GM to Restart Operations in China on Saturday

From a Detroit Free Press Article, 2/12/2020

General Motors will restart production at its plants across China beginning Saturday as it continues to take precautions to ensure worker health amid the coronavirus outbreak.

But economists warn all the precautions in the world will not leave automakers unscathed.

GM is especially in danger. Its wide-scale operations in China put its 2020 revenues this year at "high risk" because of the outbreak. 

"GM's workforce production and earnings in China will be negatively affected," Patrick Anderson, CEO of East Lansing-based economic consulting firm Anderson Economic Group, told the Free Press. "GM is trying hard under difficult circumstances. However, even GM cannot avoid entirely the fallout from this epidemic."

In a report by Anderson's company, Volkswagen, Honda, Tesla and Hyundai-Kia were also named as the automakers to be most affected.

Detroit in China

GM now sells more cars in China than it does in the United States, notes the report released Monday called "Coronavirus Consequences to Workforce, Suppliers, and Manufacturers in the U.S. Automobile Industry."

Ford Motor Co. was not on the report's list of automakers at high risk despite operating six assembly plants in China.

Ford will resume vehicle production in China "this week," said a company spokesman. He declined to offer any details on which plants will restart or when. 

A Ford statement on its media site said it has about 37,000 employees in China. Ford has two joint ventures in China: Changan Ford and JMC, none in Wuhan

Ford vehicles that are locally produced in China include Escort, Focus, Mondeo, Taurus, Edge, EcoSport, Territory, Kuga, Everest and Transit.

Fiat Chrysler Automobiles does not have any operations in Wuhan, but its planned merger partner PSA Groupe does.  

FCA continues to monitor its global supply chain in relation to the coronavirus outbreak and there is no immediate impact on the company, it said. If the situation in China worsens, FCA said it will know within the next two to four weeks whether one manufacturing facility in Europe is affected.

FCA said it will continue to monitor the situation and develop contingency plans to support its global manufacturing.        

First the strike, now China

The Anderson report noted the impact the UAW's 40-day nationwide strike in the United States had on GM last year. In the fourth quarter, that strike cost GM $2.6 billion in pretax profits. 

This year, the ding likely will come from China, where auto sales had already started to sputter last year in the nation's slowing economy.

"GM’s Chinese operations should be considered nearly all at high risk, given their size and GM’s long-standing strength in integrated production planning,"  the report said.

During its Capital Markets Day with investors last Wednesday, GM leaders acknowledged the near-term challenges its business faced in China, but they held strong that GM can withstand the pressures in the long haul.

GM said it anticipates that trade tension between the United States and China would strain the Chinese economy and weaken consumer confidence and it also expected currency fluctuation to affect GM's U.S. dollar earnings results. But the unexpected coronavirus adds pressure.

"Prior to the virus outbreak, we had estimated the industry would be slightly down in 2020," said Matt Tsien, executive vice president of GM China. "We now expect additional near-term volume impact. GM’s target is to perform in line with the industry in 2020."

But long-term, Tsien said, GM is bullish on its business in China. 

"We still believe this market can grow to well over 30 million units annually in the coming years," said Tsien. "We’re leveraging our strong business foundation built over the past two decades, combined with China’s scale, to achieve success for the long haul."