Rebound progress still lags for GM

"We’ve got to get the job done in the United States," says vice chairman.

Sharon Terlep / The Detroit News

DETROIT – General Motors Corp. Vice Chairman Fritz Henderson, in a blunt assessment of the automaker’s standing, said on Tuesday that the company is still falling well short of a full-fledged turnaround.

The No. 1 U.S. carmaker is two years removed from its catastrophic performance of 2005, when a $10 billion loss left the company floundering in red ink and fending off rumors of bankruptcy.

GM has made laudable progress since — narrowing operating losses, raising cash for a turnaround, bolstering sales in emerging markets and generating positive buzz at home.

"We’ve improved a lot from 2005. But if you look at 2005, it was a disaster," Henderson said during an Automotive Press Association luncheon in Detroit. "Improvement is not the goal."

The automaker’s pragmatic financial chief noted that victories on the product side — something GM is starting to achieve after years of subpar performance in many areas — don’t necessarily translate into profits.

Even success in some of the world’s fast-growing emerging markets, such as China, India and Brazil, won’t deliver a viable bottom line. GM has been growing consistently in foreign markets, with 59 percent of its sales now outside the United States.

"We’ve got to get the job done in the United States," Henderson said. "The emerging markets cannot carry GM."

Henderson’s comments came two weeks before GM is set to announce its year-end financial results for 2007.

GM’s performance should be helped by its success in cutting costs and increasing the average price it gets on each vehicle transaction. But many of the same challenges that hurt the automaker in past years continue to nag: soaring health costs, rising commodity prices and a continuing sales slide in the critical North American region.

Steep losses incurred by GM’s former lending arm will add to the troubles. GM sold its majority stake in GMAC Financial Services in 2006, but retained 49 percent ownership in the company, which lost $1.6 billion in the third quarter as legions of homeowners defaulted on risky loans.

No matter what happens in the fourth quarter, year-end results for 2007 will be the worst in GM’s history, because the company took a $38 billion write-down in the third quarter related to future tax benefits.

More closely watched, however, will be the company’s operating margin in North America, where GM has racked up losses for nearly two years straight.

To turn those losses around, Henderson said, GM will stick to the same strategy it laid out two years ago: toeing the line on less-profitable daily rental sales and discounts, while leveraging global resources to deliver must-have products.

"This is not a business known for revolutionary strategy — it’s about who executes best," he said.

The U.S economy isn’t likely to provide much help. Henderson said he sees more potential for risk in 2008 than an economic upside, though he predicts a recession is unlikely.

GM has improved essentially every aspect of its business and is even making progress in stabilizing market share in the United States, the area in which the automaker has struggled most, said analyst David Healey of Burnham Securities.

GM’s share price, however, is still close to where it was two years ago. GM shares closed up 68 cents Tuesday at $27.21 on the New York Stock Exchange.

"The stock market," Healey said, "is ignoring an $8 billion turnaround in their profitability."