GM's Whitacre writes to the troops. Profit may not be far off

Posted by: David Welch on April 12, 2010

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General Motors Chairman and CEO Ed Whitacre has sent out his second memo in two weeks in an effort to make his rank-and-file staffers feel better about working at GM. In his latest note, sent out on April 12, Whitacre wrote to the staff that, “I anticipate solid operating results when we report our financials in May.” This follows a March 31 memo in which the media-shy Texan said that the major executive changes are already done. The current team will take GM forward, he wrote.

Whitacre didn’t say exactly what he means by “solid operating results.” Given his impatience for real results, I’d bet that means, at long last, some black ink. Consider a few facts. If you exclude $2.6 billion in costs for a union retiree healthcare fund, $400 million in currency losses and $100 million to wind down Saturn, GM lost just $300 million in the fourth quarter of 2009. During that same quarter, sales were down 24% in the U.S.

In the first quarter of this year, GM’s sales are up 18.4%. GM has some red-hot models, such as the Chevrolet Camaro pony car and Chevy Equinox and GMC Terrain SUVs. The company is adding production for all three vehicles. The company is even boosting production for its full-sized Chevy Tahoe and GMC Yukon SUVs built in Arlington, Texas. Hey, I don’t know who wants those guzzlers, knowing that gasoline prices will rise again. But they are selling and GM will make a mint off of them while they are hot.

Don’t forget a couple other things. That healthcare trust that GM poured money into took over retiree medical benefits starting on Dec. 31. So you can trim those costs for the first quarter. Going forward, GM will also be able to hire new workers at half the pay of the assembly-line veterans. Throw in rising sales in Asia and South America, and GM might really have something. GM’s troubled European business will be drag on earnings until the company can get it fixed. But elsewhere, we are seeing the seeds of a turnaround. It all starts with a bit of black ink.


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Reader Comments

Consumer Reports

April 13, 2010 11:41 AM

In Consumer Reports' lastest April Autos issue, Chevy cars made both the Best (Corvette) and Worst (Aveo5 1LT, Aveo LT) list.

Real World

April 14, 2010 09:49 AM

Nice suck up, but the cold hard facts are still the same. GM has marginal quality and the value of a one or three or five year old GM is still far less (percentage of original cost) than Honda, Toyota, Nissan and even Hyundai.

Whitacre is just an OBAMA puppet.

CanadaMark

April 14, 2010 02:52 PM

Is BusinessWeek owned by GM now? I agree with Real World (nice suck up) except for the part where it's 'nice'. If you disregard all of GM's expenses I completely agree they make money but this piece basically suggests they are on their way to being in the black. Makes me think BusinessWeek should be first in line for GM's IPO as against my opinion that clearly GM media releases are bunk designed to get BusinessWeek to publish more pro-GM propaganda. (mission accomplished)

David Welch

April 14, 2010 04:39 PM

David Welch with BusinessWeek here. I’m the writer of the post in question. First, I have to say that the comments saying that this is a “suck up” piece are just off base. General Motors can and should be profitable very soon. Company Vice Chairman and CFO Chris Liddell said profits were possible for the year. In a note to GM staff, Chairman and CEO Ed Whitacre wrote, “Our first quarter financial results will show us an important milestone, and I'm pleased to say that I anticipate solid operating results when we report our first quarter financials in May.” That doesn’t explicitly say a profit is coming. But losing money for the third straight quarter since emerging from bankruptcy, especially on an operating basis, is not an important milestone. That would be more of the same.

Rather than engage in vitriolic arguments, let’s look at some facts. If you take out one-time costs for the union’s healthcare trust, currency charges and the Saturn wind down, GM lost about $300 million in the fourth quarter. That’s a quarter when its North American sales fell 24%. In the first quarter, GM’s U.S. sales rose 18%. They have also cut healthcare costs by offloading medical benefit payments to a union-led trust fund. I’m not disregarding GM’s costs. I’m looking at the fact that the company slashed fixed costs in bankruptcy. This next point is important. The company is adding production at a pickup plant and two SUV plants. Adding production adds revenue. SUVs and pickups make high margins. Given the amount of cost cutting GM did and its increased production, the company should be getting in the black sometime soon.

ps

April 15, 2010 09:31 PM

@David Welch.. You have to stop the objectivity and logic. And stop looking at strategic indicators like adding production.

Bob

April 21, 2010 08:47 AM

GM sales figures for 2010 don't seem to be any better than 2009 according to http://online.wsj.com/mdc/public/page/2_3022-autosales.html. I suppose if the sales figures are flat and the costs go down, the income should rise. I believe that sales will remain flat through the first quarter of next year.

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Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

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