GM repatriating Chinese profits – it may do more harm than good. 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 huge, vibrant and growing China market of funds while the rest of the world tanks doesn’t sound like such a good idea, but these are desperate times. “We do not rule out such a possibility under current conditions,” Lutz said. (Translation: We are already preparing the transfer.)
GM had been the poster child of the Chinese market since they started producing vehicles here in 1999. Not so anymore. After a decade of falling market shares, the Volkswagen Group again is China’s market leader in passenger vehicles. GM is also being outsold by Toyota in the passenger segment. Pulling out marketing and development funds from China sound like a sure recipe for further retrenchment.
Defending his budget, General Motors Corp. Asia Pacific President Nick Reilly warned that the company’s vehicle sales in China fell in August and September from a year earlier. He also isn’t so sure about GM’s previous forecast of 11% to 12% overall sales growth in the Chinese auto market for 2008. “The market is too unpredictable to forecast with any credibility,” said Reilly, ostensibly blaming the market while in reality talking to Detroit.
The withdrawal will not sit well with GM’s joint venture partners. When cash is king and credit is an endangered species, cashing in will be extremely unpopular.
General Motors has several JVs in China through mergers of local companies jointly held with the Shanghai Automotive Industry Corp (SAIC,) SAIC is one of China’s top three automakers, they also are a strategic joint venture partner of Volkswagen. VW/SAIC parented China’s modern auto production in the 1980’s. If GM’s money is called home to Detroit, SAIC may favor the Germans even more. Volkswagen doesn’t need the funds. Like a replay 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.
Author: Bertel SchmittThis author has published 8 articles so far.