General "Tso's" Motors Is Digging Itself a Deeper Hole
May 7th 2013 11:00AM
Updated May 7th 2013 12:00PM
General Motors definitely faces an uphill battle when it comes to repairing its slaughtered brand image, which initially took a hit from producing mostly terrible products for the American consumer for decades. Then, after dishing out those poor quality vehicles and running its business into the ground, it stretched out its hand for the American taxpayer to pay up and save it from its own doing.
Rightfully so, consumers have been left with a bad taste in their mouths. It has a new nickname, one I hadn't heard until recently. No, I don't mean Government Motors - I'm talking about "General Tso's Motors". I'll explain the new one, and show GM's attempt to repair its brand image.
General "Tso's" Motors
I'm not going to lie, I chuckled when I heard that new nickname coined by Edward Niedermeyer in an article published in The Wall Street Journal. Here's something that you likely won't chuckle about. GM recently announced at the Shanghai Auto Show that it would spend roughly $11 billion on facilities in China by 2016 - creating almost 6,000 new jobs. To further twist the knife, according to AutoNews.com, the number of GM workers employed in North America has fallen by 76,000 since 2005.
All of the sudden that uphill battle GM was fighting has now turned into a slog up Mount Everest. It's already losing the battle to rival Ford who didn't need to take a taxpayer funded bailout. Ford took out its own huge loan, restructured itself within three years, and returned to profitability. It then paid the loan back entirely on its own, with interest. Not only that, but Ford recently noted - likely jabbing at GM - that high demand for its F-Series led to 2,000 jobs being created in its Kansas City assembly plant.
Public Relations 101
I was shocked when I read the following quote from GM China President Bob Socia in Niedermeyer's WSJ article. He said that Americans "could very well" soon find Chinese-made GM cars on showroom floors, and that "[there] is no reason why we can't be exporting to the [United] States."
Didn't anyone in PR 101 explain to Socia what you should and shouldn't say in a world so interconnected with publications and social media? I've done my part, not so much defending GM, but trying to move on from this ugly chapter - but this makes me think twice.
I would be doing a disservice to Motley Fool readers if I didn't at least look into GM's side of the story. GM vice president of public policy Selim Bingol insisted in a letter to the Journal that "[the] $11 billion in capital that will be spent in China by 2016 is coming out of our joint ventures rather than Detroit and is far less than the approximately $16 billion in capital GM will invest in the U.S. over that time."
I think Bingol's response was a fairly weak argument; it only dismissed that GM wasn't directly taking cash from U.S. operations and investing it into China.
GM has 31 facilities in the U.S. including 12 assembly plants. To put it all in perspective GM's goal is to have at least 30 facilities in both the U.S. and China in 2016 - capitalizing on the world's two largest and strongest auto markets.
As an investor I understand and recognize the need to invest in China heavily. I also think there's much money to be spent in the U.S. to fix operations, support American jobs, and fix its tarnished image. The previous quote from Bob Socia about being able to export vehicles from China to the U.S. is not what I want to hear. I suppose that's the price we may one day pay in a globalized economy - for better, or worse...
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The article General "Tso's" Motors Is Digging Itself a Deeper Hole originally appeared on Fool.com.Motley Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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