At GM, down looks like up, at least for now

Paul A. Eisenstein

For the many GM watchers who were expecting a quarterly loss north of $2 billion from the automaker, the $1.2 billion loss it actually reported for the third quarter came as a pleasant surprise.

Deutsche Bank auto analyst Rod Lache, who predicted a more than $2.2 billion loss, had anticipated GM would finish the third quarter with far less money in the bank. The automaker wound up with “considerably more cash than was widely expected,” Lache acknowledged.

But the head of the national Republican party, Michael Steele, might have been talking about an entirely different company, to hear his take on the “new” GM’s finances. Steele said the loss was “further proof that President Obama’s economic experiments are wrong for America.”

Steele apparently assumed that the struggling automaker would emerge from Chapter 11 protection a healthy, happy manufacturer posting massive profits and perhaps even single-handedly reversing the job losses the nation, and the auto industry, in particular, has suffered lately.

The federal bankruptcy court GM spent two months in over the summer did approve a massive transformation. The automaker walked away from tens of billions in debt, closed almost 2,000 redundant and poorly performing dealerships, shuttered a score of plants and assembly lines, further trimmed its work force and eliminated half of its North American brands, in the process slashing from 84 to 37 the number of models it offers the public.

But it's absurd to expect GM to jump solidly back into the black in the months after bankruptcy, analysts like Lache warn.

Indeed, GM’s CEO Fritz Henderson cautioned that the third-quarter numbers really can’t even be used as a clear comparison. They cover slightly less than the entire quarter, since the automaker only emerged from court protection on July 10th. And there are plenty of remaining issues to be resolved, meaning the latest financial report did not fully comply with accepted accounting methods.

So, should one dismiss the numbers entirely? Not at all. Despite some uncertainties, the report provides a clear indication that the bailed-out automaker is doing better than even it had hoped for, especially when many potential customers were still steering away from its showrooms because they feared the worst might happen.

The carmaker still wrapped up the quarter with a relatively flat, 19.5 percent market share. Significantly more important, according to new GM sales chief Susan Docherty, is that 95 percent of the vehicles GM is now selling come from the four brands it will keep: Chevrolet, Cadillac, Buick and GMC.

Docherty admits that maintaining market momentum hasn’t been cheap. The automaker is spending as much as $4,700 a vehicle on rebates and other incentives to keep consumers coming to the showroom, though there are signs that GM’s more aggressive ad campaign — directly comparing its products to those of competitors, such as Toyota — may be paying off.

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