A few months back General Motors CEO, Dan Akerson, made claims that future profits at GM would be driven by China sales and the Chevy Volt. It has become apparent that the Volt is a non-issue, so let's take a look at the performance of what Akerson described as the "crown jewel" of GM.
China sales in July for GM actually fell 1.8% year over year. GM and its "joint ventures" sold 173,398 vehicles in China for the month of July. Of this number, 77,944 units were sold by SAIC-GM-Wuling. It is another overlooked half-truth by GM that they count these as GM sales, even though GM is a minority owner of the division.
Second quarter earnings from the region were roughly flat from the previous year's quarter. The region, which includes India, contributed approximately 20% of total earnings and was only about one fourth that of North American profits.
A few years back another GM CEO, Rick Wagoner, touted strong Chinese demand as the driver of profits. A television "hypeumentory" made claims that the Chinese demand would be "saving GM" as warning signs were growing that the company was in dire financial trouble. At the time, Wagoner stated that "bankruptcy was not an option." We now know that statement and the claims of China strength being a savior for GM turned out to be false.
So now we are again in a situation where we have the same TV personalities talking up the strengths at GM and a different CEO making claims that China is the future. Credibility is waning fast for all that have touted GM stock as a virtual sure winner as shares have underperformed broader markets by about 25% since first trading. Treasury continues to lose taxpayer money on its market timing gamble of its GM stake and investors who bought on the hype are suffering huge losses.
Perhaps there is a way of saving GM the second time around. False claims about magical green cars that can not be built fast enough to keep up with demand and claims of a Chinese mother lode will not be the answer. A removal of government overhang along with the removal of the cronies put in place to manage GM would be the best course to right the ship. For the sake of taxpayers, workers and investors, America should hope that GM will be managed in the future with an emphasis on profitability and quality products rather than upon politically motivated goals of green initiatives, UAW job creation and claims of financial strength that do not gibe with stock market negativity on the company.
Mark Modica is an NLPC Associate Fellow
