Move to buy credit firm bolsters GM’s credibility

July 23, 2010 http://detnews.com/article/20100723/OPINION03/7230355

Move to buy credit firm bolsters GM’s credibility

DANIEL HOWES

Never mind the market excitement generated Thursday by General Motors Co.’s $3.5 billion play for AmeriCredit Corp., the finance company that should bolster the automaker’s presence in leasing and the subprime market.

Focus instead on what the transaction says about Chairman Ed Whitacre’s "Government Motors" — mostly that it can move a helluva lot faster than the government or the GM executives ol’ Ed and his team replaced. If that doesn’t fill the most pessimistic Michiganians with something approaching optimism, check their pulse.

Good? Yes. But remember that there’s as much political stagecraft in carefully timed announcements (three weeks before the release of second-quarter financials) like the AmeriCredit tie-up as there is cold, hard business calculation. GM today, ward of Washington that it is, is moving quickly (acquisition talks with AmeriCredit lasted barely a month) because it has to.

Start with the obvious fact that the federally controlled automaker, barely a year out of bankruptcy, can’t hope to meet the Obama administration’s goal to sell investors on an initial public offering later this year if Whitacre and his management team can’t make a compelling case to buy GM shares.

That begins with designing, building and selling "the world’s best vehicles," as the boss likes to say, but it doesn’t end there.

For GM to impress the market, vindicate Team Obama’s controversial bailout, repay American taxpayers and remove one weighty issue from the mid-term election morass, the Detroit automaker’s leaders know they need to detail a credible, forward-looking business plan that can withstand global scrutiny.

They’ve got to demonstrate an ability to reach the widest group of would-be customers, which is why the AmeriCredit deal is so important because it promises to re-energize GM’s leasing business and expand into a sizable group of folks with dodgy credit. They’ve got to be able to generate cash from their all-important North American operations, which their first-quarter suggests is possible.

They’ve got to show that their U.S. brand lineup of Chevrolet, Cadillac, Buick and GMC and their dealer networks are properly sized, that their burnished product cred in recent years is legit and sustainable, that their strategies on alternative-technology vehicles like the Chevy Volt and others are aggressive and flexible at the same time.

They’ve got to maintain the kind of discipline that often has been hard to come by in the traditional GM culture. That means resist the urge to heavily discount vehicles just to move the metal because it destroys precious brand equity; avoid the lure of profits from mortgage lending, which effectively sunk GM’s captive finance arm, GMAC, and contributed to GM’s bankruptcy spiral; and push to ensure new GM vehicles are best-in-class in quality, reliability and design.

They’ve got to chart a path to fixing — finally — a European business that has been in the dumper for at least the past decade, a victim of revolving management and a particularly European disease that equates plant closures and realistic assessments of market potential with acts of economic Armageddon.

They’ve got to maintain momentum in the world’s most important developing markets — Brazil, Russia, India and, especially, China — because that’s where the growth and, increasingly, the excess cash can be generated. I mean, GM so far this year has sold more vehicles in China than it has in the United States.

Tells you almost everything you need to know, including why GM’s directors are scheduled to hold a board meeting this fall in China. It may not be the only key to GM’s future, but the company arguably cannot have a credible future without a major position in China and other fast-growing countries.

With pushy and smart leadership, enough capital, solid products and a bias for speed, the GM given up for dead is proving to be anything but. Whatever the politics looming in the background, that’s good business.

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