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GM Will Emerge From Bankruptcy Leaner And Meaner

Bankruptcy Disaster May Turn Out To Be Blessing In Disguise.

As General Motors thinks the unthinkable and plunges into bankruptcy, there are some surprisingly positive opinions around about its long-term prospects.

The Financial Times’ Lex column thinks that despite being owned by the U.S. government and the UAW, the future could be rosy.

“Once GM exits bankruptcy, pessimists might say that having the U.S. Treasury and a union trust fund controlling a large industrial company is a recipe for disaster. But other passive stakes by unions (Lex doesn’t say which) have worked historically while the professionalism of the auto industry task force is encouraging,” Lex said.

“If GM is run for the most part like any other business, its prospects are bright in its leaner form. Shorn of debts, weak brands (like Hummer, Pontiac, Saturn and Saab) excess dealerships, retiree costs and some foreign subsidiaries, it would take only a modest rebound in U.S. car sales to make GM profitable. If U.S. car sales return to at least replacement levels of about 12.5 million vehicles a year from 9 million currently, GM could even be highly profitable, letting taxpayers at least recoup some of their losses. A clean slate can work wonders,” Lex said.

Global Insight’s John Wolkonowicz, Senior Market Analyst, North American Automotive Group, agrees GM’s long term prospects look good.

“GM will be doing just fine by then, it’s not being downsized, it’s being right-sized,” said Wolkonowicz looking ahead to 2016, when the new, tougher CAFE rules kick in.

“GM had capacity far in excess of any market share it could ever hoe to enjoy. Trimming out the fat and getting out the debt load will turn it into a lean, mean operation,” Wolkonowicz said.

Neil Winton – May 30, 2009

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