Saturday, January 19, 2008

GM Counts on India, China to Offset U.S. Slump

An interesting Bloomberg exclusive "GM, Ford Count on India, China to Offset U.S. Slump" supports the suggestion in the post below that today's global economy helps support the U.S. economy in ways that are fundamentally different than in the past. Consider these excerpts from the article:

1. General Motors CEO Rick Wagoner says the U.S. is in an automotive recession, and he and his fellow CEOs are looking abroad for help.

2. With sales stagnating in Europe and down in Japan as well, U.S. automakers are banking on developing markets such as China and India to ease the pain. "Everybody is aiming at Russia, China and India,'' said an auto analyst. China is an automobile market that's going to be as big as the United States or EU.

3. U.S. sales are expected to fall by 2.5% in 2008 to 15.7 million units, but worldwide sales are expected to rise 4% this year to 75 million vehicles. In other words, almost 80% of the world vehicle market is now OUTSIDE the U.S.

4. The biggest sales gains for vehicles will come from countries where the rate of automobile ownership is climbing, like China, Russia, Eastern Europe.

5. In 2007, GM last year sold more than 1 million vehicles in China for the first time, and sales there are expected to grow by 15% this year.

6. GM sold 1 million units last year for the first time in the Latin America, Africa and Middle East region.

7. GM sold 3.82 million vehicles in the U.S. in 2007, and about 5.5 million units OUTSIDE the U.S., which means that GM now depends on foreign sales for almost 60% of its total sales.

Bottom Line: In previous U.S. economic or automotive slowdowns, especially in the 1970s, 1980s and 1990s, there certainly weren't strong growth areas in countries like China, India, Russia, etc. to help support GM and Ford when U.S. sales slumped. It should be considered a positive development that in an era of globalization, Ford and GM are no longer so dependent on just the U.S. market.

9 Comments:

At 1/19/2008 12:34 PM, Anonymous Anonymous said...

Overseas earnings were up 20 percent year-over-year during the third quarter. And that might continue for some companies -- especially since the Federal Reserve's series of interest rate cuts have caused the dollar to slide against its counterparts in Europe and Asia.

That's been a boon for companies like IBM, which does about 65 percent of its business outside of the United States. The company said Thursday its 10 percent revenue growth would have been cut to 4 percent if it wasn't for the dollar's rut.

The Japanese model. Currency devaluation. To bad Oil and other commodities are priced in dollars. We can't export our way out of this.

 
At 1/19/2008 12:38 PM, Anonymous Anonymous said...

It should be considered a positive development that in an era of globalization, Ford and GM are no longer so dependent on just the U.S. market.

And they are not dependent on U.S. workers either.

Just because a corporation has the name GM does not mean that it has to contribute anything to the American economy.

Celebrating the successes of GM India or GM China is just like celebrating the successes (not a bad thing by the way) of Tata or the Bank of China except that the parent company might receive some international corporate welfare from it's "offspring."

 
At 1/19/2008 1:05 PM, Blogger Darryl said...

I think this illustrates a good point about the often overlooked positive elements of globalization. Consider emerging markets and the globalization of Finance a'la Citigroup. If foreign investors couldn't provide the capital which will give Citigroup a chance to rebound, what might have been the alternative? A "shock" to the domestic economy, or a tax-payer funded government "bail-out"?

 
At 1/19/2008 1:16 PM, Anonymous Anonymous said...

If foreign investors couldn't provide the capital which will give Citigroup a chance to rebound, what might have been the alternative?

If foreign investors were not available the chances are that CitiGroup might not have been so carefree. Relatively speaking of course.

 
At 1/19/2008 3:32 PM, Blogger Darryl said...

"If foreign investors were not available the chances are that CitiGroup might not have been so carefree. Relatively speaking of course"

That's a valid point and I have heard others make that argument - maybe there is a lesson to be learned about moral hazard here.

 
At 1/19/2008 5:25 PM, OpenID sethstorm said...

Great. Now we're beholden to what inferior designs and lower quality manufacturing they bring to the table.


And they are not dependent on U.S. workers either.

However, they'd do well to retain them, as US manufacturing does quite well(quality, value) without the junk in the way. What would prevent them from just letting the UAW exist and thrive on a large set of US/UAW models kept alive by the stuff that never will reach the US?


Just because a corporation has the name GM does not mean that it has to contribute anything to the American economy.

Only if you get rid of the Midwest and pro-Detroit buyers. You're not going to convert these people any time soon(most likely, not ever).

I'd rather see a (semi-permanent) nationalization or bail-out path - it blunts the effects that were trying to kill a vital US industry.

There are some things Wall Street should not mess with.

 
At 1/19/2008 7:27 PM, Blogger Walt G. said...

Globalization in the auto industry is not just a positive development, it's a necessary development. The Big 3 is expected to become the little two by a lot of the auto industry experts in the near future. Most of the experts feel Chrysler is the most vulnerable because they don’t have much exposure to foreign markets. Ford has a lot of problems, too. GM, for now, looks like it is in the best position of the Big 3, but 2008 looks to be a lean year.

 
At 1/19/2008 8:09 PM, OpenID sethstorm said...

Chrysler is the most vulnerable because they don’t have much exposure to foreign markets.

Wouldn't that eventually become a selling point? There are sizable parts of the US that cannot be ignored that do not want an undersized rehash of some Far Eastern design. I know I would not be alone or in any ignorable minority in that.

Such designs that they do want would be what Detroit is known for(quality, uncompromising on size and performance, and very affordable).

When they focus back on the US, that will be something worth a full celebration. Relegating the US permanently to the back while giving nonvoting(and proven harmful) populations a crack at running our nation is not.

 
At 1/23/2008 9:55 AM, Anonymous Anonymous said...

With both Gm and Toyota tied for 1st place in sales I don't see Gm holding on to this position much longer Toyota is in a much stronger position

 

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