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How GM's Bailout Became China's Bonanza

Edward Niedermeyer, an auto-industry analyst, is the co-founder of Daily Kanban and the former editor of the blog The Truth About Cars.
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During the 2012 election, President Barack Obama held up his bailout of General Motors as a model in the fight against China's growing manufacturing dominance, telling voters that the auto rescue would reverse the industry's multi-decade trend of outsourcing. A single election cycle later, the question of government support for automakers has all but disappeared from the political discourse, yet Detroit is back to sending jobs out of the industrial Midwest. And now GM is leading the way on Chinese outsourcing, announcing it will become the first U.S. firm to import a vehicle made in China to the U.S. It's about time taxpayers ask what their $50 billion rescue really bought them. 

Starting next year, GM will import between 30,000 and 40,000 Buick Envision crossovers annually from a plant in Shandong Province. That won't make the Envision one of GM's best-selling models, but it will greatly outsell the only other Chinese-import car on the market, the Volvo S60L. More importantly, GM's pioneering Chinese import will likely help break down the consumer stigma attached to Chinese cars, leading the way for other automakers to follow suit. If a bailed-out company can get away with selling Chinese cars in the U.S., there's no doubt that the rest will try too.

The Envision is just the tip of GM's Chinese iceberg: though the firm has not announced further plans to import other vehicles from Asia, it is increasingly making China a hub for new vehicle development and global exports. The next generation of GM's small- and medium-sized vehicles will be offered with a new engine and high-tech dual-clutch transmission co-developed with its Chinese partner, the Shanghai Automobile Industry Corporation. The two companies are also jointly creating an entire family of small vehicles to be exported from China to markets around the world.  

Taxpayers aren't the only ones GM appears to be abandoning. The United Auto Workers is incensed by the Envision decision. As union vice president Cindy Estrada told the Detroit Free Press in August when the rumors of the plan surfaced, "after the sacrifices made by U.S. taxpayers and the U.S. workforce to make General Motors the profitable quality company it is today, UAW members are disappointed with the tone-deaf speculation that the Envision would be imported from China." Yet given that the UAW has a new wage-raising contract nearing ratification, it can be argued that the union may have brought some of this disappointment upon itself.

But perhaps it is in Canada, where the government spent $10 billion rescuing G.M. and Chrysler, where anger is most justified. With GM's "vitality commitment" -- made to protect jobs in Canada as a condition of its bailout -- expiring at the end of next year, the automaker has already decided to cut 1,000 jobs  from its Oshawa, Ontario, plant when production of the Chevrolet Camaro ends there next week. GM has hinted that more outsourcing could follow. And as a new Liberal government is taking power in Ottawa, GM is pushing for "more amenable" subsidies than the $750 million in loans that had been offered by the outgoing Conservatives. If new Prime Minister Justin Trudeau doesn't bow to GM pressure -- turning those loans into grants that it need not repay -- the automaker may well pull even more jobs from a country that stood by it at its darkest hour.

In the short term, Canada's loss is the US's gain, as Camaro production moves from Oshawa to Lansing, Michigan. But the long-term beneficiaries of GM's outsourcing are China and Mexico, which didn't lift a finger during Detroit's crisis. GM is doubling its production  in Mexico through 2018, spending $16 billion on new-vehicle development. It plans a 65 percent production increase in China through 2020. In the U.S. and other traditional GM partner nations such as Canada, Australia and South Korea,  job levels will remain relatively flat or decline. 

Government support from all these nations may have slowed the tide of jobs flowing to Mexico and China, but they haven't stopped it. And if they want to stem the job-bleed in their manufacturing sectors, they'll likely have to pay GM for the privilege.

The next time GM finds itself in trouble, perhaps it will make more sense for China and Mexico to do the rescuing.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Edward Niedermeyer at edward.niedermeyer@gmail.com

To contact the editor responsible for this story:
Tobin Harshaw at tharshaw@bloomberg.net