GM’s Turnaround: A Glimmer of Hope, Fortune Magazine

GM’s Turnaround: A Glimmer of Hope, Fortune Magazine

Fortune magazine suggests there’s reason to be optimistic about General Motors’ future in an article written by auto veteran and long-time GM watcher Alex Taylor and entitled “Gentleman, star your turnaround.” The subtitle is “Rick Wagoner’s overhaul of GM is producing cooler cars and a glimmer of hope.”

GM CEO Rick Wagoner tells Fortune what he’s been saying often in recent weeks is that 2008 will be another tough year for the automaker. He cites the same headwinds as his counterparts at other companies cite: weaker economy, high commodity, steel prices and energy prices. "Frankly, more headwinds, especially from the first two, than I would have hoped. We're going to be in soupy water for a while," Wagoner told Fortune.

Still, he added, he feels good about GM’s progress.

Third-Party Praise

Fortune notes GM’s new vehicles, especially the Buick Enclave, Cadillac CTS and Chevrolet Malibu, are winning enthusiastic reviews and generating strong sales.

What Fortune didn't note is the fact that those three vehicles – along with the Chevrolet Tahoe 2-Mode Hybrid -- are four of the six finalists for the North American Car and Truck of the Year awards, given by journalists. Winners of those awards will be announced Sunday morning at the Detroit auto show. GM swept the awards in 2007 with the Saturn Aura and Chevrolet Silverado.

In recently naming the new Cadillac its 2008 Car of the Year, Motor Trend “gushed in ways surprising even for an enthusiast magazine,” Fortune noted, advising car buffs to "start practicing using the words 'General Motors' and 'celebrated' in the same sentence."

Wagoner told the magazine:  "Here in the U.S., the change in the perception from two or three years ago is astounding."

Cost Cuts Creating Results

Fortune notes Wagoner has been making huge cuts in costs on the factory floor, taking $9 billion (22%) out of GM’s fixed operating costs. The historic contract with the United Auto Workers union reached in the fall is expected to produce as much as $4 billion in annual savings beginning in 2010.

Turnaround finally?

Fortune looks into its back issues in which it has examined GM's very survival. In a cover story entitled “The Tragedy of General Motors,” the magazine noted in 20006 "GM’s history of making poor cars, its abysmal financial performance, and its towering burden of health-care obligations," concluding, "Bankruptcy isn't going to occur next week. But down the road - way past 2006 - its probability is high."

In the most recent article, Fortune asks, in light of the positive developements, does all this add up to a long-overdue turnaround in GM's financial health? “Well, just as GM started getting its house in order, the ground underneath it began to shake.”

The slowing economy will reduce sales of cars and light trucks in the U.S., giving GM little room to improve revenues in the short term. The home-mortgage crisis has battered what had been one of GM's most moneymaking assets, the 49% stake it owns in General Motors Acceptance Corp. (GMAC), which issues home loans in its Residential Capital unit (ResCap).

The bad news prompted GM stock to plummet to the point that GM’s market cap is now under $15 billion, the lowest-valued stock among the Dow Industrials, Fortune notes. “As a result, analysts are postponing their expectations of a comeback to 2010.”

What GM needs, Fortune rights, is a stronger U.S. auto market, and it could be in sight. While 2008 is expected to be the worst sales year in a decade that could translate into pent-up demand at the beginning of 2009 for some 3.2 million vehicles, since consumers won't delay the purchase of new cars indefinitely. If GM can just stay on the path through the next patch of bad weather, we may finally be able to tell the comeback story the world's been waiting for.

The magazine concludes: “If the determined, patient Wagoner can succeed in rescuing GM's homeland operations and return the automaker to consistent profitability, it would be a feat of historic proportions.”

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.