Cost cutting helped GM make quick turnaround

Automaker also investing $1.5b in 20 plants

Employees at a General Motors plant in Kansas applauded news that the company will make early loan payments. Employees at a General Motors plant in Kansas applauded news that the company will make early loan payments. (Ed Zurga/Bloomberg News)
By Ken Thomas and Tom Krisher
Associated Press / April 22, 2010

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WASHINGTON — General Motors Co. accelerated toward recovery yesterday, announcing the repayment of $8.1 billion in US and Canadian government loans five years ahead of schedule.

The Obama administration crowed about the “turnaround’’ at GM and fellow bailout recipient Chrysler LLC, saying the government’s rescue of Detroit’s automakers is paying off.

Much of the improvement comes from GM slashing its debt load and workforce as part of its bankruptcy reorganization last year. But the automaker is a long way from regaining its old blue-chip status: It is still losing money — $3.4 billion in last year’s fourth quarter alone. And while its sales are up so far this year, that’s primarily due to lower-profit sales to car rental companies and other fleet buyers.

Chrysler said it lost almost $200 million in the first quarter. But it said it boosted its cash reserves by $1.5 billion, reducing the likelihood that it will need more government aid.

GM chief executive Ed Whitacre, a former telecommunications executive who was tapped to lead the automaker’s revival, announced the loan payback at a plant in Kansas. He also said GM is investing $257 million in that factory and a plant in Michigan.

Whitacre said GM was rebuilding through the sale of gas-sipping midsize cars and crossovers and investing more than $1.5 billion in 20 plants since leaving bankruptcy protection, preserving 7,500 jobs.

“We’ve developed a healthy, clean balance sheet and we’ve developed a cost structure that allows us to be competitive,’’ Whitacre said before leaving for Washington to provide an update to Treasury Secretary Timothy Geithner, House Speaker Nancy Pelosi, and Michigan’s congressional delegation.

Bruce Clark, senior vice president of Moody’s Investors Service, said the loan payback is one step in a longer improvement process for GM. It’s also a sign of positive changes that include GM reducing its debt load and rolling out better vehicles.

“I wouldn’t cite that as sort of the bellwether, but things certainly are moving in their favor,’’ Clark said. He said the biggest threat to GM’s recovery is another slowdown in auto sales.

GM lost $88 billion between 2004, when it last turned a profit, and last year when it declared bankruptcy.