Olive: GM on fast track to recovery

Troubled automaker ready to repay government bailouts as it gets close to mounting a turnaround

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Is it too early to call a GM turnaround?

Less than five months after emerging from bankruptcy protection in July, General Motors Co. last week reported a significant drop in losses, a stronger-than-expected balance sheet at this early stage in its recovery, and that it would start repaying loans received from Washington and Canada next month – five years ahead of schedule.

While it is still losing money in the core North American market, no global automaker is thriving in a U.S. market with a 10.2 per cent jobless rate.

Meanwhile, GM is turning an impressive profit in its Asia-Pacific and Latin American markets. Buick is something of a dead brand in North America, as GM design czar Bob Lutz acknowledged a few years ago. But in China and Japan, Buick is a sought-after status symbol.

GM is solidly entrenched in the rapidly-growing Chinese market, where it sold 478,000 vehicles in the third quarter – more than it sold in North America. And Chevrolet has made significant inroads in Russia, expected to be Europe's fastest-growing market in the next few years, eclipsing Germany.

In the so-called BRIC nations – Brazil, Russia, India and China – GM has powered itself to a 13 per cent market share. Its volume and revenues are climbing in what collectively will be the planet's highest-growth market in the decades to come.

GM's steep losses earlier this decade in continental Europe have narrowed considerably over the summer. GM's Opel brand benefited greatly from European "Cash for Clunkers" programs.

In an ironic twist, better-engineered GM models with curb appeal for Canada and the U.S. were in the pipeline when GM was hitting the wall last year. The government bailout has made it possible for GM to get those vehicles onto the market.

GM hits with auto critics and buyers include the Chevy Equinox SUV, the Chev Malibu, the Buick LaCrosse full-size sedan and the Chev Camaro retro muscle car assembled in Oshawa. The Chevy Cruze compact, due next fall, is GM's make-or-break entry in what will be the fastest-growing market segment over the next few years.

Not being forced to sell Opel, which GM has owned since 1929, to a Magna-led consortium has been a blessing.

"It would have made everything a lot harder," said Mark Reuss, GM's new head of global engineering, of the prospective loss of Opel. "I'm really happy that we're keeping it."

Opel has been key to many of GM's most promising current models.

The Buick LaCrosse, the first "agile" quasi-land yacht offered by Buick maybe since David Buick was still drawing breath, is a rebranded Opel Insignia, voted by auto critics the European Car of the Year. The Opel-designed Buick Regal for next fall will be the brand's first credible sports sedan.

Opel styling and engineering are also behind the bestselling Malibu and the forthcoming Cruise. The dull, ultrasafe GM styling of previous decades has given way in GM's most successful models to the pleasing angularity of Mercedes, BMW and Audi.

But of course there are lingering problems from the GM of old. Product is everything in GM's bid for survival. But GM's product line is spotty. One of the reasons the above models stand out is that too little of GM's output has been overhauled. By contrast, Ford will have replaced its entire lineup by 2011. GM's crosstown rival already has a jump on GM's Cruise, for instance, with an all-new Focus and a critically acclaimed Fiesta coming soon.

The battleground for global automakers next century will be small cars boasting advanced fuel-economy technology. And here GM remains behind the curve, having unduly put most of its chips on an overhyped Chev Volt. The Volt's technology isn't proven, and it will bear too steep a sticker price for its small size. It also won't reach the market until after an abundance of better-value rivals have hit the showrooms, including the Fiat small-car flagship 500 due in Chrysler showrooms next year.

GM needs to use its formidable, post-bankruptcy cash horde of $42.6 billion (U.S.) not on premature loan repayments, but on two things only: developing still more must-have products, and marketing the heck out of them.

To pick an example of sorry GM marketing, GM Oshawa is routinely at or near the top of the North American factory rankings in quality and productivity. GM could shoot a commercial around that. Buick, which commands a pathetic 3 per cent of the North American market, has been running a close second to Lexus in J.D. Power's quality rankings for several years, with BMW and Porsche languishing in the middle of the pack.

Yet these winning attributes are GM's little secret. GM, perhaps out of misplaced pride, is averse to sharing its compelling story with the buying public.

But the biggest worry is GM's continued obsession with market share. Maintaining market share is pointless if, like GM in North America for the past decade, you've been losing money on almost every vehicle you make.

In announcing its financial results last Monday, GM bragged about reclaiming market share. What GM needs to do is emulate Ford's discipline in aiming to make a profit on every single vehicle, even if that means surrendering market share. Apple made more money in the third quarter with 2.5 per cent of the global cellphone market than Nokia did with its 35-per-cent share.

Apple's iPhone is a must-have product and with high profit margins to match. GM has hit that sweet spot with its Camaro, and must work to achieve that status for everything it puts on the market.

"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," veteran auto observer John Rosevear wrote in response to last Monday's good news out of Detroit headquarters. "Have they really transcended that mindset?"

A much smaller but assuredly successful new GM was the object of the exercise in Washington's decision to provide GM a second chance. It's not clear GM understands that.

Absent the dramatic culture change of which GM critics have always thought "the General" incapable, the firm's nascent recovery will be short-lived.