Wednesday, May 8, 2013

When GM went broke four years ago, not many gave it a chance to come back from rehab. Those Cassandras are now eating their words as the lumbering giant strikes back with a vengeance.
 

A lot has changed for General Motors (GM) since it went adrift in rough seas four years ago. In the summer of 2008, about a year before GM became a ward of the state, its CEO Rick Wagoner was desperate to catch at straws in a futile bid to prevent his company from going belly up. The financial results for the 2008 spring quarter left no one in doubt about GM’s bleak prospects: a $15.5 billion loss, its third-worst in a century. GM’s revenue in North America had fallen $10 billion y-o-y (33%). And for the first time, after donning the mantle of being the no.1 car maker in the world from Ford in 1931, GM lost that position to Toyota.

But the worst was yet to come. Finding itself at the end of financial tether, Wagoner flew to Washington DC, cap in hand, to ask for $10-12 billion of easy loans from the Fed. But his demeanour – flying in a private luxurious jet at the company’s expense – rubbed many in Washington the wrong way. In quick time, Wagoner was booted out and the doddering company was offered a lifeline in the form of government bailout funds after being put under bankruptcy court protection. GM declared in its filing that it had $172 billion in debt and $82 billion in assets. Its m-cap having plumbed the depths of investor confidence, stood at $2.21 billion in March 2009 when Wagoner departed. The value of GM stocks had cratered to $3.62 as against the trading levels of above $70 when Wagoner had joined as CEO in June of 2000.

Wagoner’s exit did not exactly move GM away from over the hump. Through the initial months of restructuring, the company became a revolving door for a succession of CEOs who drifted in and out without making an impression. It was only after Daniel Akerson arrived in September 2010 that the company once again rediscovered its competitive gene. Since then, the automaker, which had lost about $100 billion in the years before its 2009 bankruptcy, has been consistently profitable. In the latest quarter (Q4, 2011), GM made $1.7 billion in profits, besides having already repaid $24.1 billion of the $49.5 billion in government aid it had received. But the biggest icing on the cake was that GM’s worldwide sales rose 7.6% to 9 million vehicles in 2011, helping the auto major to once again grab pole position as the world’s no.1 car seller (a position it had ceded to Toyota in 2008). That’s surely a remarkable achievement for a carmaker that looked completely down in the dumps until two years ago.

The uptick in sales came about on the back of the strong showing by its flagship Chevrolet brand, which sold a record 4.8 million vehicles last year (more than total sales of brands like Nissan and Honda). European carmaker Volkswagen was the second-largest seller of vehicles worldwide whose sales rose 14.3% to 8.2 million vehicles followed by the likes of Toyota, which expects its 2011 sales to come in at around 7.9 million vehicles, down about 6% from 2010. Analysts attribute GM’s recent swell performance to its strong US and China operations. Being the two biggest markets for carmakers today, GM has done well to wedge the China market open in its favour by collaborating with its local partner (SAIC Motor Corp), a strategy that has paid off handsomely. In 2011, GM sold more than 2.5 million vehicles in China, registering an 8.3% increase from the previous year. In the North American home turf, GM clocked sales of over 2.5 million vehicles at a 13% growth trajectory last year.

According to Jeremy Anwyl, Vice-Chairman of Edmunds, GM was lucky to have come out of its bankruptcy and consequential restructuring at a time when global market conditions were once again turning favourable for the automobile industry. “The bankruptcy allowed GM to cut costs and fundamentally restructure its operations from a cost & incentives perspective.”


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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