GM Steering a Smart Path to Continued Success
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The Fiscal Times
February 17, 2012

For the first time in more years than most Detroit residents care to remember, General Motors seems to be on top of the world once again. Post-bailout GM seems to have landed on solid ground, completing an IPO only about 16 months after emerging from bankruptcy protection in November 2010. Yesterday, 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 and Chrysler into the black – the first time the Big Three have all posted profits at the same time since 2004.

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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.

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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. 

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.