing that doesn't cost multiples of what it does in Asia. We need unions to wise up and stop complaining if they don't have 100% of their health care paid for. We need smarter inventory management. We need marketing staffs that have positive ROI. We need SOX to be more efficient and less costly. We need companies to have the guts to tell the Street we are investing in the future not just next quarter. We need long-term thinking, risk takers, leaders, doers, not just cogs collecting paychecks. We can do it. Who is going to step up?

TomV

May 15, 2009 12:45 AM

The same has been said earlier, but it is worth repeating. Why should I as the consumer be forced to pay more just so someone else's job, with cushy benefits, can be protected? I want the best product for my money in terms of price and quality. If the UAW can compete, then do so. If not, die. It's that simple. The only action our government should be taking is to protect against currency manipulations etc to guarantee an equal playing field. Nothing more.

Bob

May 15, 2009 12:47 AM

The Fat ass Rich Corporate elite get Tax Payer
bailout money to send American Jobs to Communist China.

COMMUNIST CHINA!!!

This amounts to treason for profit.

Whats next? Are these Corporations going to pay the politicians to privatize American states like California and sell them to Communist China.

These companies should be nationalized. Their CEO's Should be charged with Economic terrorism, they should be jailed, then tried by court of law, convicted, and Jailed for life.

These Corporate elite have one loyalty. Greed. They will
do anything for a buck, and they have proven they Hate
Americans enough to give China Americas Jobs.

Dave

May 15, 2009 12:49 AM

I think we should let GM builds cars solely by using American workers. I bet it will sink to the bottom way faster than it is currently doing. Then, I want to hear what these protectionists will say.

Donna Baker

May 15, 2009 2:46 AM

How fruitful does anyone think other
businesses will be when the average
person is making the same wage as near
slave labor in China? A business needs
a market that can purchase goods and
services and not much of anything will
be purchased with paychecks comparable
to Chinese laborers.

The well paid former UAW workers poured
money right back into Americas economy
via taxes, purchases of homes, cars,
boats etc. Hmmm.....not much of that
is flying off the shelves now, are they?

It doesnt mean squat how level the
global playing field is when there are
few people able to purchase goods and
services that would turn a profit for
businesses of any sort.

A comfortable middle class was good for
all. Too bad the union has been so
vilified when the entire picture is not
taken into consideration.

Snoz

May 15, 2009 6:11 AM

American government is the majority or controlling owner of AIG, Citi, BoA, MerrilLynch, GM, Chrysler, IndyMac, and other insolvent corporations. Having adopted socialism, America has no basis to complain about policy of communist China. Ironically, it is China's purchase of US bonds/treasury that provides much of the money to the US government bailout of Wall Street and its fat cats. Business decision under socialism is not so much about profit as it is pacifying labor unions. Having fostered and funded the amalgamation of management, labor union and government, UncleSam now has his ying-yang caught in a Chinese inscrutable puzzle: profit driven business decision may hurt labor union's objectives but an unprofitable business decision may require perpetual taxpayer subsidy. Either decision will institutionalize socialism in America. Reduced to its basic principles, the argument or choice is between Adam Smith versus Karl Marx. Traveling along the glorious path set out by Jefferson, Hamilton, Madison and other framers of the US Constitution, recent Americans have detoured and gotten lost on the trails of Marx, Lenin, and Mao.

GM Daughter

May 15, 2009 1:12 PM

@ Mark: so it's okay to put import duties on things as long as all countries get the same import duty? Isn't that protectionism? We don't put duties on imports like some countries do. We don't demand technology sharing like some countries do. Our markets are a lot more open than the Chineese markets are.

Bob

May 15, 2009 10:54 PM

Large Corporations are protectionist, and they only serve themselves.
They hate nationalism because they see nationalism as a threat to their existence.
The Large Corporations want to do away with nation states. They want one state, the corporate state.


Its clear that the large Corporations don't want a middle class, or poor class. They want a slave Class.

The Corporate elite are selling America off to Communist China.

They are taking away the ability of America to defend itself by moving Americas manufacturing base to Communist China.

Because of the Corporate elite, the US Military can no longer get by without parts made in China.

The day will come when the corporations will let China take over America.

That will be the day you get your jobs back.
You will be working for food.

A Chinese sub-machine gun will always be pointed your way.

Welcome to the New World Corporate Order!

TheCarCzar

May 17, 2009 3:03 PM

Our fathers who fought in WWII would never undestand this surrender - one ushered by none other than President!

God help us!

A ray

May 22, 2009 10:07 PM

$32.00 per hour for UAW Workers ,
become $72.00 per hour with Fringes !!!

The Average US Industrial wage is $12.00 per hour.

No wonder the Auto Industry is going out of business !
Children raised like this become Bad Adults. Patriots buy Japanese !

ROLLEMM

May 26, 2009 1:13 PM

Everyone is ready to throw the union workers under the bus. What do we wear blind folders on our head or what, why would we give so much hate to workers tying to get paid a good wage. Its the corporate fat cats WAGES AND BENEFITS THAT NEED TO BE BROUGHT INTO LINE. CEO CFO AND ALL OTHER CORPORATE EXECUTIVES THAT MAKE MILLIONS WE ALL MUST BE REALLY NAIVE TO THINK ITS THE WORKERS WAGES THAT CAUSE THIS MESS, WAKE UP.EXECUTIVES RUNNING AMERICAN COMPANIES MAKE 5 TO 10 TIMES THERE COUNTER PARTS MAKE IN OTHER INDUSRIAL COUNTRIES DO.WHY IS EUROPE AND GERMANY 85% UNION. HEY LETS BEAT UP THE WORKING MAN TRYING TO MAKE A GOOD LIVING "DAMN THE BAD LUCK"

Jan R. Smith

May 28, 2009 2:39 PM

I drove small cars (Fiat 500) in Europe in 1957. Scooters past us. They are much better made now. The US Auto Industry has way too much overhead. Tata Motors of India is a better model, $2500/car. UAW & sky hgh executive pay have damaged our Industrial System, fataly. Glad I am 83.

Mike Elzey

May 28, 2009 5:47 PM

If they actually try that, they could be looking at their next bankruptcy.

stephanie

May 30, 2009 11:23 AM

My father and my husband worked for General Motors their entire lives. They were paid a good wage that afforded their families a comfortable life, but buy no means a luxurious life. Working on an assembly line all day is hard work. I don't believe they were overpaid for the work that they did. Those that think a auto worker should make $12.00 an hour with no benefits have obviously never worked in an auto factory. These people work harder than most professional people that are paid much more. I know, I have worked in both scenarios. The citizens that enjoy the benefits of living in the U.S need to wake up and quit buying products made in foreign companies. If they would have supported American companies in the past, we would not have this economic crisis that we are now experiencing. It's your own fault people. Not only are the manufacuring jobs going overseas, so are a lot of professional jobs. You may be next. Our economy cannot survive if everyone is paid a low wage and no benefits.

Strategerry

May 31, 2009 12:18 AM

I think the government should provide bailouts to the auto makers for 2 reasons: 1. Flawed trade agreements, signed by government officials, have created an uneven playing field. This goes back 40 years or so in the days of German and Japanese vehicles. Next, it was Korean and soon, Chinese. I don't care what the FLAWED WTO agreements say with regards to developing countries; slapping a tariff on imports when your trading partners cannot do the same, having government-sponsored corporations (most Korean conglomerates), along with currency manipulation is NOT free trade. 2. Regulations such as MPG requirements and progressively strict emission requirements add a huge R&D burden as well as increase the cost of building a vehicle. What if the big 3 could just build trucks and SUVs, without subsidizing small cars to meet MPG requirements?

Too_much_Greed_scenario

May 31, 2009 10:20 AM

At the end of the day, most foreign public and private corporations will be owned by the countries they are located in (e.g. Chinese will own most American corporations either by building similar product next door or buying the foreign companies (a capitalist, who has seen high profits, does not wish to continue when profit margins thin, e.g semiconductor industry is now owned by the chinese).

UAW not the only problem

June 1, 2009 8:21 AM

Sack UAW! - A-hah! quick solution. I do agree they are overpaid. Those who think hardwork is only about sweating at assembly lines are wrong. Sweating your brains at your desk jobs is no mean business.

The problem is not just unions. We also need to look at the entire system around us. WHY do MEDICAL benefits cost so much in US? Why do Insurance companies cough out a huge bill to doctors/hospitals?

Its the system...

while I do believe in dignity of labor. No economy can survive in this open-mkt if they pay the salaries that UAW workers get.

It's tough to accept UAW involvement if they are part of your family/extended family.

Americans need to wake-up and take the likes of UAW to tasks. Also, demand Govt. to spend less.

How many presidents/prime ministers of the world can boast of *-one type of cars, choppers, planes to the service. How many ppl travel with the president? Do you know? Is that needed? Really? That additional meat that travels with the President does nothing good that giving some easy news for CNN to munch on.

Wake-up! and demand. Its democracy, after-all.

CHINA -WORLD'S MOST POWERFUL NATION

June 4, 2009 4:45 PM

THE GREAT PEOPLE'S REPUBLIC OF CHINA.........

MADE IN CHINA...

Earl wilk

June 4, 2009 8:30 PM

Hope you all don't think General Motors went to China overnight and decided to build cars there they been building them there all along where do you think the colbalt is built it ainn't lordstown ohio cause they truck them in to there if you really want to know how long the Government has known what's going on and the group that been trying to save the American Workers jobs go to www.DisputeThis.us and order a copy of that book for $12.95 it tells all and names everyone who knows for the top down how the UAW only cares to line it's pockets with strike fund money for their slush funds and the Government cover-ups thats been going on for years I myself have been to D.C. and been fighting General Motors and the UAW since 2002 for The American Workers rights Read about my idea to fix social security do you know that people making $102,000 pay no social security but they can draw from it no wonder the system going broke the working poor can no longer support the Uninted States alone working poor are even below the people on welfare they don't make enough to pay for health care at 700 a month and we can't afford a new car so we have to fix the ones we got or buy another junker cause we don't quaifly for a loan or have the income to but we make to much to live in subidized housing but we have to support the ones that do so we live in rented houses cause we can't buy one cause we can't get a loan we don't get foodstamps and the price of gas makes it almost not worth going to work cause your putting half your check in the tank just to keep working for what you can't afford to go on vaction cause you can't afford to I think the Working poor needs a big bail-out soon cause they are getting tried of Bailing out everybody else I think when General Motors decided to go to China they should have giving back they money they got and not got another penney from us let China, Russia ,India and Mexico Bail them out they already close 12 plants here and are closing the dealerships up they were suppose to help keep open what about those jobs WHO'S BAILING THEM OUT ? remeber order the book it will blow your mind!

sg mayor

June 6, 2009 4:11 PM

You can not blame Chinese government for taxing the company 25%. You have the option of not selling to Chinese at all. But the upside is that you can sell to billions (start with 'b') consumers in China and still get a profit. I see that is very reasonable cover charge.

Ohio Steel Valley

June 29, 2009 4:11 PM

Patriotic?............then why are you driving a Toyota and shopping at Wal-Mart? At the end of the day, it is the stupidity of the American consumer that puts the nail in the coffin on American jobs. Incompetent management, illogical trade agreements, and foriegn government supported competitors are a granted. Everyone knows thats the world we live in. However dont then go and buy a products made by foriegn companies and wonder why YOU are the next person on the unemployment line or recieving a cut in pay. WAKE UP people! PATRIOTIC? THEN SUPPORT AMERICANS BY BUYING AMERICAN MADE PRODUCTS!

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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