"Under Restructuring, GM To Build More Cars Overseas"

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Under Restructuring, GM To Build More Cars Overseas

By Peter Whoriskey
Washington Post Staff Writer
Friday, May 8, 2009

The U.S. government is pouring billions into General Motors in hopes
of reviving the domestic economy, but when the automaker completes its
restructuring plan, many of the company's new jobs will be filled by
workers overseas.

According to an outline the company has been sharing privately with
Washington legislators, the number of cars that GM sells in the United
States and builds in Mexico, China and South Korea will roughly
double.

The proportion of GM cars sold domestically and manufactured in those
low-wage countries will rise from 15 percent to 23 percent over the
next five years, according to the figures contained in a 12-page
presentation offered to lawmakers in response to their questions about
overseas production.

As a result, the long-simmering argument over U.S. manufacturers
expanding production overseas -- normally arising between unions and
private companies -- is about to engage the Obama administration.

Essentially in control of the company, the president's autos task
force faces an awkward choice: It can either require General Motors to
keep more jobs at home, potentially raising labor costs at a company
already beset with financial woes, or it can risk political fury by
allowing the automaker to expand operations at lower-cost
manufacturing locations.

"It's an almost impossible dilemma," said former labor secretary
Robert B. Reich, now a professor at the University of California-
Berkeley. "GM is a global company -- so for that matter is AIG and the
biggest Wall Street banks. That means that bailing them out doesn't
necessarily redound to the benefit of the U.S. or American workers.

"More significantly, it raises fundamental questions about the purpose
of bailing out these big companies. If GM is going to do more of its
production overseas, then why exactly are we saving GM?"

The administration has aroused similar complaints by shepherding a
merger between Chrysler and Italian automaker Fiat. But it has
extracted a promise from Fiat that it will build small cars in the
United States.

The complaints about GM's operations portend a potentially larger
argument, a political dispute led in part by the United Auto Workers.

"The bottom line is GM would rather pay $2 an hour -- and it's a
slippery slope downward," said Alan Reuther, the UAW's legislative
director. "If GM is going to be getting government assistance, they
ought to be maintaining their manufacturing footprint in the U.S.
rather than going off to China, Mexico and South Korea."

Labor costs in those countries are far lower. While paying a U.S.
autoworker with benefits costs about $54 an hour, a South Korean
worker earns about $22 an hour, a Mexican worker earns less than $10
an hour and some Chinese workers can earn as little as $3 an hour,
industry sources said.

On Tuesday and Wednesday, GM chief executive Fritz Henderson met with
legislators and sought to ease their concerns over the overseas
operations.

He emphasized that the company, which is shuttering factories at home,
is also canceling projects in Mexico, Russia and India.

He also assured legislators that none of the figures are final, and
that negotiations with the union are ongoing.

"We continue to work closely with GM, UAW, and all the stakeholders to
further refine and develop GM's plan," a Treasury spokesman said.

The U.S. government has loaned GM $15.4 billion. But billions more are
expected to be invested, and under the current plan, it will be the
majority owner of the company.

The company forecasts that between 2010 and 2014, as the recession
recedes, its U.S. sales will rise from 2.4 million to 3.1 million.

Most of that growth -- about two-thirds of it -- will occur in the
United States. But about one-third of that growth will come from other
countries, mostly Mexico and South Korea.

Those proportions roughly reflect how GM builds the cars it sells in
the United States today -- about two-thirds come from the United
States and one-third from other countries.

According to the figures shared with lawmakers, the percentage of GM's
U.S. sales of cars built in the United States dips from 67 percent in
2009 to 61 percent in 2012. Yet the company projects that by 2014 the
percentage will rebound to 66 percent.

Under the viability plan, "the U.S. percentage stays roughly the
same," Henderson said in an interview last week.

But the union and some legislators object that the company's U.S.-
funded revival should not help pay for expanding foreign operations.
Moreover, they believe that planned cuts in Canadian production --
down 23 percent -- will have direct effects on U.S. jobs because the
U.S. and Canadian auto industries are so intertwined.

"If you are shutting down plants in this country, U.S. tax dollars
should not go for building plants in other countries," said Sen.
Sherrod Brown (D-Ohio), who was among those who met with Henderson.

But company officials and industry analysts have long argued that,
even putting aside the issue of labor costs, it makes logistical sense
to build some cars in other countries, even if they are destined for
sale in the United States.

Take, for example, the Chevrolet Spark, a tiny car that GM sells in
South Korea and elsewhere in Asia. In the next few years, the company
plans to send some of those cars -- which are built in Changwon -- to
the United States for sale.

But since only about 5 percent of the car's market will be in the
United States, the manufacturing will remain in South Korea.

Analysts who study the auto companies and their global operation warn
against allowing political passions to obstruct GM's efficiency.

"If we start making political decisions with the auto industry, we're
going to be in tremendous trouble," said Michael Robinet, vice
president of global vehicle forecasts at CSM Worldwide.