General "Tso's" Motors Is Digging Itself a Deeper Hole

The GM Renaissance Center in Detroit. (General Motors/John F. Martin)

General Motors (NYSE: GM  ) definitely faces an uphill battle when it comes to repairing its slaughtered brand image, which initially took a hit from producing mostly terrible products for the American consumer for decades. Then, after dishing out those poor quality vehicles and running its business into the ground, it stretched out its hand for the American taxpayer to pay up and save it from its own doing.

Rightfully so, consumers have been left with a bad taste in their mouths. It has a new nickname, one I hadn't heard until recently. No, I don't mean Government Motors – I'm talking about "General Tso's Motors". I'll explain the new one, and show GM's attempt to repair its brand image.

General "Tso's" Motors
I'm not going to lie, I chuckled when I heard that new nickname coined by Edward Niedermeyer in an article published in The Wall Street Journal. Here's something that you likely won't chuckle about. GM recently announced at the Shanghai Auto Show that it would spend roughly $11 billion on facilities in China by 2016 – creating almost 6,000 new jobs. To further twist the knife, according to AutoNews.com, the number of GM workers employed in North America has fallen by 76,000 since 2005.

All of the sudden that uphill battle GM was fighting has now turned into a slog up Mount Everest. It's already losing the battle to rival Ford (NYSE: F  ) who didn't need to take a taxpayer funded bailout. Ford took out its own huge loan, restructured itself within three years, and returned to profitability. It then paid the loan back entirely on its own, with interest. Not only that, but Ford recently noted – likely jabbing at GM – that high demand for its F-Series led to 2,000 jobs being created in its Kansas City assembly plant. 

Public Relations 101
I was shocked when I read the following quote from GM China President Bob Socia in Niedermeyer's WSJ article. He said that Americans "could very well" soon find Chinese-made GM cars on showroom floors, and that "[there] is no reason why we can't be exporting to the [United] States."

Didn't anyone in PR 101 explain to Socia what you should and shouldn't say in a world so interconnected with publications and social media? I've done my part, not so much defending GM, but trying to move on from this ugly chapter – but this makes me think twice.

I would be doing a disservice to Motley Fool readers if I didn't at least look into GM's side of the story. GM vice president of public policy Selim Bingol insisted in a letter to the Journal that "[the] $11 billion in capital that will be spent in China by 2016 is coming out of our joint ventures rather than Detroit and is far less than the approximately $16 billion in capital GM will invest in the U.S. over that time."

I think Bingol's response was a fairly weak argument; it only dismissed that GM wasn't directly taking cash from U.S. operations and investing it into China.

Bottom line
GM has 31 facilities in the U.S. including 12 assembly plants. To put it all in perspective GM's goal is to have at least 30 facilities in both the U.S. and China in 2016 – capitalizing on the world's two largest and strongest auto markets.

As an investor I understand and recognize the need to invest in China heavily. I also think there's much money to be spent in the U.S. to fix operations, support American jobs, and fix its tarnished image. The previous quote from Bob Socia about being able to export vehicles from China to the U.S. is not what I want to hear. I suppose that's the price we may one day pay in a globalized economy – for better, or worse... 

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 07, 2013, at 11:10 AM, SkepikI wrote:

    While GM should be begging taxpayer's forgiveness, it would rather put a sharp stick in our eye. It would be forgivable if their products were improving faster and their overhang from the bailout was profitably liquidated....not much chance of that it would seem. How is that comming by the way, you did not mention it in your otherwise interesting and informative article.....is there still 300 million shares in the US Treasury waiting for the price to hit 50 or 70 or whatever will sell the overhang at breakeven??

    FORD meanwhile, executing in N. America well, recovering and taking care of business here... I remain Long F the taxpayers friend.

  • Report this Comment On May 07, 2013, at 1:11 PM, TMFTwoCoins wrote:

    I think their products are going to improve at the rate you'd appreciate during the next year and a half. It took this long to refresh and redesign because capital was tied up "repaying" some of the bailout and restructuring. 90% to be replaced/redesigned/refreshed by 2016. If they fail during that time period, yikes...

    There's still significant shares, but I don't think they can wait for the break even price. Chances are the stock won't appreciate to that level before the U.S. commitment to unload the GM shares. Here's an article from yesterday. http://www.washingtontimes.com/news/2013/may/6/treasury-prep...

  • Report this Comment On May 07, 2013, at 5:29 PM, AmericanFirst wrote:

    TwoCoins,

    Tell me what you believe "GM" has paid back of the $50B taxpayer bailout received by GM. Please send me the link that verifies your answer.

  • Report this Comment On May 07, 2013, at 6:29 PM, TMFTwoCoins wrote:

    I'm not going to dig up a link, nor answer this in full because it would be an article worth lol.

    For starters, you should have put quotations around "paid back" because that's where misconceptions begin.

    What has GM paid back? Technically only the 6.7 billion pure loan from the U.S. Govt. How it paid that back is just as controversial as the bailout itself, but I'm not getting into that -- here at least.

    Now if "paid back" includes what monies it has traded over to re-purchase equity from the U.S. treasury, than you're looking at GM paying back 14-15 billion. I think that's also a flawed number, because it's not buying back shares at a loss, so why consider it "paid back".

    What the Treasury has lost on the deal, not including opportunity cost, is going to be around $11.4 billion.

    If you consider "paid back" what us taxpayers have ultimately been returned, I think GM has essentially paid 0.

    Just depends which side you're on, and which angle you take.

  • Report this Comment On May 07, 2013, at 6:49 PM, Deepwater805 wrote:

    I'm 55, and had always bought exclusively GM until 2008. I then switched to another American car manufacturer, and will never buy another GM car as long as I live. They took the bail out money, then stabbed the American worker in the back. Fine, then they can live without my business forever.

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