The Wall Street Journal
General Motors Co. will make money in 2010, its chairman said Wednesday, a bold and surprising forecast for a business that exited bankruptcy proceedings just last summer and hasn't turned an annual profit since 2004.
"My prediction is we will be" profitable in 2010, Edward E. Whitacre Jr. told reporters at GM's Detroit headquarters, a sign of rising confidence that also sets a tough benchmark for the still-struggling car maker's employees. "Do we have obstacles in the way? Yes. But we have a good management team and a good plan in place."
Mr. Whitacre, who also took the chief executive title temporarily last month, said the company's new chief financial officer -- Chris Liddell, who is joining GM from Microsoft Corp. -- could "of course" be a candidate to become the company's CEO. But he added "that's up to the board" and noted the search for a permanent boss is still in its early stages.
Mr. Whitacre, who was named chairman by the Obama administration after the company's taxpayer-funded bankruptcy reorganization last summer, assumed the CEO job after Frederick "Fritz" Henderson quit the post under board pressure.
GM is also moving forward with plans to shut its Saab unit in Sweden since it is "not confident" it will find a buyer, Mr. Whitacre said. Saab is one of four weak brands GM is jettisoning.
Significant hurdles remain to repairing GM's bottom line, namely winning back tens of thousands of customers and improving the profitability of vehicles sold. But Mr. Whitacre's optimistic outlook is buoyed by an improving economy and rising U.S. vehicle sales in December. It also reflects a more aggressive tone for a company that had been renowned for its plodding bureaucracy and defensive posture.
When GM started piling up billions of dollars in losses in 2005, Rick Wagoner, its CEO at the time, stopped offering financial guidance. Mr. Henderson, who succeeded Mr. Wagoner last year, also offered few predictions on GM's financial performance.
GM has a good chance of making money this year as long as the economy stays on the mend, said Erich Merkle, an analyst at Autoconomy.com in Grand Rapids, Mich.
"GM's sales are going to rise, and the macroeconomy will provide the tailwind it needs to return to profitability," Mr. Merkle said. "GM has been in restructuring mode and you can't underestimate the overhead and cost structure that has been taken out."
Mr. Whitacre's profit prediction is based on a bet that consumer access to credit will improve and the job market will strengthen. All are factors that sent car sales to historic lows in 2009. GM's sales plunged almost 30% in 2009.
"My prediction is we will be" profitable in 2010, Edward E. Whitacre Jr. told reporters at GM's Detroit headquarters, a sign of rising confidence that also sets a tough benchmark for the still-struggling car maker's employees. "Do we have obstacles in the way? Yes. But we have a good management team and a good plan in place."
Mr. Whitacre, who also took the chief executive title temporarily last month, said the company's new chief financial officer -- Chris Liddell, who is joining GM from Microsoft Corp. -- could "of course" be a candidate to become the company's CEO. But he added "that's up to the board" and noted the search for a permanent boss is still in its early stages.
Mr. Whitacre, who was named chairman by the Obama administration after the company's taxpayer-funded bankruptcy reorganization last summer, assumed the CEO job after Frederick "Fritz" Henderson quit the post under board pressure.
GM is also moving forward with plans to shut its Saab unit in Sweden since it is "not confident" it will find a buyer, Mr. Whitacre said. Saab is one of four weak brands GM is jettisoning.
Significant hurdles remain to repairing GM's bottom line, namely winning back tens of thousands of customers and improving the profitability of vehicles sold. But Mr. Whitacre's optimistic outlook is buoyed by an improving economy and rising U.S. vehicle sales in December. It also reflects a more aggressive tone for a company that had been renowned for its plodding bureaucracy and defensive posture.
When GM started piling up billions of dollars in losses in 2005, Rick Wagoner, its CEO at the time, stopped offering financial guidance. Mr. Henderson, who succeeded Mr. Wagoner last year, also offered few predictions on GM's financial performance.
GM has a good chance of making money this year as long as the economy stays on the mend, said Erich Merkle, an analyst at Autoconomy.com in Grand Rapids, Mich.
"GM's sales are going to rise, and the macroeconomy will provide the tailwind it needs to return to profitability," Mr. Merkle said. "GM has been in restructuring mode and you can't underestimate the overhead and cost structure that has been taken out."
Mr. Whitacre's profit prediction is based on a bet that consumer access to credit will improve and the job market will strengthen. All are factors that sent car sales to historic lows in 2009. GM's sales plunged almost 30% in 2009.
While the economy's course is uncertain and job-creation remains sluggish, auto makers are encouraged by improvements in home sales and pricing, two key drivers of auto sales. December saw the pace of auto sales hit their highest rate of any month in 2009 except for August, when the "cash for clunkers" rebates caused a spike in vehicle sales.
Other auto makers are also optimistic. Ford Motor Co. reported almost $1 billion in net income in the third quarter and now expects to be "solidly profitable" by 2011, although it hasn't given a specific forecast for 2010. Toyota Motor Corp. and Honda Motor Co. recently brightened their financial forecasts for their current fiscal years.
Chrysler Group LLC, which like GM was restructured in a government-financed bankruptcy, has forecast it will break even in 2010 and make money in 2011.
In recent months, GM's U.S. market share has held steady even as its sales to rental-car companies and other fleet customers have fallen. Its share among "retail" auto sales to individual customers through dealers has improved.
For taxpayers, Mr. Whitacre's optimism means the roughly $50 billion the U.S. loaned GM to keep it afloat stands a better chance of being repaid. The government converted most of that loan into a 60% equity stake. The U.S. can't cash out those shares until GM returns to the public stock markets, and it likely can't take that step unless it is on the road to profitabilty.
GM in addition owes the government $6.7 billion in cash. Mr. Whitacre reiterated his vow to pay that back by the middle of the year.
Other auto makers are also optimistic. Ford Motor Co. reported almost $1 billion in net income in the third quarter and now expects to be "solidly profitable" by 2011, although it hasn't given a specific forecast for 2010. Toyota Motor Corp. and Honda Motor Co. recently brightened their financial forecasts for their current fiscal years.
Chrysler Group LLC, which like GM was restructured in a government-financed bankruptcy, has forecast it will break even in 2010 and make money in 2011.
In recent months, GM's U.S. market share has held steady even as its sales to rental-car companies and other fleet customers have fallen. Its share among "retail" auto sales to individual customers through dealers has improved.
For taxpayers, Mr. Whitacre's optimism means the roughly $50 billion the U.S. loaned GM to keep it afloat stands a better chance of being repaid. The government converted most of that loan into a 60% equity stake. The U.S. can't cash out those shares until GM returns to the public stock markets, and it likely can't take that step unless it is on the road to profitabilty.
GM in addition owes the government $6.7 billion in cash. Mr. Whitacre reiterated his vow to pay that back by the middle of the year.
The new atmosphere is visible in a bold plan to gain market share in 2010 -- reversing many years of decline -- and recent personnel moves he has made.
Mr. Whitacre, a former chairman and CEO of AT&T Inc., told reporters that he and his management team worked out a business plan in December that calls for increased U.S. market share in 2010, and set targets for share, profit per vehicle and other measurements for all regions around the world. He promised to hold executives accountable for meeting their goals.
"We're in business to make a profit," he said. "We're in business to pay back the taxpayer."
The GM CEO also said the company needs to improve its government relations, and has moved quickly to shake up its Washington, D.C., operation.
Last month, Mr. Whitacre replaced GM's top lobbyist with two outsiders who had worked with him at AT&T. He said he was concerned GM wasn't viewed favorably by some in Washington. GM's bankruptcy proceeding "had left not a good taste in some people's mouths," he said.
GM executives will meet Thursday to discuss another unresolved issue: restructuring the company's Opel unit in Europe, Mr. Whitacre said.
During GM's search for a new finance chief, the auto maker considered only "people who could do more than finance,'' according to someone familiar with the situation. Several former CEOs of the auto giant held the top finance job before they entered the corner office.
Mr. Liddell "aspires to do more than finance,'' the individual said. But at no point during GM's courtship did Mr. Whitacre promise Mr. Liddell that he might be a candidate to replace him as CEO, this person added.
Wednesday afternoon, Mr. Whitacre called GM's search firm, Spencer Stuart, and said he saw Mr. Liddell only as a potential CEO someday, "but not now,'' said someone familiar with the situation. As a result, GM will continue to seek other candidates. But "there is no rush" to complete the CEO search quickly, this person added.
A Spencer Stuart spokesman declined to comment Wednesday. Mr. Whitacre has said he may hold the acting CEO title for as long as a year.
Mr. Whitacre, a former chairman and CEO of AT&T Inc., told reporters that he and his management team worked out a business plan in December that calls for increased U.S. market share in 2010, and set targets for share, profit per vehicle and other measurements for all regions around the world. He promised to hold executives accountable for meeting their goals.
"We're in business to make a profit," he said. "We're in business to pay back the taxpayer."
The GM CEO also said the company needs to improve its government relations, and has moved quickly to shake up its Washington, D.C., operation.
Last month, Mr. Whitacre replaced GM's top lobbyist with two outsiders who had worked with him at AT&T. He said he was concerned GM wasn't viewed favorably by some in Washington. GM's bankruptcy proceeding "had left not a good taste in some people's mouths," he said.
GM executives will meet Thursday to discuss another unresolved issue: restructuring the company's Opel unit in Europe, Mr. Whitacre said.
During GM's search for a new finance chief, the auto maker considered only "people who could do more than finance,'' according to someone familiar with the situation. Several former CEOs of the auto giant held the top finance job before they entered the corner office.
Mr. Liddell "aspires to do more than finance,'' the individual said. But at no point during GM's courtship did Mr. Whitacre promise Mr. Liddell that he might be a candidate to replace him as CEO, this person added.
Wednesday afternoon, Mr. Whitacre called GM's search firm, Spencer Stuart, and said he saw Mr. Liddell only as a potential CEO someday, "but not now,'' said someone familiar with the situation. As a result, GM will continue to seek other candidates. But "there is no rush" to complete the CEO search quickly, this person added.
A Spencer Stuart spokesman declined to comment Wednesday. Mr. Whitacre has said he may hold the acting CEO title for as long as a year.
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