[Viewpoint] GM’s down, but not yet out

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[Viewpoint] GM’s down, but not yet out

General Motors has filed for bankruptcy protection and faces a plan for nationalization. The top three automakers of the United States have always suffered from perennial problems associated with supply surplus, and two of them - Chrysler and GM - have collapsed during the global financial crisis.

Critics say the plan to nationalize GM means “General Motors” will be transformed into “Government Motors.” But it is premature to say GM had failed completely.

Although the company is suffering from serious problems, the U.S. government-led rescue program, if carried out successfully, should result in a new GM being reborn as a stronger auto company.

The New GM will reduce to a four-brand company - Buick, Chevrolet, Cadillac and GMC - and the company’s debts have largely been written off. The United Auto Workers has made drastic concessions in labor terms including wage negotiations. The three major competitive factors in the auto industry are cost, quality and design. Cost, which has long been an issue with GM, is now being resolved.

A similar approach was used when GM took over Daewoo Motors in 2002. At the time, GM spent $400 million on the acquisition of Daewoo Motors’ high-grade assets and successfully turned the motor company around.

The auto industry is often a nation’s key industry, and in the past governments have nationalized a major automaker to rescue it from the abyss. Germany’s Volkswagen and France’s Renault were once taken over by their respective governments, and both returned stronger for the experience.

Rover, however, disappeared from the market, despite the British government’s efforts.

Ultimately, nationalization is a way to seek a temporary stabilization of a carmaker’s management. Success in the long term is dependent upon the competitiveness of the brand and products.

The new GM will produce about 5 million cars a year, making it still the fifth-largest carmaker in the world. The company may have lost its hub in Europe by selling Opel, but it is still strong in Asia, particularly in China and India, and South America.

The new GM plans to import low-price cars from China by strengthening its production of compact vehicles through GM Daewoo. If the two plans work out, the new GM is likely to become more competitive in a much shorter space of time.

Chrysler can also return to compete with Korean and Japanese automakers if it successfully produces competitive compact cars in cooperation with Fiat.

In light of these developments, the profits Korean automakers reap from the GM and Chrysler crisis might only be temporary. Still, GM Daewoo’s position will be strengthened because it has become the hub of development and production of compact cars for the new GM. It may be able to develop midsize cars as well, a task usually carried out by Opel in the past.

The GM crisis presents some important lessons. We should never forget that a basis of national competitiveness is its manufacturing industry, and we should never forget that it is the basis of the manufacturing industry to supply good products at a cheaper price at all costs.

GM used to be the symbol of the U.S. manufacturing industry, but it was haunted by the neoliberal economic policy of 1980s. The company began focusing on short-term profits and the money game, and it is now witnessing the fallout.

When low-price, high-quality compact cars from Japanese carmakers entered the market, GM decided to concede rather than taking an “in-your-face” approach to fight off competition. The firm thought their auto industry was profitable enough, a stance that marked the beginning of the company’s demise.

GM’s shareholders, management, labor union and workers were too lazy and slow to respond to what was happening. They only cared about securing their own gains.

Now, the resources necessary for investing in the future have evaporated, a loss that has been disastrous for the company. As the situation grew worse, the entire GM community, from shareholders to workers, began blaming each other.

GM was also ineffective because it tried to maintain too many brands and products. This is an important lesson for Korea. Korean automakers have aggressively increased their production by building factories overseas. Now, it is time for Korean carmakers to concentrate their efforts on competitive products and streamline their production lines.

What’s more, the car industry must never hold back from developing environment-friendly cars. Government assistance is crucial, but the industry must also seriously consider a strategic alliance with a foreign company in order to lower development risks and costs.

There is no future for those who are not prepared. That is the expensive lesson learned from GM.

*The writer is an executive director of GK Korea. Translation by JoongAng Daily staff.

by Hwang Soon-ha
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