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Should GM Just Pack Up and Move to China?


If GM has a future, it sure doesn't seem to be in the US.

Fact: Over the first six months of 2010, for the first time in history, General Motors sold more cars in China than in the United States.

Fact: GM's North American market share, which once stood at 54%, gave all but 19% of it away to foreign competitors in the years since.

Fact: In 2005, Toyota (TM) Chairman Hiroshi Okuda actually floated the idea of raising retail prices on his own products to help GM, saying, "I'm concerned about the current situation GM is in."

At a certain point, even the least-experienced fisherman knows enough to cut bait. Is it time for GM to pack it in and head for greener pastures?

A year ago, Peter Cohan, president of Peter S. Cohan & Associates, a management consulting and venture capital firm, wrote:
"From GM's perspective, it should relocate to whichever country will enable it to be most competitive globally. [Over] the last few years, it's turned out that what's bad for GM is even worse for America. Maybe it's time for GM to take its corporate jets and fly to Beijing."

In an interview with Minyanville, Dan Griswold, director of the Center for Trade Policy Studies at the Cato Institute, said:

"GM's sales and production should be determined by the market. That was the huge tragedy of the government bailout; it circumvented what the market was working out before our eyes. Let the market decide [what GM's future will be]. I know it sounds like a radical idea for Washington, but that's the way it works."

It seems as if the market has spoken -- and the market seems to have decided that GM's future isn't here in America.

Steve Wynn has talked about moving his corporate headquarters to Macau, as his operations there generate 65% of Wynn Resorts' (WYNN) revenue.

Warren Buffett's MidAmerican Energy Holdings, a unit of Berkshire Hathaway (BRK.A), bought a 10% stake in China's BYD Auto in September 2008, which today is worth about $2 billion -- nearly 10 times MidAmerican's initial investment.

Companies like International Paper (IP) and General Electric (GE) have shut down certain domestic operations and moved them to China.

And, while Apple (AAPL) products do fantastically well all over the world, they're manufactured -- where else -- in China.

China's car-buying market also doesn't harbor the ingrained biases against GM vehicles that consumers do stateside.

"What we offer is accepted at face value," Kevin Wale, the president of GM China, told the New York Times. "We don't carry any baggage, basically. We get treated for what we deliver."

According to the same article, Chinese consumers don't need to be bribed with incentives to pony up for a GM car.

"People will not buy if the price is discounted because they think it will fall even further later on. But when there is no discount and tight supply, they will worry that there won't be any cars left," Shen Hui, the general manager at the Shanghai Yongda Buick dealership, said.

Of course, if GM were ever to take a step as radical as throwing in the towel, saying "We've failed domestically," and heading east, it would have to do so under its own power.

Anthony Randazzo, director of economic research for Reason Foundation, tells Minyanville that, whether or not moving to China is the best business move for GM, the decision "shouldn't come while General Motors is being tacitly operated by the US government."

Even selling off the detritus of GM's operations is weighing heavily on the flaccid economic rebound.

The Wall Street Journal reports that "Bankruptcy administrators are selling distressed real estate in one of the worst markets in recent history. And at more than three million square feet, some of GM's unwanted plants approach the size of the Pentagon or Mall of America -- too big for many smaller manufacturers and expensive to redevelop. Still, local officials are eager to be rid of these remnants of the car maker, as they can bring down nearby property values and slow local economic development."

Joseph Gray, the town supervisor of Massena, New York, told the paper that he "looks forward to the demolition work being done [on an old GM plant] by early next year so the town can try to attract tech companies or other industries to the site."

Finally, consider this: GM's hourly work force in China has grown to 32,000 people while its American operations have shrunk to 52,000 from 468,000 in 1979.

As money manager Ryan Krueger of Houston's Krueger & Catalano Capital Partners says, "I think a lot of US companies would like to consider moving to China -- and basically are, one sale at a time."

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