Prospects for GM Thailand's continued operation
hinge on domestic loans

By Jon Fernquest

On June 1st the US auto giant General Motors (GM) finally filed for Chapter 11 bankruptcy. The new ownership of the company runs as follows:


Big changes are happening at GM and in the global auto industry:

Bankruptcy will certainly ensure the emergence of a smaller firm [GM]. The car company is being remade to cope with operating in a North American market with sales of 10m vehicles a year, roughly the number that will find buyers in 2009. GM might expect to get a little over a fifth of that market. To get into shape, more than 12 of its American plants will close and four brands — Pontiac, Saturn, Hummer and Saab — will be sold out of bankruptcy or will disappear for good. Hummer, apparently, already has a buyer [in China: read story]. A significant proportion of GM’s dealers will go too. The end result will be over 21,000 GM workers out of a job. (Source: The Economist)

The German government will support Opel, GM’s European subsidiary.

Continued operation of GM's Thai subsidiary will depend on whether and when GM can get domestic loans in Thailand (See article below).

There are lessons for other countries to learn on "what not to do" to their auto industries to be learned from the demise of GM. Both unions and protectionism played a key role in GM's decline:

High import duties on profitable light trucks and sports utility vehicles kept competitors at bay until Asian carmakers set up shop in America (with generous subsidies from states where they located). Detroit’s competitiveness was further weakened by pension liabilities and huge health-care costs that added hundreds of dollars to the cost of each vehicle.

As market share shrunk and profits dwindled, America’s carmakers made periodic attempts to restructure, in the face of stiff union resistance until recent years. But these efforts were insufficient, usually amounting to cutting capacity usually long after market share had evaporated. At least the wholesale rejigging of GM in bankruptcy should bring the two into line for a time. (Source: The Economist)

GM now faces the problem of how to "get back on track after 40 years of ignoring market realities."

The US government has become the majority shareholder of GM.

Government run business is not popular in the US, but "the faster the government sells its stake to private investors, the less it is likely to recover its investment of more than $50 billion in the company." (Source: New York Times)

Economics

GM Thailand says bank loans crucial

Rayong plant closed for two more weeks
By NAREERAT WIRIYAPONG
3/06/2009

Chances for survival are high for the General Motors (Thailand) after the US parent filed for bankruptcy, the head of GM Southeast Asia said yesterday.

However, local bank loans remain essential as the only option for the automaker to pursue its investments in Thailand, said Steve Carlisle president of GM (Thailand).

He said it was difficult for the company to maintain positive cashflow amid slumping automobile sales against a backdrop of a weak global economy.

"Chances are high for us to survive but the (Thai) government needs to play a facilitating role as well as provide us with moral support," he said at a press conference in Bangkok after Washington announced that GM had entered bankruptcy protection on Monday.

"A bank loan is the only option for us. [Issuing] corporate bonds is possible down the road but not for now," Mr Carlisle acknowledged.


GM Thailand needs 15 billion baht to complete its diesel engine plant and expand its pickup truck production line, which would also serve future products.

"Discussions with the banks are progressing according to plan. We expect to conclude the talks within 60 to 80 days," Mr Carlisle said.

He also said that GM's Rayong plant began another two-week shutdown on Monday to adjust current high inventory. Its domestic sales have fallen by more than 30% for the year to date to 5,000 units, while exports are down 40-50% in line with the overall industry slump.


Under the plan outlined by US President Barack Obama, an entity known as New GM would be formed as a new parent of GM operations in Asia-Pacific, including Thailand and Asean.

"GM Asean will be an important part of the New GM and will maintain normal business operations. Our plans for continued growth remain on track including building Thailand as the automotive hub in Asean," Mr Carlisle said.

The company intends to launch the Rayong-made Chevrolet Cruze, a compact car, in three months in Malaysia and Singapore.

The plan for a plug-in Chevrolet Volt is not affected and remains on schedule for a launch in 2010.

GM's $445-million diesel engine plant is expected to be operational in 2010. The US carmaker has been negotiating with the Export-Import Bank of Thailand to fund the project.

The Rayong plant, which employs 1,200 people, is forecast to roll out 40,000 units this year, compared with 140,000 last year, 54% of which would be for export, he added.

GM market share

Antonio Zara, vice-president for sales, marketing and aftersales of GM's Asean operations, said GM had a share of 3.6% in the Thai vehicle market, almost the same as the 2008 figure. It sold 1,500 units last month out of the industry's total volume of 30,000.

In 2008, GM sold 30,000 units in Asean out of 2 million overall, he added.

GM has seen a 44% sales decrease in Malaysia this year to date and a 20% drop in the Philippines. However, sales are up 20% in Indonesia against an overall market decline of 30%, he said.

(Source: Bangkok Post, business, 3/06/2009, GM Thailand says bank loans crucial, NAREERAT WIRIYAPONG, link)

Posted by Jon Fernquest at 06:17 PM | Permalink | Comments (0)