CLOSING CASE: GENERAL MOTORS IN CHINA
Team 1
I.
Chapter 1 summary: GLOBALIZATION
As society is developing more and more globalization also increases strongly. The
relationships, influences, and interactions of regions and countries around the world
highlight a series of interrelated changes from which a new kind of condition can arise.
There are two prominent aspects of globalization: globalization of markets and
globalization of production.
(Globalization of Market): individual markets of countries merge into a giant global
market
(Globalization of Production): distribution of production and supply branches in many
parts of the world in order to take advantage of differences between countries in terms
of cost and quality of production factors.
II.
Overview about GM
General Motors Corporation (GM) is an American automobile manufacturer, headquartered in
Detroit, Michigan, United States. It is already the second largest automaker in the world, after
Toyota, according to the 2008 global sales ranking. GM has been the leading automaker for 77
consecutive years from 1931 to 2007. This company manufactures cars and trucks in 34
countries.
In late 2008, GM and Chrysler received loans from the governments of the United States,
Canada, and Ontario to avoid bankruptcy due to the economic recession of the late 2000s, the
oil price crisis of the late 2000s, bad management and fierce competition (see auto industry
crisis 2008-2009).
On February 20, 2009, GM's Saab division filed for reorganization in a Swedish court after it
was denied loans from the Swedish government.
III.
Closing case summary
GM closed 3 assembly plants in America: Ohio, Michigan, Maryland. (Nov.2018)
President Donald Trump, who set the main goals for the US is the revival of traditional US
manufacturing industries to protect American workers, posted a twitter post expressing his
frustration with GM, and announced that would consider cutting all GM subsidies including
for electric cars.
GM was operated in 1997 when it established a joint venture with SAIC Motor (Chinese stateowned automotive design and manufacturing company). It has a 50% ownership stake, known
as SAIC-GM.
GM's sales in China market are much larger than in the US market (2018):
- 3.64 million vehicles in China
- 2.95 million vehicles in the US
China is now the world's largest automobile market.
GM sells models in China under many different brands. Buick Envision: the only model
exported from China to the American market but GM said that it cannot build this model
economically in the US because the Chinese market accounts for 80% of the model’s global
sales.
GM believe it needs factories close to customers:
- Reduce supply chain costs
- Design best suit local market demand
- Lead the shift away from gasoline engines toward battery-powered electric motors
- Sales are four times higher than in the US & grow faster
- Generous subsidies to local producers and customers
2018: China increased tariffs on imports of American made cars into China, from 15 to 40% Retaliation for wide-ranging tariffs Trump has placed on imports of Chinese products into the
US.
Not only impact on GM but also on Tesla (doing what Trump wanted GM to do)
+ Chinese sales fell in half in the months after the tariffs were raised
+ Plan to build production facilities in China, opening factory in 2021/2022
IV.
Answer the questions
1. What are the long-term prospects for the Chinese markets?
China has a potential market which can continue to grow despite its largeness. China is now
the world's largest automobile market and there is still lots of room for growth. Moreover, sales
of electric vehicles in China are 4 times higher than the US and growing faster. Besides, China
has been providing generous subsidies to local producers and customers. Therefore, it’s easier
for the China Market to grow in the future.
The market size of the Market Research industry in China has grown 7.1% per year on average
between 2017 and 2022.
2. Does it make sense for GM to produce automobiles for the Chinese market
in China? Why?
It does make sense for GM to produce automobiles for the Chinese market in China because
there have long been tariffs on imports of motor vehicles into China and local production can
avoid these. Furthermore, China increased tariffs on imports of American made cars into China
to 40% which has little impact on GM because it produced all Chinese sales locally.
3. What do you think would happen if GM tried to serve the Chinese market
by exporting production from the United States?
In my opinion, if GM tried to serve the Chinese market by exporting production from the US,
it would lose market in China. Tariffs on imports of American made cars into China are very
high, GM cars will be sold at high prices in China. As a result, GM would be like Tesla, its
Chinese sales would fall and lose China Market gradually. Besides, GM also would not receive
subsidies from China which affects GM’s benefits.
4. Why do you think GM went into partnership with a state-owned company
to produce automobiles in China? What are the possible benefits of such a
venture? What might be the downside?
From my point of view, GM went into partnership with a state-owned company to produce
automobiles in China in order to penetrate the China Market easier. For instance, GM can save
time researching local culture to do suitable Marketing, its partner knows what should be done
to have the best result since it has been here for long. A successful partnership could lift GM's
profits for years.
Possible benefits: GM may not be affected by import tariffs in China. Besides, it has received
generous subsidies from China. Another benefit is that GM may become the dominant foreign
player in China - the world's second-biggest economy and busiest auto market.
The possible downside: The Partner could use GM expertise and technology to transform itself
into a global auto powerhouse that challenges the American car maker down the road. And the
fact is the Chinese corporation intends to establish operations in the Latin American and
European areas, where GM has had a lengthy presence. Furthermore, China wants access to
breakthrough electric car technology, which GM wants to protect.
5. What does this case teach you about benefits and costs of import tariffs?
Benefits of import tariffs: The imposition of tariffs will help domestic producers. This is so that
their indigenous production can compete more favorably with imports. As we all see in this
case, GM was not affected by import tariffs because it produced all of its Chinese sales locally.
In addition, Tariffs will increase government revenue.
Cost of import tariffs: import tariffs may lead to retaliation. In this case, both China’ companies
and the US’s companies have to face higher tariffs and as a result they suffered falling demand
(like Tesla).