After bankruptcy, GM, Chrysler turn the corner

[Blue_Tires]

By Steven Rattner
Tuesday, June 1, 2010

We don't need an aircraft carrier and "Mission Accomplished" banner, but isn't it time to agree that the auto rescue has been a success? 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.

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

[safeinOhio]

1. You mean to tell me

Government Motors is doing better than the private company? Do tell.