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China Worst Nightmare for GM, Ford

Worst nightmare for General Motors Corp., Ford Motor Co., employees, suppliers and stockholders reared menacingly. The old “yellow menace” of once-thought bygone days is alive and well and starting to manufacture automobiles in China. The Chrysler Motor Automobile Co. succumbed in 1998. China already manufactures many automobile parts for vehicles in other countries, including parking brakes and seat covers to the U.S. More complex parts like gears are being manufactured for other companies abroad.

Chinese authorities are working hard to improve quality. Fully assembled automobiles by Chinese-owned automobile makers have already begun to developing nations in South America, Africa and the Middle East. Industry analysts say “significant numbers” of automobiles will be shipped from Chinese plants to the U.S. and Europe within three years. Robert A. Lutz, vice chairman of General Motors, says “at least one” Chinese firm will be exporting in five years.

Whatever, General Motors and Ford have their backs to the wall. Ron Gettelfinger, president of the United automobile Workers, last week denounced Daimler’s plans:“The $1.50-to-$1.95-per-hour labor cost in the Chinese automobile industry is not arrived at by any ‘natural’ operations of a free market. It comes by through artificial repression of wages by a brutal regime which outlaws independent trade unions, and jails more labor activists than any country in the world!” China has the largest population in the world that is ambitious, hard working and prone to revolution. Who is to bell the dragon? Americans can fight only one war at a time.

An improving economy in China eventually will bring competition for labor and market. One may not like the level, or time requirement, but the alternatives are more unpalatable. Automobile stocks declined sharply, but recovered when famed investor Kirk Kerkorian bought 22 million shares of GM shares on the open market and offered to buy 28 million more. It cited their financial commitments to retirees for exceptional pension and health care costs. GM is said to be the nation’s largest private health-care provider with l.1 million workers, retirees and their families. Industry analysts blame sluggish GM and Ford sales on high gasoline prices and emphasis on oversize automobiles with poor mileage. G.M, Ford, and the UAW will huff and puff, but they will build more efficient automobiles at lower labor costs. They have no other choice. Charles E. Wilson, chief executive officer of G.M. in 1953, had it right when he famously declared – to great criticism: “What is good for the country is good for General Motors, and vice versa.”

Article Source: http://www.noviceinvesting.com/Article

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