Thursday, April 22, 2010

GM Makes $8.1 Billion Government Loan Payback

A good sign that GM has survived the worst of the economic storm was their newly announced $8.1 billion dollar loan repayment to the federal government. And this repayment was way ahead of schedule as well. Between 2004 and 2009, GM had lost $88 billion in business, and the company was teetering on collapse. GM's problems would mean massive job losses all around the country as well as the loss of a major defense contractor for the United States military. The situation at GM forced the new incoming Obama Administration to weight the options at hand for the economy and national security. The situation at GM then forced a controversial government rescue loan bailout. But, it involved many tough sanctions on GM and forced their then CEO to leave.

Sadly, GM had to downsize their number of brands and dealers to survive. A few years earlier, the Oldsmobile brand died. But, the latest problems at GM meant the end of the Pontiac, Saab, Saturn and Hummer brands, as the company sought to trim their losses.

GM's CEO Ed Whitacre announced the loan repayment at GM plant in Detroit in which the company is investing $257 million into. This new investment should mean more job security for workers at the plant, and is the opposite of Chrysler, which seems to be phasing-down many U.S. production plants as they reorganize. But, Chrysler is still in serious financial trouble, while GM has trimmed their losses down considerably. Next quarter, GM should be showing the first quarterly profit in years.

GM still owes another $45 billion to the federal government. But should be able to pay this off ahead of schedule as well. And a smaller sum is also owed to the Canadian government as GM sought the survival of their Canadian business as well.

Part of GM's recent success has been not only improved U.S. auto sales, but a booming market in China for GM products such as Buick brand cars which are sought out by the wealthy of China. GM's Chinese division is doing very well, and is certainly helping the entire company to climb out of it's financial woes. GM's sales in China are up 67% over last year, compared to much smaller sales increases in the U.S. market. So, Shanghai General Motors is a vital component in the GM comeback story.

Politically, the bailout of GM has been troublesome and unpopular for the Obama Administration. However, White House spokesman Larry Summers was quick to give the president credit for being willing to do what was politically unpopular for the larger good of the nation as a whole. But, the decision to give both GM and Chrysler a government-backed rescue lifeline only came when both were willing to make major changes in their businesses to climb back into profitability. For GM it meant axing those brands that were losing massive amounts of money, and for Chrysler it meant an affiliation with Fiat.

While GM is climbing out of their problems, Chrysler is having less success. The sales of Chrysler products remain weak overall, largely because of poor sales of Dodge products dragging down the company. Chrysler and Jeep models are showing some strength, as are the Dodge Challenger, but other Dodge products are simply lagging. If Chrysler can survive for the next few years, some Fiat designed models will get an opportunity to sell in the U.S. market. But, whether U.S. buyers will respond to these new models is a question that remains to be answered.


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