Business
2:21 am
Wed September 5, 2012

'Quite Good' May Not Be Good Enough For GM

Originally published on Wed September 5, 2012 3:54 pm

When you talk to car people about General Motors, they all say the company has gotten better.

"I think General Motors, productwise, is in a better position than it's been in a decade or so," says Jack Nerad of Kelley Blue Book. "The new products, we feel ... are all quite good."

Like many people, however, Nerad adds an important caveat. He says GM's improvement doesn't mean the company is completely out of the woods, because the competition is very good as well.

While GM has been getting better, so have almost all other car companies — foreign and domestic. Nerad says players in this new car world need to be more than just good.

"They have to be No. 1 on the shopping list," he says, "because a person is only going to buy one car. They're not going to buy an array of cars."

Nerad says it's not enough to be competitive; a car company has to have that vehicle that's going to put it across the top — a blockbuster. Toyota has the Camry; Honda has the Civic and Accord; Ford has the Fusion. Those are all top-selling cars.

One reason those cars have been able to stay on top is that they are constantly being updated and changed. GM is trying to break into that territory with its new Chevy Malibu, which has been revamped but was delayed in coming out in part because of the company's bankruptcy in 2009. (It emerged from bankruptcy shortly afterward.)

David Zenlea, assistant editor at Automobile Magazine, says the new Malibu is a perfectly good car for a year-and-a-half ago.

"When you release a new midsize car, where you want to be is you want to leap to the front of the pack, and then somebody else leapfrogs past you again in six months," Zenlea says. "You want to have that brief window where you're the absolute latest and greatest and best."

The Malibu is a very good car, Zenlea says, but when he drove it he didn't feel it set the bar a notch higher.

GM is trying to play catch-up and is revamping more than 70 percent of its cars and trucks in the next two years.

GM spokesman Randy Arickx says bankruptcy helped the company get control of its costs and made it easier to turn a profit, but being strapped for cash made it hard for GM to come up with new ideas.

"As we walked through bankruptcy, we actually had to reduce some of our capital spending," Arickx says. "So the number of products that we've been able to bring to the marketplace has been less than the industry average."

Arickx acknowledges that GM has been challenged in coming up with enough new cars and trucks.

Internationally, the company faces trouble in Europe, where it lost $400 million last quarter. GM has also lost some of the ground it gained from companies such as Toyota and Honda, which are now essentially fully recovered from the effects of the March 2011 Japanese earthquake and tsunami.

When you ask GM executives such as Arickx about the company's health, however, they point to two all-important numbers: $33 billion in cash and $5 billion in debt.

Last month, Fitch, the ratings agency, upgraded GM's investment status one notch and said the company has a stable outlook. But that doesn't take into account the one-third of the company that the government still owns.

GM's share price is down after its 2009 initial public offering, so if the government were to divest itself of its stake in the company, the government would lose as much as $16 billion.

This all leaves one question to be asked about GM: When is it fair to really sound the alarm?

Automobile Magazine's Zenlea says he thinks people are sounding the alarm a bit too soon. He says the real hurdle for GM is not its balance sheet but its cars.

"The real question if you want to judge post-bankruptcy General Motors is going to be to look at [its] products a year or two ... down the road and see how ... [it] really invest[s] and develop[s] ... products," Zenlea says. "I think that's where we'll really get to see what they're made of."

The next chance to see what it's made of is in 2013. That's when the Chevy Impala goes on sale — just one of many tests for GM.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

STEVE INSKEEP, HOST:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

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And I'm David Greene. Good morning.

The bailout of two automakers, General Motors and Chrysler, has been an issue in the presidential campaign. Let's look at some facts. Sales and profits are up at both companies. Chrysler has repaid the loans it got from the U.S. and Canadian governments. But as NPR's Sonari Glinton reports, the story for GM has not been so clear cut.

SONARI GLINTON, BYLINE: When you talk to car people about General Motors, they all say the company's gotten better. Jack Nerad with Kelley Blue Book is one of many.

JACK NERAD: I think General Motors, product-wise, is in a better position than it's been in a decade or so. The new products, we feel at Kelley Blue Book, are all quite good.

GLINTON: But like most, he adds this one important caveat.

NERAD: That's doesn't mean, though, that it's totally out of the woods because the competition is very, very, good as well.

GLINTON: While GM has been getting better, so have almost all other car companies - foreign and domestic. Nerad says in this new car world you need to be more than good.

NERAD: They have to be number one on the shopping list, 'cause a person is only going to buy one car. They're not going to buy an array of cars. So it's not enough to be just kind of competitive. You have to have that vehicle that's going to put you across the top.

GLINTON: A car company needs at least one blockbuster, one awesome car. Toyota has the Camry. Honda has the Civic and Accord. Ford has the Fusion. Those are all top-selling cars.

One reason those cars have been able to stay on top is because they're constantly being updated and changed. GM is trying to break into that territory with its new Chevy Malibu, which has been revamped, but was delayed in coming out in part because of the bankruptcy.

David Zenlea is with Automobile magazine. He says the new Malibu is a perfectly good car for a year-and-a-half ago.

DAVID ZENLEA: When you release a new midsize car, where you want to be is you want to leap to the front of the pack, and then somebody else leapfrogs past you again in six months. You want to have that brief window where you're the absolute latest and greatest and best. The Malibu is a very good car, but when I drove it I didn't say like, wow, this sets the bar one notch higher.

GLINTON: General Motors is trying to play catch up and is revamping more than 70 percent of its cars and trucks in the next two years. Randy Arickx with GM says bankruptcy helped the company get control of their costs and made it easier to turn a profit, but being strapped for cash made it hard for GM to come up with new stuff.

RANDY ARICKX: As we walked through bankruptcy, we actually had to reduce some of our capital spending, as you can imagine. So the number of products we've been able to bring to the marketplace has been less than the industry average.

GLINTON: Arickx admits that GM has been challenged coming up with enough new cars and trucks. The company faces trouble in Europe, where it lost $400 million last quarter. And GM lost some of the ground it gained from companies such as Toyota and Honda, who are now essentially fully recovered from the effects of the earthquake and tsunami in Japan.

But when you ask a GM executive such as Arickx about the health of the company, they point to two all-important numbers.

ARICKX: Thirty-three billion dollars of cash and only $5 billion of debt.

GLINTON: Fitch, the rating agency, upgraded GM's investment status, but that doesn't take into account the one-third of the company that the government still owns. And GM's share price is down after its initial public offering of stock. So if the government were to divest itself, it would lose as much as $16 billion.

This all leaves one question to be asked about General Motors. Again, David Zenlea.

ZENLEA: When is it fair to really sound the alarm? I think people are sounding the alarm a bit too soon.

GLINTON: Zenlea says the real hurdle for GM is not its balance sheet but its cars.

ZENLEA: The real question if you want to judge post-bankruptcy General Motors is going to be to look at products a year or two years down the road and see how did post-bankruptcy General Motors really invest and develop its products. I think that's where we'll really going to get to see what they're made of.

GLINTON: The next chance we'll have to see what they're made of is in 2013. That's when the Chevy Impala goes on sale. Just one of many more tests for GM.

Sonari Glinton, NPR News. Transcript provided by NPR, Copyright National Public Radio.