New General Motors Hopes to Profit in 2 Years

Automaker emerges from bankruptcy smaller, more focused.

July 10, 2009, 8:59 AM

DETROIT, July 10, 2009— -- General Motors is out of bankruptcy but it might take another two years for the troubled automaker to even begin to think about turning a profit.

After the automaker emerged from Chapter 11 protection today, CEO Fritz Henderson told ABC News that he expects the company by 2011 to "get ourselves to a situation where we are no longer bleeding cash or where we are basically at least cash flow neutral if not cash flow positive. We think we can accomplish that."

General Motors must get it right this time around, he added.

"We have a second chance. Second chances in life are precious … there are no third chances," Henderson said.

The car maker can turn a profit, he said, because it "will be a lot leaner" and "simpler."

"What we can do now is [put] 100 percent of our time on getting the cars and technology right … making sure we win customers and then my job, our job collectively is to make sure the culture is focused on winning."

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The company spent just 40 days in bankruptcy court and exited as a stronger, leaner and more streamlined business. Free of much of its old debt and expensive contracts, the company hopes it is now on path toward profitability.

In a law office in New York, on a table strewn with stacks of paper and a lot of laptops, GM completed the sale of its good assets to a government-controlled entity. Early this morning catering removed the coffee and replaced it with bottles of champagne.

"Today marks the beginning of a new company," Henderson said at a press conference this morning in Detroit. He said the company wants to return to designing, building and selling great cars. "There's nothing that we want to do more than that."

"We recognize that we've been given a rare second chance at GM, and we are very grateful for that. And we appreciate the fact that we now have the tools to get the job done," Henderson added.

Henderson said that "the last 100 days has shown everybody – including ourselves – that a company not known for quick action can indeed move very fast." He promised to carry that intensity on into the new company.

"This will be the new norm at General Motors," Henderson promised.

The U.S. government -- which has provided some $50 billion in financing -- received a 60.8 percent stake in the new company. The Canadian government, which provided $9.1 billion in loans, has an 11.7 percent stake and a United Auto Workers union retiree healthcare trust fund holds 17.5 percent.

"While this restructuring required difficult and painful sacrifices from all of the company's stakeholders - and the American taxpayer - it has saved tens of thousands of American jobs and positioned GM to reclaim its position as a competitive and sustainable global company," the Treasury Department said in a statement. "The hard work of charting a path to viability now rests with GM's board and management, but we are confident that we remain on track to ultimately see returns on these taxpayer investments."

Henderson talked extensively about the need for GM to prove that it can change its culture and sell more cars.

"Business as usual is over at General Motors," he said.

Henderson announced GM will take steps to better address the needs of customers. He said the company needs to listen to the people who matter the most. The company will be launching a "Tell Fritz" Web site where people can send messages to the management team.

GM plans to make money by emphasizing quality and revising its fleet so that it is more energy efficient. One car GM is excited about is the Chevy Volt, a rechargeable electric vehicle that is due out in late 2010. The company is also betting that consumers will again flock to GM showrooms if it can do a better job proving its vehicles are some of the best on the road.

Henderson said the company needs to expand in the U.S. and announced that GM will launch 10 new vehicles domestically. The objective is to create products that are not just competitive but best in class, he said.

But, he said, the success will come through an emphasis on fewer, better car models.

In addition to marketing and production goals, Henderson announced that the company will reduce its management ranks by 35 percent and salaried employees by 20 percent by the end of 2009. The position of president of General Motors North America has been eliminated, he said. Henderson will assume immediately assume responsibility for the auto makers North American operation.

In the hopes of improving sales in the U.S., Henderson announced that GM will soon launch 10 new vehicles. Going forward the objective is to create products that are not just competitive but are the best in class, he said.

Bob Lutz will become a vice chairman responsible for all creative elements of products, marketing and customer relationships, Henderson said. Lutz was scheduled to retire at the end of the year.

The new GM pushes ahead with a smaller workforce. By the end of the year, the automaker expects to have 69,500 employees, down from 91,000 in 2008.

The company's dealer chain has been affected by the changes. GM is reducing its 6,000 dealer network to roughly 4,100 by the end of 2010.

As part of the company's new focus on customers, GM will form a partnership with eBay for customers to buy vehicles through online auction.

GM's rival Chrysler recently emerged from bankruptcy protection dramatically smaller and fueled by cash injections from the U.S. government. The company forged an alliance with Italian auto maker Fiat and cut 789 of its dealers.

Some lawmakers on Capitol Hill have moved to pass legislation that would prevent the companies from consolidating their dealership networks. Obama administration officials and representatives of the automakers have been meeting privately with lawmakers about the matter.

Ford Motor Co. has steered clear of bankruptcy or a government bailout and recently announced plans to expand its production of cars and light trucks in the third quarter of this year.

With the U.S. auto market operating at a depressed level of less than 10 million vehicles sold per year, the new company will try to bring in cash by focusing on only four brands: Cadillac, Buick, Chevrolet and GMC. Gone are Hummer, Saturn, Saab and Pontiac.

GM leaves bankruptcy with $48 billion in debt, a dramatic improvement over the $176 billion it claimed in its Chapter 11 filing. The new company will also drive into the future without old liabilities, which will remain in bankruptcy as bad assets to be liquidated or sold off. Although a U.S. bankruptcy judge approved the sale on July 7, the order did not take effect until yesterday.

A group of asbestos claimants and car-accident victims cried foul, formally appealing the ruling. Their request for an expedited appeal that would bypass the U.S. District Court was denied by Judge Gerber and a federal district court denied a motion to extend the initial four-day stay.

The reorganization through Chapter 11 was forced on GM by the Obama administration, which made a $50 billion commitment to bailout the company. After losing more than $80 billion in the last four years, the administration forced out CEO Rick Wagoner and pushed for deep cuts in an effort to make the company more competitive. Some of GM's creditors decried the government intervention, saying the company, after years of bad decisions, should have been allowed to fail.

In addition to the U.S. government's 60.8 percent stake in the company, the Canadian government holds a 10 percent stake and United Auto Workers Union's health care trust fund owns 17.5 percent.

Until 2008, GM ranked as the top auto maker in the world in terms of sales, a distinction it held for 77 years. Toyota Motor Corp. of Japan now leads the world in auto sales.

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