As I’m reading the news of a possible taxpayer-funded auto industry bailout / GM bailout I thought I’d offer some observations from down here in Peru.

On my morning walk when I return from teaching at ICPNA I walk by a car dealership where you find brand new, made-in-China Chery cars. These are still a small minority here in Cusco, but you occasionally notice one of them as well as a few Indian Mahindra trucks. The majority of vehicles here are the popular Asian brands, the ever-present “Tico” and a few VW cars. I rarely see any US brands, save for the occasional antique landyacht.

I think the trouble at the “Big 3” US automakers reflects a corporate culture of staying in a comfort zone that I wrote about in a previous post. While the Latin American market isn’t very big by US standards, it is a developing market and the US manufacturers seem to have largely ignored it. On the other hand, US outsourcing has helped create the world’s manufacturing base in Asia – with which GM, Ford and Chrysler now have to compete.

Update: check out this great analysis of Detroit’s 20th century mistakes.

In addition to all of the discussion that is sure to follow about inefficiencies, quality, labor relations and product design, I believe US businesses in general need to rethink how to build a global presence in order to be successful. Don’t outsource your core business and if you do source overseas, build up good relations with your foreign partners and establish your brand there – if only in anticipation of future growth. The idea of cheap overseas labor without some valuable presence in the market where you buy the labor is an unsustainable illusion.

I don’t think the near-term options for the US auto manufacturers are very attractive, and a big wad of government cash won’t solve their predicament unless they also improve their business plans to resolve the underlying problems in their industry. In addition, I’m a bit skeptical that GM and the rest of the industry is waving the white flag just at a time when big government bailouts are the flavor of the day, and a president supported by organized labor was just elected.

Ward Welvaert

international business
turnaround consulting
aviation/airline consulting
CIS applications

New Chery cars at a Peruvian dealership

New Chery cars at a Peruvian dealership