Has General Motors (NYSE:GM) no shame?
Check that. I just remembered -- these are the guys who flew to Washington in a corporate jet to beg Congress for a multibillion-dollar handout. Well, lacking shame, does GM at least have a PR department?
No shame...
Speaking in response to A123's announcement last week that it will begin building its first battery factory in southeast Michigan, GM Vice Chairman Bob Lutz reportedly applauded: "A123's proposal to manufacture advanced battery cells and packs right here in the United States is a positive development for our industry and the nation."
Just days later, though, GM turned down A123's bid to build the battery pack for GM's new Volt electric car. Instead, GM gave the contract to Korean chemicals concern LG Chem.
... And no common sense
Now, for those not familiar with the company, let me explain: A123 is a Massachusetts-based battery maker, financed by such leading names as Motorola (NYSE:MOT), Qualcomm (NASDAQ:QCOM), General Electric (NYSE:GE), and Duracell owner Procter & Gamble (NYSE:PG).
Thus, A123 offers itself up as the "Buy American" solution to both our addiction to foreign oil, and to the monopolization of battery production by foreign automakers like Toyota (NYSE:TM) -- a practice that three years ago, Ford (NYSE:F) Chief Operating Officer Jim Padilla termed "predatory."
Yet no sooner does A123 commit itself to opening factories right next door to Detroit, no sooner does it promise to invest $2.3 billion in the effort to supply 5 million hybrid car batteries by 2013, and create 14,000 jobs in the process, than GM pulls the rug out from under A123, giving the contract to a foreign company.
In defense of GM
Now, in GM's favor, there are at least a few arguments backing LG Chem. The Korean company boasts around $10 billion in annual sales, versus less than $60 million for A123. (The vast majority of LG Chem's sales owe to its principle product lines, including PVC pipe, paint thinners, and the like. But the company's IEM business, where LG makes car batteries, booked roughly $1.7 billion in revenue last year.) GM can be forgiven for not wanting to risk its big push into electric cars on a start-up when there's a more established player available.
There's also the technological edge to consider. LG Chem's batteries use a "flat-cell design" reported to be better at dissipating heat. Conversely, GM seemed to think that A123's cylindrical cells were less efficient, and possibly even less safe.
And yet, if I'm understanding GM right, it seems to be saying that its choice of LG Chem over A123 basically boiled down to going with "who's biggest" and "who's best."
Umm...
Call me a cynic, but I can't help wondering whether those are really the criteria GM wants to bandy about. Sure, there was a time when both size and quality were on GM's side. But from what I hear, Toyota's set to overtake GM as the world's largest automaker any minute now (if it hasn't already.) And not one of GM's eight brands made it into the top 10 slots on JD Power & Associates' latest survey of automotive initial quality. Both of Toyota's biggest brands are there.
Foolish takeaway
Listen, I'm no "Buy American" fanatic. I support outsourcing when it makes economic sense -- though I'm also on record predicting the trend's demise. I loved my old Chevy S-10, but I've got similarly fond memories of my late, lamented Datsun 310. In short, I like to think that I can look at these kinds of issues objectively.
But when I hear GM beg for a taxpayer-funded bailout, insisting it's essential to support American industry ... and then turn around and torpedo its own arguments by "buying foreign" when it suits the company's own purposes, I have to wonder whether management realizes that economic jingoism cuts both ways.
Want to know more?
- When investing: Don’t Buy American … or Japanese, Either
- Find out: Why We Shouldn't Bail Out Detroit
- And unravel the mystery: Will Anyone Kill the Gasoline Car?
