GM’s Health Abroad: A Warning Sign for the Future of Oil

If you follow business news in the US, you probably hear frequent reports about the financial maladies of our domestic auto makers and the attempts of the Big Three to restructure and stave off foreign competition (many of whom now manufacture right here in the States).

General Motors provides an excellent case study not only in the state of domestic auto production, but also in the future of global oil consumption and the environmental impacts of developing nations.

According to their own numbers, GM will have laid off nearly 21,400 US workers through the closing of 11 plants by 2008. The most recent 10-K filing with the Securities and Exchange Commission shows that GM North America went from a net income of $1.357 billion in 2004, to a whopping net loss of $8.233 billion in 2005. Sales increased slightly in 2006, but losses still exceeded $4 billion.

Where is GM making its money? Overseas, in the booming auto markets of the developing world. According to the Energy Information Administration (a branch of the US Department of Energy), world energy consumption in all sectors is set to increase by 57% by 2030; demand by non-OECD countries will increase by 95%, while increasing 24% for OECD nations.

GM’s overseas numbers—which represent one manufacturer in one niche of one segment of a given economy—already play out these projections anecdotally. GM Latin America/Africa/Mid-East went from profits of $50 million in 2004, to $490 million in 2006, an astonishing 980% increase. More press has been given to GM’s growth in China, where in 2005 they became the number one selling foreign automaker. GM Asia Pacific profits grew 162% between 2004 and 2006, from $731 million to $1.186 billion.

GM’s domestic decay does not portend a lack of demand of energy in the US, but clearly shows that Detroit is setting its sights overseas where even more explosive growth will strain both energy markets and our changing environment—something to think about after the price of a barrel of oil hit a record high of $78.70 this week.

—Matthew Melzer