Memo to Mitt Romney: GM's Success in China Is Good for America

Rick Newman

With every vote precious in battleground states like Ohio and Michigan, both presidential candidates are grasping for the slightest edge. Republican nominee Mitt Romney thinks he can gain it by continuing to bash the 2009 government bailouts of General Motors and Chrysler.

[ENJOY: The U.S. News Collection of Romney Cartoons]

Romney's latest insinuation, delivered in a pair of TV ads, is that the bailouts allowed both automakers to ship U.S. jobs to China. Both companies have strenuously rebutted the claim, which the fact-checking website Politifact has labeled as untrue. Yet Romney hasn't recanted, most likely hoping to tap into vague fears that many Americans have about China's growing power.

Despite such fears, there's a strong case to make that U.S. automakers and GM in particular have benefited from their presence in China, and that those benefits have a direct positive impact on workers, shareholders, and even car buyers here in America.

GM has sold cars in China for decades, and in 1999 it began manufacturing cars there through a joint venture with a Chinese firm (which is how most western manufacturers operate in China). Today, GM is No. 1 in market share in China, with about 15 percent of the market. In 2011, GM reported a $3.2 billion profit in China. Its total profit for the year was $9.3 billion. So China accounts for about 34 percent of GM's profit, even though GM's China sales are only about 20 percent of its worldwide total.

It might be ideal if all the cars GM sold in China -- 2.6 million last year -- were made in the United States and exported there. But most big automakers that sell cars in China build them there, via joint ventures similar to GM's. Building locally is increasingly the practice in all big markets, including the United States -- where all the big European and Asian automakers now build at least some of the cars they sell in America.

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GM profits from China, meanwhile, help prop up GM operations elsewhere that aren't doing as well -- particularly Europe, which is a money-losing division that's one of GM's biggest problems. GM officials also say that the rules of their Chinese joint venture allow the company to take profits out of the country, which some western companies operating in China aren't allowed to do. (Instead, they must reinvest profits in China.)

Profits from China don't necessarily make their way into the pockets of GM's American workers. But they probably do support the jobs of some U.S.-based designers, engineers, and managers whose work entails overseas operations. More importantly, selling cars in China allows GM to spread costs over a larger base of operations, which lowers the cost of vehicles in every region. It also exposes GM to developments in China -- such as an aggressive, government-sponsored electrification push -- that may help it stay more competitive globally.

[SEE ALSO: The Case for Getting Much Tougher On China]

Chrysler has been far less successful in China, with its "Beijing Jeep" operation in the 1980s being one of the automotive industry's notorious flops. That's ironic, since one of the Romney ads claims that Chrysler's Jeep division is planning to "return Jeep output to China." Jeep already sells a small numbers of Jeeps in China, but they're imported, since the numbers are too small to justify a factory there. To ramp up sales, Jeep would have to build the vehicles in China, as other automakers do. Meanwhile, Chrysler's market share in China is far below 1 percent, though sales have ticked up this year thanks to the introduction there of the Fiat 500, produced by the Italian automaker that bought Chrysler as part of the 2009 rescue.

Ford also sells vehicles in China, with market share of about 3.5 percent. Ford's operations there are similar to GM's, though the Romney ads don't mention Ford. That's obviously because Ford was the only U.S. automaker not to require a government bailout, which boosted its image among many car buyers.

What the Romney ads may really be aiming to do is remind voters of the unpopular auto bailouts and stoke whatever bad feelings remain. But that's an increasingly tough sell. At the time, polls showed that as many as 75 percent of Americans disapproved of the rescues. But that has fallen to 50 percent or less as both automakers have become profitable and turned out new models that have resonated with buyers.

Even Romney backer Clint Eastwood has lent his gritty imprimatur to the bailouts, declaring in a Chrysler ad that "Motor City is fighting back." Apparently Mitt Romney isn't convinced.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.