The American Taxpayer’s Global Investment

As the new General Motors “gets down to business,— its current owners are grappling with the preservation of the company and a portion of its jobs. Over time, they will also focus on what it will take to get a good return. The American taxpayer, in the form of the U.S. government, now owns 60 percent of a piece of America’s business heritage and way of life. GM is promising “reinvention— and “the rebirth of the American car.— As a part of that reinvention, GM must become a key global competitor who cannot only sell against foreign competition in the United States, but will also succeed abroad. [IMGCAP(1)]GM cannot succeed solely as an American car company. Its industry is among the most competitive in the world. For any firm to prosper, global sales and operations efficiencies are a sine qua non. Of course, the new GM already has an international component in its ownership structure with a 12.5 percent stake from the governments of Canada and Ontario. The U.S. and Canadian auto industries are intricately interconnected with some vehicles crossing the border an average of seven times over the course of production. That said, GM’s future lies outside of North America.Ninety-five percent of the world’s customers live outside the United States. Significantly more cars will be sold this year in both Europe and Asia than in the U.S. Car purchases in China, India and Brazil through April exceed U.S. volume when annualized. What’s more, GM is doing very well in both China and Brazil. China is the company’s largest growth market. China Daily reports that GM has announced the target of doubling sales in China over the next five years and opening a new factory there to meet increased demand. Americans should see that as good news.Shifting global demand requires adjustments in production capacity and product. Consistent with the product cycle theory, over time, established products are produced in new locations with more local advantages. New production sites with lower cost structures keep supplying the global market. Unless a company expands internationally, these production sites will belong to competitors. For GM, a goal to become equals with the competition is not good enough. GM must excel again. Shifts to new plants and new countries will be difficult for Americans to swallow as GM, in spite of huge U.S. government subsidies, closes factories and eliminates jobs at home. The issue will become particularly sensitive when GM uses overseas production facilities to import cars to the United States. Yet, to perform in its post-bankruptcy life, GM will need to rationalize its global production platform to maximize economies of scale and eliminate waste. Inefficient production is one of the principal reasons for GM’s Chapter 11 filing and should not be championed in the guise of protecting American jobs.GM has an uphill battle in the United States. The firm currently has about 20 percent of the highly segmented U.S. auto market. Americans may love “baseball, hot dogs, apple pie and Chevrolet,— but they also love their Toyotas and Volkswagens and Kias. Consumers are looking for cars that meet their individual needs, and they have many alternatives. GM will need great products and marketing just to regain more share of the home market. Even more critically, GM must compete globally or be marginalized as a niche competitor. GM’s reinvention right now is the divestiture of some of its key operations abroad, particularly Opel in Europe. By ceding Europe to the competition, GM will certainly be leaner, but it also loses a significant presence in a very important global auto market. Can GM’s eventual recovery come in the form of cars designed only for greener U.S. consumers? We don’t think so. If the firm is to compete again with superb products in the U.S. market, then these very same products will and must compete abroad. Otherwise, ongoing protective government measures will only keep inefficiencies alive.The Obama administration may not intend to be an active manager of the new GM, but its policies on trade, foreign investment and taxation shape the company’s future. The taxpayer as investor should insist on the new GM producing the kind of quality products that future global consumers need and want. The search for additional investors from abroad must also continue. At the same time, government policies must allow and even encourage GM to be competitive not just at home, but also abroad. While they may not have bargained for it, U.S. taxpayers are now invested in global competition.Michael Czinkota researches international marketing issues at Georgetown University and the University of Birmingham in the United Kingdom. Charles Skuba teaches international business and marketing at Georgetown University.

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