Bankruptcy filing could put GM on road to profitability

DETROIT, Michigan (AP) — General Motors’ bankruptcy filing will do what its past chief executives could not: cleanse the century-old company of burdensome labor costs, unprofitable old factories and a boatload of debt.

The price was one that no GM chief was willing to pay until now.

The slimmed-down company will be a ward of the US government, 60 percent owned by the Treasury, with half its eight brands just memories.

Industry analysts, GM executives and even President Barack Obama say GM now has the cost structure to compete in the global automotive market and one day return to profits. The company says it can make money even if US auto sales stay weak.

The question is whether General Motors Corp. can generate enough profit to free itself of government control before the president or Congress rethinks promises not to muck around in day-to-day management of the company.

First, though, GM needs people to start buying cars and trucks again. Worldwide sales are around historic lows, and GM has to convince buyers in its home market that its cars are as good as those made by the Japanese.

GM reached a pact with the United Auto Workers union that it says brings costs more in line with Japanese automakers that have plants in the United States. Monthly debt payments will drop dramatically because GM will owe only $9 billion rather than $67 billion.

GM says that will help it break even when the U.S. market is a paltry 10 million vehicles annually, far below the peak of 17 million early this decade. That almost guarantees profits, says Tom Libby, an independent Detroit-area auto analyst.

“I’m very confident they’ll be highly profitable in years ahead because the industry is not going to stay at 10 million,” he said, adding that the number of people of driving age is rising and there is pent-up demand for vehicles.

Most economists expect sales to begin recovering toward the end of this year, rising to 12 million or 13 million in 2010 or 2011.

Any recovery for GM is predicated on selling cars that people want to buy.

Bob Lutz, a GM vice chairman who is retiring at the end of the year after more than four decades in the auto business, maintains the automaker sold hundreds of thousands of pickup trucks and sport utility vehicles because that is what Americans wanted when gasoline was cheap.

The Obama administration wants a smaller, more efficient fleet to help end the country’s reliance on foreign oil and cut greenhouse gas emissions.

Yet if gasoline stays inexpensive and SUV and pickup sales rebound, that would be diametrically opposed to the administration’s goals. The administration says it has no intention of meddling in GM’s products.

“What I am not doing, what I have no interest in doing, is running GM,” President Barack Obama said Monday.

Some analysts say it may not be so clear-cut. Michael Robinet, vice president of CSM Worldwide, a Detroit-area auto industry consulting firm, worries that the government and the UAW, which will hold a 17.5 percent stake, could become too involved in GM’s daily affairs.

“The decision-making matrix is very muddy,” he said. “Will the union and-or the government step aside and let the decisions be made? That remains to be seen.”