First, the news: General Motors announced today that it lost almost $1.2 billion in the third quarter. On a pre-tax basis, it lost $261 million from operations worldwide between July 10, the day it exited bankruptcy, and Sept. 30. Some regions, like Asia Pacific and Latin America, were profitable, some weren't -- its loss in North America was $651 million.
This, they say, is progress. But is it?
It might be. It's not the kind of progress Ford (NYSE:F) and Toyota (NYSE:TM) have shown, surprising us with profits recently, but there's an argument to be made that it's progress.
And GM's making it aggressively. Clearly, it's aching to show that it's keeping up with the cool kids. While GM doesn't have a nice shiny bottom-line number to show us -- at least not yet -- it offers these reasons for optimism:
- Money in the bank. It's got plenty of cash on hand -- $42.6 billion, according to today's release. However, GM warned that it expected that number to "decline materially" next quarter.
- Revenue is up 21% from the second quarter. (Of course, it spent the second quarter in bankruptcy, but still.)
- Strong overseas sales, particularly in China, where it sold 478,000 vehicles in the third quarter, up more than100,000 from the first quarter, and enough to help motor GM to a 13% share of the BRIC markets (Brazil, Russia, India, and China).
- Some hit products. GM's current lineup isn't exactly the talk of consumers coast to coast, but it does have some solid products that are selling well and getting good reviews -- the Chevy Equinox SUV, the Buick LaCrosse sedan, and the neo-mullet-rocket Chevy Camaro among them.
So at first glance it looks like GM's on the road to recovery -- an impression that it is clearly at pains to give. But what's really going on?
The other side of the coin
Here's what I'm not seeing at GM, and it's why I'm skeptical of any positive developments it might report: I'm not seeing the sea change in management and culture that we've seen at Ford headquarters over in Dearborn.
Sure, the occupants of GM's senior management suite have (mostly) changed since last winter, and they've made some structural changes and launched a few great products, but is it really a different company?
I'm not so sure.
Why pay down debt now?
Consider: As part of the auto bailout, GM was lent a lot of money by the U.S. and Canadian governments, but much of that debt was converted to equity. About $6.7 billion in U.S. Treasury loans remain on GM's balance sheet, maturing in January 2015.
2015 is a long way off, but GM is going to start repaying it early; $1 billion in December and another billion every quarter until it's gone, it says. And I ask: Should that really be the priority right now, with sales still stumbling and its products still lagging Ford and the Japanese makers in quality surveys? With so much work left to do, is paying off debt the best way to use those dollars?
Or is it just an expensive PR gesture of questionable value?
I get what they're thinking. GM suffers from the stigma of having been "bailed out," and management probably believes that that's hurting them in the North American marketplace. And they're probably right, to some extent -- but I worry that they're seeing this as a magic bullet, looking past the deeper problems with their product offerings.
And that's the real worry. GM's old management often seemed eager to blame their problems on just about anything -- the economy, exchange rates, gas prices -- except the deficiencies in their product lineup. That attitude drove them into a very deep ditch, as we all know.
Have they really transcended that mind-set? We'll have to wait and see.
Market share: More GM old-think?
Here's something else that troubles me: The emphasis on market share in today's news releases. This might seem like a quibble, but for me, that's a red flag. Why? Because market share has historically been a preoccupation of GM management, much to their detriment.
There's nothing wrong with a focus on market share, on the surface. But to switch industries for a moment, consider: According to a report cited in PC World, Apple (NASDAQ:AAPL), with approximately a 2.5% share of the global cell-phone market, made more profit on its phones in the third quarter than did giant Nokia (NYSE:NOK) with a global market share of about 35%.
If you sell products people really want, products like the iPhone, you can make more money on them, no matter your market share. Honda (NYSE:HMC), one of the more Apple-like car makers, has known this for years. Ford seems to be getting it -- with a focus on great products that it can sell without margin-killing rebates, its goal is to make money no matter the size of the global automotive market in any given year.
GM ... we'll have to wait and see.
Why I may be wrong
It may be that GM has the killer products it will need to go head-to-head with Ford et al in its pipeline, and is talking up overseas markets and debt repayment to buy time while it brings those products to market.
In particular, I'm looking forward to learning more about its upcoming small cars, traditionally a rough spot for GM. To my mind, small cars will be the key automotive battleground in coming years.
GM's competitors are already gearing up. Toyota and Honda will have strong entries, and Ford has an all-new Focus and the excellent Fiesta coming shortly. Even mostly moribund Chrysler will have the cute-as-a-Mini Fiat 500 on sale in the U.S. before too long. GM has an all-new volume model planned for 2011 -- the Chevy Cruze -- and it needs to be better than excellent, a no-excuses product. Will it be?
As with everything else with GM, we'll just have to wait and see.
