GM steers smart path to continued success

The company made $7.59 billion in 2011, the largest profit in its 103-year history.

By The Fiscal Times Feb 17, 2012 1:37PM
GMBy Suzanne McGee, The Fiscal Times   The Fiscal Times

For the first time in more years than most Detroit residents care to remember, General Motors (GM) seems to be on top of the world once again.

Post-bailout GM has landed on solid ground, completing an IPO only about 16 months after emerging from bankruptcy protection in November 2010. Thursday, the company reported blockbuster financial results, which included the largest profit ever in its 103-year-old history -- $7.59 billion in 2011.

Impressively, a big part of that advance came from car sales in GM's home market, the United States. Consumer confidence levels may still be wobbly, with shoppers demanding -- and getting -- big bargains on everything from clothing to large-screen televisions, but when it comes to cars, it seems that they're willing to pay a hefty enough price to put not only GM but Ford (F) and Chrysler into the black -- the first time the Big Three have all posted profits at the same time since 2004.

Despite that apparent success, the two leading Republican presidential candidates currently vying for votes in Michigan insist that they wouldn't have authorized a bailout of the state's auto industry. But is the current success of the Big Three a signal that the combination of market forces -- bankruptcy -- and government intervention -- the bailout -- can work when applied judiciously?

Debating whether GM's comeback could have been accomplished without the federal government's bailout is a bit like historians sitting around today and arguing over whether the Nazi regime would have been defeated in 1945 if it hadn't invaded the Soviet Union four years before. The truth is that we'll never know. But the decisions GM made under that dual pressure, such as eliminating some of its brands to focus on those most likely to dominate the market, certainly contributed to the company's rebound.

More importantly, there are signs the GM execs have learned from their past mistakes. They aren't cracking open the champagne to celebrate and taking their eye off the ball. On the contrary, they are showing every sign of trying to avoid enduring the tough times again. GM lost money from its European operations last year -- hardly surprising, given the struggle among even the strongest economies in the region to post a smidgen of economic growth. Preparing for the worst, GM combined its earnings announcement with reports of cost-cutting measures, including wage freezes for salaried employees and lower bonuses.

True, there's always China and its still burgeoning love affair with the automobile. But as GM execs probably are all too well aware, while the Chinese desire for cars -- still in its very early stages – isn't likely to wane any time soon, it will be hard to prevent the European crisis from eroding the spending power of Chinese consumers. That may mean that if they can't afford a GM vehicle, they may opt for a less costly (albeit less prestigious) domestic model.

Complacency -- one of the hallmarks of the Detroit auto industry in the 1970s, and the cause of many of its subsequent woes -- seems to have vanished from the corner offices of GM, at least for now. Let's hope that it's gone for good and that the new signs of discipline and prudence are here to stay.

Related Links:
The 8 Hottest Cars at the 2012 Detroit Auto Show
GM's Akerson: Companies Need to Change - or Die
GM, Now Number One, Tops Toyota

5Comments
Feb 18, 2012 11:50AM
avatar

Nervous Cat,

 

There is nothing partisan...............just the the truth.  For what ever reason you seem to want to put your head in the sand.  When the government takes a prominent roll in picking winners and losers, taking from bondholders/creditors, taxpayers, disadvantaging legitimate businesses, and redistributing wealth to unions and other preferential interests that is a problem.

 

 

Feb 17, 2012 7:18PM
avatar
"Despite that apparent success, the two leading Republican presidential candidates currently vying for votes in Michigan insist that they wouldn't have authorized a bailout of the state's auto industry. But is the current success of the Big Three a signal that the combination of market forces -- bankruptcy -- and government intervention -- the bailout -- can work when applied judiciously?"

HOW ABOUT THE BONDHOLDERS AND CREDITORS THAT OBAMA STOLE $30B FROM, WHERE IS THEIR BAILOUT?  THAT"S WHAT YOU GET WITH GOVERNMENT INTERVENTION.
Feb 17, 2012 10:03PM
avatar
Partisan spin and more partisan spin in the comments.  Why write such flaming comments about how pissed off you are at the government?  Use your anger at the ballot box - otherwise it sounds like you have an ax to grind.
Feb 17, 2012 7:13PM
avatar

Democrats / UAW Members,

 

I 'm sorry you can't handle the truth, I challenge you to fact check...........it's all true!!

Feb 17, 2012 1:59PM
avatar

You conveniently forgot to mention:

 

-The $28B, per the Treasury Dept.'s own admission that has not been recovered by the government per Obamruptcy

- The $30B fleeced from bondholders/creditors

- Per the above, GM has virtually zero interest expense when compared to FORD

- The UAW was awarded approx.$5B / 17.5% of GM per Obamaruptcy........

-  GM was awarded approx.$45B in loss carryovers from the old GM, which means GM will not pay corp. income taxes for years, I thought Obama wanted to increase taxes on those mean corporations!.  

 

OBAMARUPTCY - CRONY CAPITALISM AT IT's BEST!!!!

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