Profits don’t blind GM to tests ahead

February 17, 2012
Profits don’t blind GM to tests ahead
For cold, hard dollars-and-cents evidence that the new General Motors Co. isn’t like the old one, look no further than the past 24 hours.
The automaker that collapsed into federally induced bankruptcy less than three years ago books record net profit of $7.6 billion for 2011 even as it says it will freeze pay for most salaried employees and convert their pensions to defined-contribution 401(k)s. The contrast, and what it says about senior management, is startling to anyone accustomed to the General’s triumphal victory laps and free-spending of yore.
Not these guys, starting with CEO Dan Akerson. Rising revenue, fatter net income and improved sales in hand, they’re signaling to investors and anyone else paying attention a clear awareness of potential pitfalls ahead — and a determination to address them sooner rather than later.
This is not your dad’s GM, a 20th-century case study in rationalization, conflict-avoidance and rosy scenario, the dreaded disease that afflicted Detroit’s automakers for way too long and pushed them to the edge of existential collapse.
GM touts options
Don’t believe me? Ask them:
There’s the pitiful performance out of its beleaguered European operations, increasingly inundated with ranking (but not German-speaking) executives dispatched from headquarters in Detroit. There are the sub-par results in South America, the reflection of an aging product line in the process of renewal. And there are pension liabilities in need of aggressive management lest they get out of control.
“We aren’t ruling anything out,” CFO Dan Ammann said Thursday about the ongoing process of de-risking GM’s massive pension plans and possibly converting salaried retirees or active hourly workers to defined-contribution plans. “We have a significant number of options we’re looking at.”
Translation: The unwinding of “Generous Motors” to make it look (and pay) more like the rest of corporate America is far from over. Whatever moves GM is taking — or will — on pay and pensions is certain to increase pressure on rivals Ford Motor Co., Chrysler Group LLC and even the United Auto Workers, among others, to follow.
Not exactly the kind of workforce coddling to be expected from stooges allegedly controlled by Team Obama and their minions at the Treasury Department. Akerson, Ammann and the rest are managing the business and whatever risks they can identify as a business should, not as an entitled trust handed down the generations and immune to the common rules of economics.
That’s good, but it’s also an implicit test that will show just how good the new cadre of GM bosses really is and whether they can manage their way through difficult financial challenges and historically intractable problems in places like Europe.
The keys to progress
An undeniable truth of the new GM is that the vehicles and processes delivering eye-popping profits, especially in the United States, mostly are a) the result of product decisions made by predecessors of the current team or b) unforgiving cuts associated with the bankruptcy restructuring or both.
“De-risking” GM’s pensions, currently funded at 88 percent of their obligations, is critical to the automaker’s financial stability and a credible investment case sought by investors. Fixing GM’s chronically troubled European unit, effectively centered in Germany, is a political and cultural challenge that has stymied each of GM’s past four CEOs, three of whom worked there but failed nonetheless.
Put another way, the new and trickier challenges unassisted by the blunt force of bankruptcy are just beginning for GM and its management team. Big, upward pops in the U.S. business will fast become — if they aren’t already — an expected cornerstone of its financials. The quality and credibility of its revived product line will be assumed, as will a strengthened balance sheet laden with minimal debt.
Competition, from Ford, Chrysler and Asian rivals at home to the globalized Germans in Europe, is getting stronger. The aftershocks of an earthquake, tsunami, floods and a weakening yen are likely to produce a stronger Toyota Motor Corp. desperate to renew its claim to the term Japanese juggernaut.
In the old GM, faraway problems like these would be deemed insignificantly speculative annoyances conjured by cynical troublemakers on Wall Street and in the news media. In the new GM, they’re fodder to rally the troops because they are reality — and that’s a refreshing change worth celebrating all by itself.

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