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International Column
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Irrespective of all possible speculations before, during and post GM’s Chapter 11 experience, the brand has become a force to be reckoned with, and primarily in the eyes of Americans themselves. But the story beyond home ground is that GM still has a long way to go.
Issue Date - 10/11/2011
The General has been through this a few years back, when Toyota toppled it to become the world’s largest automaker. During the recession, they were also humbled by Detroit cousin Ford, which survived on its own, while GM earned the embarrassing label of ‘Government Motors’. And now more recently, three analysts surveyed by Bloomberg have concluded that Volkswagen, with an expected sales of 8.1 million vehicles this year and growth of 13% yoy, will overtake GM and Toyota to be the world’s number 1 automaker in 2011.

For GM, those kind of numbers are very relevant as it would be itching for the crown again. But they may not be as much of a concern at the moment; mainly due to the fact that their balance sheet is beginning to look healthy now. For the quarter ending June 2011, the company posted revenue of $39.4 billion, a growth of 18.6% yoy while net profits grew by 33.33% to $3 billion in the quarter. As of june 2011, GM had nonrestricted automotive cash and investments at around $32.8 billion. The Bloomberg trio have also projected that GM would gain by 8% yoy this year to reach around 7.55 million units, which will give it the second rank in the global pecking order followed by Toyota, which is looking at dropping sales especially post the tsunami.

So how is the former number 1 from Detroit looking at its sales in global markets. This is a stage where its past nemesis Toyota is facing a rough patch, but it has to confront an aggressive rival from Europe. Volkswagen’s ascent has a lot to do with their growth in both China and India. As far as GM is concerned, it is getting a positive contribution from all regions other than South America as region-wise EBIT figures indicate. More importantly, it is making a comeback in its own backyard. North America was particularly robust, where EBIT increased by 41.27% to reach $2.25 billion. CEO Dan Akerson credits this to better customer focused innovation and production of more design savvy and economical vehicles. The Chevy Cruze, Cadillac CTS Coupe and GMC Terrain are instances of vehicles that have gained favour with American customers.

Cruze was the best selling compact car for five consecutive months this year. The Cadillac CTS Coupe also became the best selling mid-sized luxury sport coupe in US for September with 15,771 unit sales, a spectacular achievement in a segment where the European carmakers normally get all the rave reviews. A survey done by GM indicated that its buyers were looking at its exterior styling and fuel efficiency; the latter feature has been normally not associated with GM since a long time. GM International Operations (GMIO) is the division they will be looking out for at the moment, in particular as it is in charge of Asia Pacific, Latin America, Africa and Middle East. This division lags North America in both absolute and growth terms as it saw EBIT grow by 12.04% to $573 million. A notable achievement for GM was the fact that for the second successive year, it has passed the landmark of 2 million in vehicle sales in China. The tie up with SAIC and Wuling has been a great boost, since it sold 1 million vehicles till October in the country.

The results have certainly put to rest reservations on the leadership of GM for now. The choice of Dan Akerson, a telecom veteran and the third CEO since GM came out of Chapter 11, was criticized by analysts due to his lack of automotive experience, and so was CFO Dan Amman, who had an investment banking background. In fact, two thirds of its board is from outside if compared to the old GM, and only Stephen Girsky has significant automotive experience. However, just like it happened with Ford and Alan Mullaly, the model of having outsiders in top management roles seems to be working in GM’s favour. Morningstar analyst David Whiston comments that new leadership is desirable at times since it “removes any element of arrogance and resistance to change that hindered the old regime.”


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