The New GM: Good Bet for Long Haul?
As soon as the stock market opened Thursday, there was plenty of excitement surrounding GM’s initial public offering and its return to the open market, exceeding even the rising expectations of just a few days ago. But there’s a big question at the heart of today’s news about the company that’s being debated as well: Just how healthy — and fundamentally changed is the new GM — suddenly valued at more than $23 billion — for the long-term?
That’s something we’ll explore on Thursday’s NewsHour broadcast and it’s already being discussed online and in print.
Many are touting the success of the government bailouts in 2008 and 2009 when the Bush and Obama administrations poured roughly $50 billion into the company to throw it a lifeline and take it through bankruptcy. Steven Rattner — the former head of the Obama auto task force who was known as the “car czar” — has been making that case in a new book and in numerous comments in recent days.
“Approximately $65 billion of liabilities stripped from GM’s balance sheet. At least $8 billion of annual structural costs sliced from the company’s bleeding North American operations,” Rattner writes in the Huffington Post. “The result? A company that could only make money when U.S. car sales hovered around record levels of 16 to 17 million units a year now was turning handsome profits at a sales rate of fewer than 12 million light vehicles.”
(Rattner, it should be noted, was in the news for other reasons Thursday. He was sued by New York Attorney General and Gov.-elect Andrew Cuomo for allegedly paying kickbacks to win investments from the state’s public pension fund. He also paid $6.2 million in a settlement with the Securities and Exchange Commission.)
Praise came from others who were not involved with the deal as well, of course.
In the Motor City, columnist Mark Phelan of the Detroit Free Press writes in praise of the Obama administration contending that his city was fortunate that the administration took the actions it did. “The present is better than most people would have believed possible a year ago,” he writes.
But others say it’s not clear just how well-positioned GM is.
David Weidner writes in the Wall Street Journal that he believes “GM is more like a used car that was all spruced up as Wall Street investment banks worked to burnish the auto maker’s image.”
Weidner writes of costs and restructuring issues that still have not been adequately resolved, pointing out that “GM also noted that it wasn’t finished with restructuring. In August, the company was culling 700 U.S. dealers from its sales network. The company warned that the move could further erode its market share in the U.S. which stood at 19.3% through October, down from 21% during the same period a year earlier.”
There’s also been some debate over whether the restructuring of GM allowed it to pass off its most difficult problems or whether GM has indeed transformed itself from being a company that produced large gas-guzzling vehicles to a more nimble manufacturer that’s better equipped to offer greener products consumers will want like the Cruz or the electric-hyrbid-to-come, Chevy Volt.
In a recent review of Rattner’s book in the New Yorker, Malcolm Gladwell argued that GM indeed had transformed itself and argued that former CEO Rick Wagoner deserved credit for the fundamental changes.
“At the end of the day,” Gladwell writes, “cleaning up a balance sheet is cleaning up a balance sheet. Kristin Dziczek, of the Center for Automotive Research, estimates that the ‘new’ G.M. is roughly eighty-five per cent the product of the work that Wagoner, in concert with the U.A.W., did in his eight years at the company and fifteen per cent the product of Team Auto’s efforts. That seems about right: car companies stand or fall, ultimately, on the strength of their product, and teaching a giant company how to build a quality car again is something that can’t be done on the private-equity timetable.”
He also was tough on those who helped restructure the company.
“The mythology of the business,” he writes, “is that the specialists who swoop in from Wall Street are not economic opportunists, buying, stripping and selling companies in order to extract millions in fees, but architects of rebirth.”
In a column earlier this week, New York Times business columnist Andrew Ross Sorkin thought Gladwell underplayed the role of the restructuring.
Yes, Sorkin says, GM has better cars and that was a significant part of the story. But he writes:
“Private equity firms make the hard decisions that current management can’t – or won’t – make. For all the credit that Mr. Wagoner may deserve for G.M.’s auto lineup, he wasn’t able or willing to cull failing brands like Pontiac, for example, or get his arms around out-of-control legacy costs. That’s when private equity makes sense.”
Micki Maynard, one of our guests on Thursday’s NewsHour who long covered GM for the New York Times and is senior editor for the public media project, Changing Gears, which covers the future of the Midwest, takes a nuanced view of where things stand with the new GM.
“You could declare this part of the mission successful,” she told us, “but I don’t think anyone would declare a total victory…All we know is that the GM that was put through the wash has gotten out of the wash and is back on its feet. They have yet to develop an all new vehicle in this form of the new GM.”
“I’ve been watching GM for most of my adult life,” she says, “and I’ve seen them declare victory after every bit of improvement, but ignore the oncoming freight trains, things like higher gas prices or oil prices or what’s happening in broader economy. Those economic problems are still out there.”