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GM financials show roadmap to success

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GM financials show roadmap to success

The General's plan is to build profitable cars, not just hope for profit from whatever cars it builds

For the past four months, General Motors Co. CEO Ed Whitacre's strategy seemed to boil down to a simplistic slogan: "Just sell more cars."

But for the first time a coherent plan to return the automaker to sustained profitability appears to be emerging -- and just in time -- in the chatter accompanying the "new GM's" first financial results since exiting bankruptcy last July.

"Driving everything we do is a vision of designing, building and selling the world's best vehicles and financial success will come with achieving that vision," GM CFO Chris Liddell said Wednesday during a widely anticipated review of GM's financial performance last year.

Other pillars of GM's strategy: rebuilding broken relationships with customers, dealers, suppliers and employees, among others; continually investing in vehicle programs; returning the company to profitability, and making sure that "General Motors should never again be in a position it found itself in last year," he said.

Sound familiar?

Officially, GM lost $4.3 billion net between July 10 and Dec. 31 of last year and burned through $1.9 billion of its substantial cash hoard, which stood at $36.2 billion at the end of the year. But it generated $1 billion in cash, is on track to repay by June direct loans from the U.S. and Canadian governments and signaled a likely operating profit this year -- or more -- under currently improving industry trends.

"We don't need the industry to be significantly better for us to achieve profitability," Liddell said, "but it's certainly going to be part of the answer. I'm very pleased with the progress we've made in the first quarter to achieving profitability."

Asked for a market share target, he made a revealing statement (for a GM CFO, that is, when viewed through the prism of the automaker's preening past): "I see market share as an output, not as an input." Translation: Deliver solid products to the market profitably and the market share will grow.

Hallelujah. We can quibble about how much of GM's plan, as outlined by Liddell, qualifies as strategy -- just as skeptics spent the first two or more years of Alan Mulally's tenure atop Ford Motor Co. ridiculing his cheesy blue-and-white cards detailing the automaker's "One Ford" four-point plan. Not anymore.

Baked into both the GM and Ford approaches is a simple proposition that a generation or more of Detroit auto leadership conveniently ignored until it mostly became too late: Success begins with segment-leading cars and trucks designed to earn a profit from the get-go, not as an afterthought.

That's why Liddell talks about products delivering profitability, which then delivers market share, and not the other way around. It's why Whitacre's reach outside the company for fresh talent is focused on key support functions -- finance, communications and government relations -- while he entrusts the guts of GM's automotive operations to longtime GM hands mostly responsible for the product renaissance already under way there.

It's why Liddell made a point Wednesday to credit GM's past management team(s) with making the product investments that, despite a harrowing bankruptcy, are giving the new GM a chance to succeed in markets around the world, from the bellwether United States to crucial overseas markets, starting with China.

"There's a tremendous amount of upside here," a prominent Wall Street credit analyst told me. "They're generating cash. Given how tight the rest of the market is, this is a screaming buy."

Which is the point of GM's suggestive financial kabuki. The changes at Whitacre's GM -- 12 of 13 executive committee members new to the company or in new jobs, fresh-start accounting, revamped marketing operations, clearer lines of authority and accountability -- are all aimed in one direction, and that's building a credible story to help sell would-be investors on shares in the new company.

The Obama White House, whose Treasury Department owns 61 percent of GM's equity, wants it because, long term, owning GM is a political liability. The United Auto Workers' retiree health care trust fund, as well as active workers and retirees depending on a river of benefits, need it.

GM executives currently paid below-market salaries but loaded with untradeable GM shares want it, too. And so should anyone with a vested interest in the survival and sustained profitability of an automaker given a second chance by American taxpayers, whether they wanted to or not.

For the first time in a long time, key trends are pointed in favor of GM. A gradual improvement in the annual selling rate is driving higher production volumes, fattening bottom lines because of sharply reduced fixed costs. Each million-unit uptick in the annual U.S. sales rate, J.P. Morgan estimates, represents $1 billion in earnings for GM before interest, taxes, depreciation and amortization.

Second, as conditions improve, the "operating leverage" that can make efficient automakers hugely profitable (see Toyota Motor Corp. before its troubles) will deliver even better results. And, third, GM has commanding positions in key global markets and appears to be minimizing the market share loss at home.

It's way too soon to declare a GM revival, much less declare anything like victory. But this thing feels like it's moving in the right direction -- finally.

From The Detroit News: http://detnews.com/article/20100408/OPINION03/4080346/1148/auto01/GM-financials-show-roadmap-to-success#ixzz0kVmjw4Us

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