Free Enterprise - Not Government Oversight - Key to GM Turnaround, Say Company Officials

July 29th, 2010 1:02 PM

Chevrolet Volt (Wikimedia Commons)Free enterprise and the American marketplace – not the guiding hand of government – have revitalized the beleaguered automaker General Motors, which expects to announce another profitable quarter, according to GM officials. 

President Barack Obama plans to visit a GM plant in Hamtramk, Michigan on July 30, and his administration is linking GM’s return to profitability with the bailout of the old GM the administration orchestrated last summer.
“Just over a year after President Obama made tough decisions to save Chrysler and GM, these companies are returning to profitability, hiring workers, and keeping plants open,” the White House said in a July 23 press release. “And because of the steps the Administration and Congress have taken with Cash for Clunkers and the Recovery Act, the industry overall is strengthening.”
But GM officials said the government has had almost nothing at all to do with the company’s rapid return to profitability. According to one GM official, who spoke to on background, the government has been a “silent investor,” and GM’s senior leadership does not seek “approval or permission” from the government before making business decisions.
“They haven’t done anything, in the sense of telling us how to run our business,” the GM official told “The fact is that a new team has come in, and this is what they were handed. We don’t want to be under this guise of ‘Government Motors’ or the 61 percent equity stake of the government a moment longer then we have to.”
Industry analysts have speculated about an initial public offering (IPO) – when the company would offer stock for sale to the public and the government could, if it wanted, divest its GM holdings and get taxpayers off the hook.
That IPO could come as early as the fourth quarter of 2010, by which time, analysts say, the government should be able to recoup its investment and possibly make a profit.
The Man Who Turned GM Around
The man responsible for the GM turnaround is new CEO Ed Whitacre. In fact, Whitacre only took the job – after declining it several times – on the condition that the government stay completely away from GM’s business decisions. If the government tried to give Whitacre and his team orders, Whitacre promised to quit on the spot, the official told
“He finally accepted under the airtight provision that if he so much as got a sense that the government was dictating terms and how to do business and what color to paint Camaros and what have you, he would quit that day,” the official said of Whitacre.
“Political hacks,” he added, do not tell Whitacre what to do.

Whitacre, a former AT&T CEO with no experience in the auto industry, has shaken up GM from the assembly line to the boardroom: cutting unprofitable brands, jettisoning non-automotive business like aerospace and home finance, and recruiting new senior executive leadership from inside and outside the automotive industry.

Whitacre and GM have gone to great lengths to demonstrate that the company is now focused on one thing and one thing only: building quality cars and trucks that consumers want to buy. This is more than a mantra, the GM official explained, and Whitacre has made it an all-consuming focus of the company.
“At the end of the day, the business is really not that complex -- it really is all about the cars and trucks that you’re building,” the official explained. “If you’re building good cars and trucks and people buy them, a lot of this stuff takes care of itself.”
New GM
Whitacre is not the only reason the new GM is turning a profit again. A new collective bargaining agreement between GM and the United Autoworkers Union (UAW) has allowed GM to remain competitive against non-union companies like Toyota, Nissan, and Honda.
The old agreement mandated that GM pay new workers a hefty $28 per hour, twice what the non-union companies paid. Now, GM pay is competitive at $14 per hour for new hires.
“Hanging focuses the mind,” the GM official said of the new UAW contract, describing how the historically recalcitrant union realized its previous demands were unsustainable after GM’s 2009 bankruptcy. “They got religion,” he said.
Another significant part of the new union contract is a shift in responsibility for employee health care. Under the old agreement, GM was responsible for administering the massive employee health care program, for which GM had promised to pay $36 billion. Now that plan, known as a VEBA (Voluntary Employee Benefits Association), is managed by the UAW itself.
Also part of the new union labor contract are new work rules that allow GM to hire temporary workers when regular ones go on vacation, allowing GM to maintain production capacity during the summer months. Previously, GM shut its plants for two weeks in the summer to allow workers to take vacations.
Additionally, the new contract contains an important no-strike clause that will allow GM to renegotiate a new labor contract when the current one expires.
On the Road to Recovery
Whitacre’s efforts seem to be paying off. GM slashed four brands -- Hummer, Saturn, Saab, and Pontiac -- and kept four others: Chevrolet, Buick, Cadillac, and GMC. Despite cutting 50 percent of its brands, GM retained much of its market share, accounting for 20 percent of all domestic auto sales.
“Today we're selling more vehicles with four brands than we did a year ago with eight brands,” Whitacre told a group of Wall Street financial analysts on June 29.
According to sales figures released June 30, GM’s total June sales were up 36 percent over one year ago. Its six-month sales were up 32 percent over the January-June 2009 period. Over the first six months of 2010, GM sold 1.07 million vehicles – 258,368 more than it sold in the first half of 2009.
This sales revival has been led by traditional American automotive mainstays: gasoline-powered cars and trucks. While Obama will showcase the plant where GM plans to make its all-electric Chevrolet Volt – a car the government identified as key to the company’s future – GM’s return to profitability has been the result of increased consumer demand for normal vehicles.

GM’s truck sales, a long-time source of profit, are up 12 percent from one year ago while sales of crossover SUVs are up 81 percent over 2009 figures. GM’s new vehicles have largely been hits with consumers. According to GM sales data, Chevrolet Equinox and GMC Terrain, two crossover SUVS, accounted for 94,105 of GM’s 1.07 million total 2010 sales.
Buick sales are up 48 percent in 2010 while Cadillac sales were up 35 percent and GMC sales were up 29 percent.
‘Moving Fast’ to Repay Taxpayers
Whitacre and GM are pushing towards escaping the stigma of government involvement, moving as quickly and as carefully as possible toward a public stock offering. When GM finally does offer itself up for public consumption, the Treasury Department will be able to sell some or all of its 61 percent equity stake.
A public stock offering is necessary to establish a market price for GM stock. Without this price, Treasury could lose money on a sale of GM stock. However, the GM official told, GM has been open about its performance and costs, allowing investors to see that the company is sound, making a prospective IPO attractive.
While Treasury will ultimately decide whether to sell its entire equity stake or retain some ownership of GM, the company official said that when GM finally makes its stock public, the government will be able to make its money back.
“There’s a new leadership team and organizational spirit in place that’s all about moving fast and decisively to return this company to a public company, to return it to profitability, and repay the taxpayer investment just as quickly as we can,” GM Director of Policy and Washington Communications Greg Martin told
“The fastest way we can do that and maximize the value of this company for the taxpayer is to make decisions based on free market principles, and that’s what we’re doing.”

Crossposted at NB sister site CNS News.