GM Turnaround Begins as Automaker Starts Repaying Government Aid

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Researched by Industrial Info Resources (Sugar Land, Texas)--It has only been a few short months since General Motors Corporation (GM) (Detroit, Michigan) emerged from bankruptcy protection. GM is now mostly owned by the federal government, has received billions in federal aid, and is in the process of getting rid of inefficiencies and reorganizing to return to profitability. This turnaround process began unexpectedly early as GM reported a smaller than expected quarterly loss earlier this week.

GM lost $1.2 billion in the fiscal quarter immediately after emerging from bankruptcy, a significant improvement from previous quarters, indicating that the automaker has been making the right moves. While the "cash-for-clunkers" program artificially boosted sales for a month, new products were also introduced during the quarter that helped the automaker improve its sales position.

GM saw its market share increase three points during the quarter, from 8.9% to 11.9%, a significant increase for a company that had watched its market share diminish on a monthly for the past two years. GM also took its Opel division off the market in recent weeks, a sure sign the automaker feels that recovery is only months away.

As a result of these better-than-expected quarterly results, GM has indicated it will begin repaying the $6.7 billion in government aid earlier than expected. While the government had pumped $52 billion into GM prior to bankruptcy, the company emerged with only $17 billion in total debt, $6.7 billion of this from the government.

GM has stated it will begin to repay its debts, which will include the $6.7 billion to the U.S. government and $1.4 billion to the Canadian government, before the end of 2009. GM will make quarterly payments to the governments in the amount of $1 billion to the U.S. government and $200 million to the Canadian government. This schedule will pay off the total debt to each government by the middle of 2011. It is unlikely that the U.S. government will ever recoup the entire $52 billion invested in the automaker.

For GM to have a chance to succeed in repaying these debts and remain profitable, the automaker will need some of the proposed model changes and model additions to be homeruns in the coming months. Chief among the models that will need to take off for the automaker are the Buick Regal midsized sedan and the Chevrolet Cruze compact. These two models are sold in key market segments that GM must infiltrate if the company is going to have a chance to return as a leader in the sector.

GM is also going to have to be very careful about what model changes it decides to make in the coming months. Careful planning will be necessary for GM to succeed in this venture. GM will have to make sure it produces vehicles that the buying public actually wants to purchase, rather than saturating the market with vehicles that provide the largest profit margin for the automaker, something that GM has certainly done in the past. While sales of the Chevrolet Silverado pickup and the Impala full-sized car have been on the rise, the automaker cannot focus solely on these larger, less efficient vehicles.

The automotive marketplace is changing before our very eyes, and GM has to make some very major philosophical changes about how it does business to be able to compete effectively. Other automakers must make similar changes, but GM has the advantage of being able to start from a virtually clean slate. Hopefully, GM will have learned the lessons that put them into bankruptcy in the first place and can take advantage of this fresh start to turn the automaker back into the powerhouse it once was. Otherwise, the automaker is in for some heartbreaking times in the not-so-distant future.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.