"We don't need a "Mission Accomplished" banner, but the auto rescue has been a success"

[impik]

A year after the government-sponsored bankruptcies of GM and Chrysler, both patients are alive and progressing well toward recovery.

Two weeks ago, GM reported its first quarterly profit in nearly three years: net income of $865 million on $31.5 billion in sales. A month earlier, Chrysler's first-quarter report included the news that the company had turned cash-flow positive after nearly bleeding to death in 2008.

Both companies are also doing better in the marketplace. Market-share declines have been arrested. Bloated inventories on dealers' lots have been reduced dramatically. Use of sales incentives such as rebates and interest-free financing -- the cocaine of the auto industry -- has been substantially reduced.

And the prices that the cars are fetching have risen sharply since last year: by $2,500 for GM and $2,400 for Chrysler. That means that the companies' historically poor images -- brand equity, in industry parlance -- have begun to improve.

How did this happen? First, the bankruptcies -- terrifying to everyone -- succeeded in wiping vast liabilities from the companies' balance sheets, more than $65 billion in the case of GM. The government task force that evaluated the industry leaders -- of which I was a part -- also insisted on a cold-blooded look at operating costs. Tough, conservative projections replaced years of rosy-scenario forecasting. As a result, GM cut its North American expenses by $8 billion per year.

In overseeing the restructurings, we insisted that assumptions about sales be very conservative. We wanted GM, which used to need to sell 16 million vehicles a year in the United States just to break even, to be profitable at volumes as low as 10 million. Happily, annual sales are running above 11 million and are likely to keep climbing. Accordingly, what would have been losses at "old GM" are now profits at shiny new GM.

None of this would have been sufficient without a fresh approach to management, particularly at GM. The new board, composed of individuals chosen for their private-sector expertise, has insisted on faster, more analytically rigorous decision making. Ed Whitacre, whom we recruited as chairman, has done a great job since becoming chief executive. He has shaken up the management team, bringing in a handful of talented outsiders and reassigning many insiders.




http://www.washingtonpost.com/wp-dyn/content/article/2010/05/31/AR2010053101642.html

[Oceansaway]

1. K&R...n/t

[msongs]

2. $65 bil in debt "wiped out" came from the pockets of other businesses/employees. No magic free

gift here, others have been impoverished by an equal amount. smoke and mirrors economics and newspaper reporting.

Msongs

[glowing]

3. Sure, dump pensions and debts and the load gets really light.

[Cha]

4. I like Steven Rattner's expertise and enthusiasm..

"The most important priority for the administration is to maintain its admirable hands-off policy with respect to the automakers' operations. And as the opportunity to cash out its stake grows nearer, the Treasury should take care to sell wisely. Bringing an end to government ownership of the auto industry is of great importance, but let's not have a fire sale. We owe that much to taxpayers.

Steven Rattner was counselor to the secretary of the Treasury and lead auto adviser for the administration. His book, "Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry," is to be published in October."

[amborin]

6. surely you're kidding! this guy is under investigation and a total screw up

[Sen. Walter Sobchak]

5. I don't see it where GM is concerned

They still suffer from few compelling products, negative brand equity and an inability to profit on the sale of ordinary cars.

I won't pass judgment on Chrysler till I see what they do with the Fiat imports, but even if popular they may not be terribly profitable.