By on December 4, 2012

Buried In the depths of General Motor’s quarterly results is a routine litany of negative factors that could severely hamper the company’s future. One of them is “Significant changes in economic, political and market conditions in China.” GM intently monitors what is happening to Japanese brands in China, and it has more reason to watch with worries than with glee. What is happening to Toyota, Honda, and Nissan right now could just as easily happen to GM. The Japanese might shake off the troubles  – Japanese makers have seen worse in the very recent past. GM would be brought to its knees by a boycott of American cars in China. Quite possibly, one of the reasons behind the whole anti-Japanese exercise is to say “look what could happen to you.” Government Motors finds itself at the mercy of China.

Market share by country, passenger vehicles, w/o SUV


Change can comes sudden in China: In the beginning of the year, the most bought cars in China carried Japanese brands. Six weeks after anti-Japanese tensions flared up in China in September over the Senkaku/Diaoyu islands the market share of all Japanese brands in China was decimated to a size a little better than that of France.

Nobody knows how long it will take to get back to normal. Observers are convinced it won’t be next month, and it could take well into next year. As quickly as flames were stoked and extinguished last September, the heat can be turned up again. And is does not have to be just Japan that can be on the receiving end.

Today, all three Japanese majors reported the impact of the anti-Japanese demonstrations and boycotts in November. After cutting sales in half in October, the impact has lessened somewhat in November, but it is still severe. Nissan and Honda lost nearly 30 percent of their sales in November, Toyota gave up 22 percent. The losses are most painful for Nissan, which has the highest exposure to China. Around a quarter of its global sales are in the Middle Kingdom.
We should not feel too comfortable in the thought that Japan and China are arch enemies, and it won’t happen to America.
Those invoking Japanese atrocities during World War II forget that Chinese troops fought against Americans in Korea, and at least by proxy in Vietnam.
Just yesterday, Beijing branded a US-Japan security treaty “a product of the Cold War” after Washington reaffirmed its commitment to Japan. There is plenty else that could trigger outrage in China. The Chinese are fiercely protective of their sovereignty, which sometimes clashes with meddlesome American politics that know now boundaries.

A week ago, Washington complained that China’s currency remains undervalued, but stopped short of branding the country a currency manipulator, an act that could trigger far greater repercussions from China than Japan buying a few rocks in the East China sea to keep them from falling into the hands of a firebrand right-wing Tokyo Governor who could have installed a helicopter base and a troop of Tokyo’s Metropolitan Police on the islets.

It is no accident that the Treasury report on China manipulating its currency or not, originally scheduled for October, was delayed until after the elections.

America has been engaged in a low level trade war with China since President Obama had to express gratitude to the unions for his first term election. GM quickly became collateral damage of this trade war. Tariffs enacted by China to retaliate against America’s punitive tariffs against low cost Chinese tires were carefully crafted to hit GM. Exports of Cadillacs to China dropped as a result, and Chinese production of the brand was accelerated.

General Motors would be the logical and most vulnerable target of anti-American riots in China, should they happen. GM is more dependent on China than any American company, much more so than any Japanese carmaker. Chrysler has zero exposure to China. Ford is just getting into the game.
GM sells more cars in China than in the U.S. In the first nine months of the year, 30 percent of GM’s global sales were in China. Worldwide, Only Volkswagen has similar exposure to the Chinese market as GM, and it has seen visa to executives delayed and parts stuck in customs after Frau Merkel only had tea with the Dalai Lama. Ever since,Germany treads very carefully with China.
In the first nine months of the year, GM’s revenue in China was $24.2 billion, and its net income was $2.3 billion, at least according to the documents filed with the SEC.  In China. GM has a profit margin close to 10 percent, globally, it is around 4 percent. The true profits, generated by licensing, parts sales etc. are most likely higher.
Unlike its Japanese peers, GM is not known for coping well with a crisis. As fragile as GM’s financial house still is, a few cars smashed and dealerships torched in China in front of cameras, amplified by Youku and Weibo in China, Twitter and Youtube worldwide, could decimate GM.
Think it can’t happen, think China and America are tied together like evil Siamese twins? Don’t be so sure. China is Japan’s largest trading partner. Nearly 20 percent of Japanese exports last year were sold to mainland China, compared to 15.3 percent exported to the U.S. Japan is China’s third-largest foreign direct investor and fourth-largest importer.  The anti-Japanese riots did hurt several companies owned by the Chinese Central government. A boycott of GM would hurt only a company owned by Shanghai’s government.

What happened in September in China, and what is still happening to Japanese car sales in China, is a signal to America: See what could happen to you.

And in case nobody is paying attention, there was another signal. During the height of the anti-Japanese riots, a group of protesters marched to the American embassy in Beijing, perfectly timed with the arrival of U.S. Ambassador Gary Locke’s car. The car was pelted with bottles, the American flag was ripped off the car. Watch what happened. Police (blue) was unable or too few to be effective. After some hesitations, paramilitary police (olive) intervened, the Ambassador’s car could speed away. No mass arrests were reported, Chinese authorities expressed regret.

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28 Comments on “What Is Happening To Toyota, Honda, Nissan In China, The Same Can Happen To GM...”


  • avatar
    Oelmotor

    Watch your “six” in China! If the CCP decides to destroy GM`s market share, VW will be next on their menu.

  • avatar
    rnc

    (Leave out Japan) the US and EU, if an economic end game comes down to it, the western countries just say that thier debt to China is no longer considered valid and there is now a 100% tariff to all goods exported from China, would cause a massive upheavel in west, however central banks and governments would just print and pay thier way out (as they’ve been doing between each other since forever really) and China collapses into/onto itself.

    But also reason that Ford is only tepidly sticking its toe in the water, 5/6 of the world’s population lives elsewhere and for all it’s chinese sales, they don’t really seem to help GM’s bottom line, NA, fixing Europe, while focusing growth on SA and India (4.5/6 of world population, Japan and Korea the .5 are kind of closed) looks to be the better long term plan.

  • avatar
    BigMeats

    meh… what, 40 maybe 50 protesters in the video?
    Not exactly Nixon in Caracas.

  • avatar
    rpol35

    Boy China is intent on pissing off everyone; read the article at the attached link:

    http://news.yahoo.com/indian-navy-ready-deploy-south-china-sea-tensions-021643610.html

    They keep it up and they’ll find themselves the odd man out.

  • avatar

    not a concern. the Chinese know they are going to end up owning GM. the American public won’t stand for another bailout and given the inept management in Detroit, dissolution is all but guaranteed. applying techniques I learned from my good pal Jerry York, I predict this will happen close to, but before, 2018.

  • avatar
    mike978

    You said GM has a much larger dependency upon China than the Japanese, yet state that Nissan has about 25% of it sales in China, just a little behind GM’s 30%. The profit margin differences are a bigger concern between the markets.
    You could easily have written this article about VW’s dependence on China which are higher than their sales in Germany (analogous to you saying GM Chinese sales are higher than GM USA sales).
    You say, correctly that China is Japan’s largest trading partner. But that is irrelevant from the Chinese perspective. The US is China’s largest trading partner so relations with the US are more valuable than with Japan, Germany, the UK etc.
    GM’s financial house of cards, don`t they have a cash pile which would allow them to weather some sort of crisis for a while?

    • 0 avatar
      rnc

      The Cash Pile – Unfunded pension obligations that weren’t dealt with in bankruptcy =’s very uncertain future for GM, (take into account that in all reality GM was bankrupt by the time Roger Smith got done in 1989 and they managed to stretch that out 20 years) and it is a monster on the balance sheet (income statements can look great when a company is dying). If GM’s plan of holding on until enough of the retiree’s and survivors from the 70’s (when GM had 50% of US market) start dying in mass works they will be fine, if not, then not (and that was the plan before BK as well), but a company with 15% MS, cannot support the obligations of a company that once had 50% MS (in a very inefficient way).

    • 0 avatar
      Felix Hoenikker

      Unfunded pensions and a declining market share are what killed Bethelem Steel.

    • 0 avatar
      silverkris

      Good point about Vee-Dub and their big share of revenues coming from China (particularly given that Europe is suffering pretty badly at present).

      All foreign vehicle manufacturers face a long-term market challenge of the rise of indigenous Chinese brands which they have known from the beginning – they will work hard to keep their presence by keeping quality up and putting more upscale models in.

  • avatar
    DC Bruce

    I don’t know what the relative trade balance is between Japan and China. However, on a global scale, the Chinese have built an export-driven economy, following the Asian model first rolled out by Japan 40 years ago and then followed by South Korea, say, 30 years ago.

    So, there is a limit to the utility to China of playing the “boycott imports” game. In effect, the United States and other industrialized countries have exported jobs to China.

    They can always take them back.

    And the comparison of the atrocities committed by the Imperial Japanese Army in its occupation of China in the late 1930s with anything done by the U.S. Army in Korea is risible. And American forces did not engage Chinese forces in Vietnam. The Vietnamese did quite well on their own, supplied by the Soviet Union.

    Of course, given the fact that most of the victims and the perpetrators of the “Rape of Nanking” are, by now, dead of other causes probably doesn’t diminish too much the ability of agitators to raise these issues to mobilize people in the streets.

    On a more pedestrian note, any imported car brand, to some degree, brings with it the cultural baggage of its home country, for good or ill. Thus, in the beginning, German cars imported into the US carried with them the German reputation for engineering excellence, Italian cars the reputation for exurberance and flair, Swedish cars, for stodginess and practicality . . . and so on. Japanese cars came with the general reputation of Japanese products (at the time they were introduced) for being cheap. (Only serious photographers who owned Nikon and other Japanese cameras knew better.)

    Nationalism has been actively suppressed in Europe . . . by the creation of the EU and by the general feeling that rampant nationalism bled the continent white in two disastrous wars in the 20th century. So, there’s less brand risk for a foreign manufacturer in those markets.

    But China is intensely nationalistic, so I would see that any foreign brand attempting to penetrate that market is at risk for unintentionally offending local sensibilities.

  • avatar

    you see GM doesn’t listen to outsiders, not Jerry York, not Jerry Flint, and certainly not your friendly Buickman.

    http://www.thetruthaboutcars.com/2010/08/jerry-flint-r-i-p-lays-into-gm-october-2000/

    • 0 avatar
      ABankThatMakesCars

      Jerry Flint really did say all of this. I sent him an email and responded that he did.

      GM: Where if you really are interested in autos and the industry the bean counters will crush you and your hopes and dreams.

  • avatar
    APaGttH

    Lets edit the first sentence…

    …Buried In the depths of General Motor’s quarterly results is a routine litany of negative factors that could severely hamper the company’s future…

    Should read…

    …Buried In the depths of any publicly traded company’s quarterly results is a routine litany of negative factors that could severely hamper the company’s future…

    Oh wait, more fish food, now it makes sense. From Toyota’s latest filing:

    http://quote.morningstar.com/stock-filing/Quarterly-Report/2012/9/30/t.aspx?t=XNYS:TM&ft=&d=326822e750817b2a5f061ae76a56ec7c

    …forward-looking statements are not guarantees of future performance and involve known and
    unknown risks, uncertainties and other factors that may cause Toyota’s actual results, performance,
    achievements or financial position to be materially different from any future results, performance,
    achievements or financial position expressed or implied by these forward-looking statements. These
    factors include, but are not limited to: (i) the impact of natural calamities including the negative effect
    on Toyota’s vehicle production and sales; (ii) changes in economic conditions and market demand
    affecting, and the competitive environment in, the automotive markets in Japan, North America,
    Europe, Asia and other markets in which Toyota operates; (iii) fluctuations in currency exchange rates,
    particularly with respect to the value of the Japanese yen, the U.S. dollar, the euro, the Australian
    dollar, the Canadian dollar and the British pound, and interest rates fluctuations; (iv) changes in
    funding environment in financial markets and increased competition in the financial services industry;
    (v) Toyota’s ability to market and distribute effectively; (vi) Toyota’s ability to realize production
    efficiencies and to implement capital expenditures at the levels and times planned by management;
    (vii) changes in the laws, regulations and government policies in the markets in which Toyota operates
    that affect Toyota’s automotive operations, particularly laws, regulations and government policies
    relating to vehicle safety including remedial measures such as recalls, trade, environmental protection,
    vehicle emissions and vehicle fuel economy, as well as changes in laws, regulations and government
    policies that affect Toyota’s other operations, including the outcome of current and future litigation and
    other legal proceedings, government proceedings and investigations; (viii) political and economic
    instability in the markets in which Toyota operates; (ix) Toyota’s ability to timely develop and achieve
    market acceptance of new products that meet customer demand; (x) any damage to Toyota’s brand
    image; (xi) Toyota’s reliance on various suppliers for the provision of supplies; (xii) increases in prices
    of raw materials; (xiii) Toyota’s reliance on various digital and information technologies; and (xiv) fuel
    shortages or interruptions in electricity, transportation systems, labor strikes, work stoppages or other
    interruptions to, or difficulties in, the employment of labor in the major markets where Toyota
    purchases materials, components and supplies for the production of its products or where its products
    are produced, distributed or sold…

    What? Toyota might not be able to control costs, protect its brands, or delivery new products in a timely manner??? What happened to GM could happen to Toyota…says so right in their report.

    Ya, it’s snark – I’m going to go pop some popcorn.

    • 0 avatar
      geozinger

      Glad to see someone else has read a filing statement.

      More of the same old, same old. If you can say anything good about GM, don’t post here.

      Last I checked, wasn’t Chrysler still selling Jeeps in China? That would be more than zero exposure.

      • 0 avatar
        rpol35

        “Last I checked, wasn’t Chrysler still selling Jeeps in China?”

        Yes, Jeeps & 300’s via the Port of Gray’s Harbor in Washington state. (I noticed that erroneous comment too.)

  • avatar
    Pch101

    If you were trying to convince me that China is a fickle giant that should be regarded as a threat, then consider me convinced.

    We should be doing less business with China, even if it costs us. All of that money saved at Walmart is ultimately going to pay for armaments that are going to knock the United States off of its Pax Americana pedestal. And when that day happens, that’s going to be the day that the US becomes a second-rate power, with a currency that is devalued to match its decline in status.

  • avatar
    wsn

    Your data that 30% GM units sold in China vs. 28% in the US means nothing. Most units sold in China are cheap WuLings. Please use revenue % instead.

  • avatar
    Dimwit

    I’m not so sure about this. From afar it looks to me that China’s usual agitprop has gotten away from them. Something that they wanted to play to the cameras as propaganda has backfired and they can’t stop it unless they come down hard, which would undermine the whole point so they have to let it go.
    Their vaunted Command and Control Economy has become Hold ON, I don’t Know Where the Hell We’re Going Economy. Too many factors, too much information, and far too many mandarins far from Bejing.

  • avatar
    PenguinBoy

    To me the real story here is the rapid rise in the market share of Chinese brands over the past couple of months, as illustrated in Bertel’s graph.

    This should be worrisome for VW, GM, or any other foreign brand with excessive exposure to the Chinese market.

  • avatar
    fredtal

    BOOM we sell a lot of junk to China and they make a lot of cheap sheet for us. Just be ready for inevitable BUST.

  • avatar
    Advance_92

    I’d be more worried if the US had the same history with China that Japan does, and was arguing over ownership of little islands.

  • avatar
    silverkris

    I think the political risk/nationalism thing vis-a-vis GM is a bit overblown.

    Sure, China is very, very wary about being “used” by foreign countries or corporations given its experience with imperialism. And there is simply no comparison in terms of the depth of hatred that many Chinese have for Japan, even today, as compared with the US or other major nations. In fact, given the historical baggage, one has to even credit Japanese corporations for the extent of investment and trade they’re doing in China to this point.

    The US-China relationship is remarkably fairly consistent and stable since 1979, even through many different administrations. Sure, there are ups and downs and flareups (remember the collision between US and Chinese military planes in 2001 – that was a big deal), but there seems to be a level of pragmatism that both the US and Chinese governments have when dealing with each other. Look, Beijing has pretty much come to understand the US political posturing during election season when we “play the China card”, just as experienced American hands also understand Chinese posturing to play to their nationalist sentiments.

  • avatar
    billfrombuckhead

    America needs to kick a fading and unpopular Japan to the curb and embrace a rising China. They’re more like us than the Japanese anyhow. Japan should have apologized for WW2 atrocities like Germany did instead of being arrogant.

  • avatar
    Joss

    We will always remember Premier Chou En-lai. Where is today’s Chou? A voice of moderation and conciliation through the wrath of party purges.

    Nixon in Caracas was staged the glass was smashed outwards…

  • avatar
    L'avventura

    Its a very real risk. Not just for GM but for VW as well. China does use their economy as a big stick. Besides that Japanese, Norwegian goods, Filipino agricultural products have also been punished recently for various political disputes.

    Chinese official media outlets have been warning that the US is “playing with fire” recently:

    http://www.chinadaily.com.cn/opinion/2012-12/04/content_15985077.htm

    http://www.chinadaily.com.cn/world/2012-12/02/content_15978333.htm

    This comes as the US is officially putting the Senakaku/Diaoyou islands under US military protection in case of Chinese aggression via Senate passing the 2013 National Defense Authorization Act last week. Chinese aggression means a US military response.

    This also comes as Deputy Secretary of State Richard Armitage stating that the US is ‘not neutral’ when it comes to the islands disputes. “We’re not neutral when our ally is a victim of coercion or aggression or intimidation,”

    http://blogs.wsj.com/japanrealtime/2012/11/29/u-s-not-neutral-about-japan-armitage-told-beijing/

    The US can very easily be drawn into these political disputes, especially as the US is also supporting its allies in South East Asia. As China is also in disputes for 90% of the South China Seas.

    BUT I don’t think the Chinese goverment would be foolish enough to orchestrate an anti-American riot any time soon. The Japanese are easy targets, America would not respond as passively as the Japanese. America wields much bigger sticks.

    GM has nothing to fear for now.


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