Competent people can do amazing things.
GM Is on the Road to Recovery
By Robert Walberg
Chief Market Strategist and Editor, Premium Services
4/21/2010 2:30 PM EDT
No doubt Apple's (AAPL - commentary - Trade Now) earnings report inspired awe, but the feel-good story of the day came from an unlikely source -- General Motors. GM CEO Ed Whitacre announced this morning that the company had repaid in full its loans to the U.S. and Canadian governments. The company borrowed a total of $52 billion from the U.S government and $9.5 billion from Canada, of which $8.1 billion was in the form of loans. It was the loans that the company paid back today, and it did so within nine months of borrowing the funds -- a full five years ahead of schedule.
GM received the rest of the money in exchange for ownership interests. The U.S. currently owns 61% of GM, with Canada owning 12%. GM expects to start repaying these funds later this year when it launches an IPO, returning ownership to the public.
When the government stepped up and provided assistance to GM in July, there was much hand-wringing in Washington over the cost of bailing out yet another poorly managed company. Despite numerous reorganizations and cost-cutting plans, GM was losing share and money at an alarming rate. Pouring taxpayer money down such a black hole seemed to many a bad investment.
But in less than a year GM has orchestrated one of the most amazing turnarounds in American corporate history. In so doing, the company has taken the heat off the Obama administration for advocating the financial assistance. More importantly, there are actually signs that GM's current management understands what it will take to win back consumers and retake share over the long term -- and for anyone who has followed the company over the last decade, that's a refreshing change.
After refusing to streamline its brands for years, the company finally bit the bullet and either sold or scuttled its Pontiac, Hummer, Saturn and Saab lines. GM can now focus its attention on its remaining four brands -- Chevrolet, Buick, Cadillac and GMC. The result will be lower costs, greater brand distinction and hopefully a more refined product.
We're already seeing success on this front, as the company is enjoying strong sales of its new GMC Terrain and Buick LaCrosse models. Meanwhile, sales of the newly designed Cadillac SRX crossover vehicle soared 550% in April, its seventh straight month of triple-digit sales gains -- proof positive that if GM combines a fresh, exciting design with a quality build, consumers will come back.
Another sign that management understands this simple but undeniable truth is that it no longer is relying on incentives to drive sales. In fact, the company's average incentive per vehicle is now below the industry average, reversing a longstanding company policy of using heavy incentives to drive sales at the cost of profits and in lieu of designing and building quality, fun-to-drive products.
While I applaud GM's recent design wins and its commitment to repaying taxpayer loans years ahead of schedule, there's still plenty of work to be done. For one thing, GM remains behind in the smaller, greener movement, and a lot is riding on the controversial Chevy Volt, due to start hitting showrooms in October. Fortunately, the success of some of its other brands has taken pressure off the Volt, but for a company lagging Ford (F - commentary - Trade Now), Honda (HMC - commentary - Trade Now) and Toyota (TM - commentary - Trade Now) in the small-and-fuel-efficient market, GM needs the Volt to be a success.
Remaining vigilant on costs, rebuilding labor relations, restoring confidence in its brand and returning to consistent profitability are among the challenges that remain, but for the first time in decades there's a very real sense that management "gets it." It's been a long road with plenty of bumps -- including bankruptcy and government handouts -- but it sure looks like GM is turning the corner toward recovery. |
