Can General Motors Be Saved?


Can General Motors (NYS: GM) be saved?

In many ways, it seems like a ridiculous thing to ask. GM sold more cars than any other automaker last year, while generating record profits. GM's debt is minimal and it had $32.6 billion in the bank as of the end of last quarter. Companies like that don't need "saving".

So why are so many people asking variations on that question?

The competition is making GM look bad
A Forbes article that suggested last week that GM might be headed for bankruptcy was only the latest entry in the ongoing second-guessing of GM's recovery. Some of this is politically motivated: Fairly or not, GM's bailout is associated with President Obama, and some of his political opponents would like to argue that the bailout is a failure.

Truth is, GM is healthier than it has been in decades, and it's not in any danger of bankruptcy - not even close. But it's also true that there's still a lot of room for improvement.

Part of the problem is that GM's ongoing turnaround suffers in comparison to that of old rival Ford (NYS: F) . Since CEO Alan Mulally took the Blue Oval's reins in 2006, Ford has cut costs sharply, streamlined its internal processes, ended the executive turf wars that had long hobbled the company, and - most importantly - rolled out a whole new lineup of acclaimed products.

Those products are sold in markets around the world, a cornerstone of Mulally's "One Ford" approach. Under that approach, Ford runs its regional units with a single, global strategy. That's an approach that gives investors confidence that problems in any part of the world, like Ford's recent losses in Europe, will be addressed in the same methodical way that Mulally's team addressed Ford's past problems here in North America.

Ford, in other words, has an advantage in perception that GM hasn't yet earned. While Ford's renaissance came about as a result of gutsy moves and careful management, GM's was boosted by a gift from American taxpayers. In the eyes of many, GM has yet to prove that it can make it on its own.

And that is a big part of GM's perception problem, a problem that recent moves by GM CEO Dan Akerson have likely made worse.

Signs of disarray magnify the problem
A couple of recent incidents have led to the impression that Akerson, an industry outsider who joined GM's board in the wake of the bailout, is in over his head:

  • The abrupt removal of Karl-Friedrich Stracke, GM's Europe chief. Reports suggested that the ouster of Stracke, regarded until recently as a rising executive star, was due to Akerson's frustration with the slow pace of the latest turnaround plan proposed for GM's long-troubled European subsidiary.

  • The abrupt (there's that word again) removal of global marketing chief Joel Ewanick, ostensibly for concealing expenditures - but, after weeks of incidents suggesting a stylistic clash with Akerson, and after several months of declining market share for GM in the U.S.

Both of these moves suggest impatience. Akerson is obviously frustrated with the slow pace of GM's revival. But, in both cases, patience might have been the better course: Fixing GM Europe's problems will require delicate negotiations with unions and local governments -- negotiations that Stracke was well-placed to conduct. And improving GM's competitive position in the U.S. will require better products before the marketing can work its magic. Those products are already on the way, but developing a new vehicle can take as long as three years.

I've been saying all along that GM stock is an investment that has a lot of potential, but will require a lot of patience. Despite GM's solid financial footing, it has -- best case -- several years of hard work to go before its turnaround will match Ford's, before it will reach its potential in markets around the world. Akerson's lieutenants, who are GM veterans, like product chief Mary Barra and North America head Mark Reuss, clearly understand this well. But does Akerson really get it?

If he wants to be the man who silences the doubters and restores GM to glory, he'd better.

Despite a comeback in the past few weeks, GM's stock is still trading at less than six times forward earnings. But, if Akerson can harness GM's potential, it could have significant upside in coming months, as new products hit showrooms, and improvements continue around the world. However, investors need to stay attuned to fluctuating demand and the ability of automakers, like GM and Ford, to respond in unison. For starters, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy, sell, or hold. To find out what could propel Ford down the road, get instant access to this premium report now.

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