What Does The Zhongrong Factory Explosion Mean For General Motors (NYSE: GM)?

General Motors Co. (NYSE: GM) is not having a good year. Slammed with lawsuits regarding faulty ignition switches and forced to recall millions of vehicles in the United States, GM is now facing an explosion at one of its factory sites in China.

However, the blame for the factory explosion is not likely to be placed on General Motor’s shoulders. The incident is just one of many similar accidents in metal factories in China over the past few years.

The Zhongrong factory is located in Kunshan City, in the Jiangsu province of eastern China.

This incident highlights GM’s relationship with its enormous network of suppliers and partners in the largest automobile market in the world. The issue also raises concerns over the safety standards of China’s factory supply chain, as well as the amount of responsibility that is taken by American companies for the problems in the multi-level supply chains. The companies in question include GM, Apple Inc (NASDAQ: AAPL), and McDonalds Corp (NYSE: MCD).

General Motors confirms late Sunday evening that the Zhongrong factory is considered to be a “Tier-2”supplier. This means that the company Zhongrong Metal Products Co produces the aluminum alloy wheel hubs that are used in GM vehicles, which are then transferred to GM’s Tier 1 provider, CiTiC Dicastal Wheel Manufacturing Co, LTD, which is based in Qinhuangdao City.

A spokesperson for GM stated that the company is currently working with their supplier to figure out their alternate processing ability.

The accident left over 75 workers dead, and left 186 workers injured. General Motors stated that it had no direct interaction with Zhongrong Metal Products Co, where the factory’s workers had been complaining for months about the dangerous buildup of metal dust pollution in the factory.

According to an industry expert, too much aluminum dust is lethal for those who are in the vicinity. Additionally, if enough of the aluminum dust collects in the air of a confined space, it can ignite easily when it comes in contact with any source of flame, including a cigarette lighter or the electric spark from a machine.

The United States Chemical Safety Board requires that workplaces with high levels of combustible particles in the air to have sufficient ventilation and protective measures.

Combustible particles can come from many different types of materials, including aluminum, magnesium, coal, and even wheat flour. These particles are not uncommon industrial hazards in factories in China and in factories around the world.

In 2011, a similar explosion caused by metallic dust killed 16 workers at a manufacturing plant for Apple’s iPad 2.

This recent incident in Zhongrong evokes memories of a similar incident that plagued GM in 2003, where an explosion at an aluminum alloy plant that made automotive wheels for the company proved fatal to one worker in Huntington, Indiana.

Groups supporting labor rights have argued that companies should take responsibility for the safety standards at each level in their supply chains, no matter if they are in the United States or overseas.

A member of China Labor Watch, based in New York City, stated that General Motors needs to share responsibility for the accident. “Safety measures like ventilation systems could have prevented the accumulation of dust particles. This horrific accident is due to the lax safety regulations in the workplace.”

General Motors has a significant presence in China, trailing behind Volkswagen AG (FRA: VOW). GM also sells more vehicles in China than it does in the United States. Its supply chain in China is enormous, and is integrated with its primary vehicle manufacturers, including 3 local car companies. This emphasizes just how intertwined the automotive industry is in China.

The company’s largest unit in China is Shanghai GM. This branch produces multiple vehicles with Shanghai Automotive Industry Corp Group (SAIC), including the Buick, Cadillac, and Chevrolet vehicles. SAIC is China’s largest government-owned car company.

GM is also partners with FAW, the third largest car maker in China. The joint partnership is known as FAW-GM Light Duty Commercial Vehicle Co, Ltd.