We don't need an aircraft carrier and a "mission accomplished" banner, but isn't it time to agree that the auto rescue has been a success? A year after the government-sponsored bankruptcies of GM and Chrysler, both patients are alive and progressing well toward recovery.
GM recently reported its first quarterly profit in nearly three years: net income of $865 million on $31.5 billion in sales. A month earlier, Chrysler's first-quarter report included the news that the company had turned cash-flow positive after nearly bleeding to death in 2008.
Both companies also are doing better in the marketplace. Market-share declines have been arrested. Bloated inventories on dealers' lots have been reduced dramatically. Use of sales incentives such as rebates and interest-free financing — the cocaine of the auto industry — has been substantially reduced.
And the prices that the cars are fetching have risen sharply since last year: by $2,500 for GM and $2,400 for Chrysler. That means the companies' historically poor images — brand equity, in industry parlance — have begun to improve.
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How did this happen? First, the bankruptcies — terrifying to everyone — succeeded in wiping vast liabilities from the companies' balance sheets, more than $65 billion in the case of GM. The government task force that evaluated the industry leaders — of which I was a part — also insisted on a cold-blooded look at operating costs. Tough, conservative projections replaced years of rosy-scenario forecasting. As a result, GM cut its North American expenses by $8 billion per year.
The new GM board, composed of individuals chosen for their private-sector expertise, also has insisted on faster, more analytically rigorous decision making. And Ed Whitacre, whom we recruited as chairman, has done a great job since becoming chief executive. He has shaken up the management team, bringing in a handful of talented outsiders and reassigning many insiders.
Consequently, the U.S. Treasury is well on its way to recovering most of the $81 billion that the government invested in the auto sector to prevent its collapse. (That includes money for other auto-related entities, such as the finance companies. Chrysler itself got around $8 billion from the Obama administration and $4 billion from the Bush administration.)
GM has been proclaiming in ads that it has paid back the government loans "in full." While literally correct, this statement omits the fact that most of the government's investment in GM is in stock that it still holds.
To be sure, much work remains. At GM, cultural change must continue, and a long-term CEO must be found. Chrysler, which the task force believed was the tougher challenge, has much riding on upcoming products, particularly the redesigned Jeep Grand Cherokee and the introduction later this year of small cars developed by its partner, Fiat.
The most important priority for the administration is to maintain its admirable hands-off policy with respect to the automakers' operations. And as the opportunity to cash out its stake grows nearer, the Treasury should take care to sell wisely. Bringing an end to government ownership of the auto industry is of great importance, but let's not have a fire sale.