Analyst: GM recall unlikely to affect China

Updated: 2014-06-27 11:12

By Jack Freifelder in New York (China Daily USA)

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Despite woes, automaker set to sell over 3 million cars this year

General Motors Co's recall of more than 3 million cars due to a defective ignition switch that it said was made in China won't affect GM's operations in China, according to an analyst.

"Maybe GM won't buy another ignition switch from a Chinese supplier, but that's not the end of the world," said David Whiston, a senior equity analyst with Chicago-based investment research firm Morningstar Inc, in an interview with China Daily.

Whiston, who covers the Detroit-based automobile maker for Morningstar, also said GM would sell "well over" 3 million cars in China this year. "GM China is still generating a lot of profit for the company, and it's growing at a really healthy clip," he said on Wednesday.

So far this year, GM has recalled more than 20 million cars worldwide. In February, GM cited more than 2.5 million cars that needed to be taken off the road because of similar ignition switch issues that resulted in the deaths of 13 individuals.

The company's most recent recall on June 16, which can be linked to eight nonfatal crashes, is related to a faulty ignition switch that can shift out of the run position while the car is still in motion, cutting off access to steering and braking capabilities.

A GM spokesman said the company is "in the process of dealing with the recall," and could not comment further.

Don Dion, chief investment officer for DRD Investments LLC, a Florida-based hedge fund, told China Daily that over the last 10 years products coming out of China have been by and large good products.

"I don't think this problem can be blamed on the Chinese company. They certainly have some of the blame, but I don't think this is a China problem; it's a GM problem," he said.

Dion also said he does not see much of a shake-up as a result of the safety issues.

"With more and more cars being sold in China, the focus for GM will be on making sure things are tested and reviewed better," Dion said. "I don't think you'll see less auto parts made in China because the US industrial sector is very dependent on China for parts."

GM's operations in China include two foreign enterprises, 10 joint venture partnerships and more than 50,000 employees located in the world's second-largest economy.

Due to Chinese government regulations, foreign manufacturers producing vehicles in China must do so as a joint venture with a Chinese company. However, only a limited number of partnerships are permitted.

GM has partnered with SAIC - formerly known as the Shanghai Automotive Industry Corp - to become one of the leading foreign car companies in China.

Through the first five months of 2014, GM and its partners sold a record-setting 1.47 million units in China, an increase of 10.7 percent year-on-year.

Dion said the recall issue could pay some dividends down the road.

"One of the positives that could come out of this is that GM's products may continue to get better," he said. "The focus will be more on the future and about making sure things are tested and reviewed better. That's going to give the middle management group a lot more confidence to speak up when there is a problem."

Dion said GM CEO Mary Barra deserves some credit for her openness and transparency in handling GM's recall, saying she has been "very open and transparent" on the ignition issue.

(China Daily USA 06/27/2014 page2)