GM turns a corner?

Amy Scott Jul 26, 2006

KAI RYSSDAL: Let me ask you something. When is a $3 billion loss a good thing? How ’bout when it’s this morning’s earnings report from General Motors. The car company was circling the drain not six months ago. All but bankrupt. Sometimes, though, you’ve got to spend money to save money. . . .

Three billion dollars is a bucketful of money. Actually, it was more than $3 billion that GM lost. But everybody from Wall Street to Detroit is hailing it as great news. Most of the loss can be chalked up to one-time charges. Payouts the company’s making to cut workers and cut costs. Without those one-time charges, GM would have turned a profit. Sales in North America actually rose 12 percent. So could we be seeing a turn-around? Marketplace’s Amy Scott reports.

AMY SCOTT: When a company loses $3 billion, you don’t expect an analyst to react like this:

DAVID HEALY: I didn’t expect a turnaround anything like what is happening right now. You know, this thing has knocked me off my chair.

What’s got Burnham Securities analyst David Healy so excited is that GM’s North American operations only lost $85 million in the second quarter. That’s more than a billion dollars less than this time last year.

GM’s voluntary retirement program savings are just starting to kick in. GM’s also got new SUVs, the Chevy Tahoe and Cadillac Escalade.

Tim Copenhaver manages a dealership in Kingsport, Tenn. He says people are buying like gangbusters.

TIM COPENHAVER: A lot of folks have just gotten used to these large SUVs. And we have such a superior product, this is what they’re buying.

Even if size and style continue to trump fuel costs, the love affair may not last. Ford is coming out with a new Expedition that’s about $10,000 cheaper than the Tahoe. And economist Peter Morici says GM still has to lower labor costs.

PETER MORICI: There’s just no way on god’s green earth General Motors can pay $85-an-hour for labor while Toyota pays $45 and be competitive. The margins are too thin in this business.

It’s not clear how GM’s improved earnings might affect talks with Nissan and Renault about a possible alliance. Some say it proves GM management can turn the ship around just fine on its own. Others say it makes some kind of tie-up even more attractive.

In New York, I’m Amy Scott for Marketplace.

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