Just a year after General Motors' humiliating slide into bankruptcy and 61 percent U.S. government ownership, the former No. 1 automaker actually turned a profit — its first since 2007. GM earned $865 million in the first quarter, compared with a $6 billion loss a year earlier, and even had a $1.2 billion operating profit in the troubled North American market. How did the disgraced Detroit icon go from bailout to profitability in one short year? (Watch a Reuters report about GM's recovery.) Here are five theories:
1. GM made the best of bankruptcy
GM's "slim" but better-than-promised profit "means the bankruptcy did what was intended," says Todd Lassa at Motor Trend. GM used Chapter 11 to shed four brands — Saturn, Pontiac, Saab, and Hummer — plus dealerships, workers, and production capacity. Shrunk to a leaner, "manageable size," GM is a global contender again, and its "health looks good," even when fewer people are buying cars.
2. It was able to slash its debt
Bankruptcy also let GM "shed a mountain of debt," says Tom Walsh at the Detroit Free Press, which reduced its "interest expense" payments by a whopping 72 percent, saving it $893 million since the first quarter of 2009. "That gain alone is more than the entire GM first-quarter 2010 profit" — and this Chapter 11 "windfall won't happen again."
3. Toyota's bad luck was GM's fortune
It's worth noting that "GM achieved its profits at a time when the No. 1 Japanese carmaker was taking a giant hit to its reputation for quality," says Megan McArdle in The Atlantic. Even with Toyota's woes, though, GM actually lost a bit of U.S. market share from a year earlier — partly due to axing Pontiac and the other three brands. And while it sold more cars, 31 percent of U.S. sales were commercial and rental fleet vehicles, which deliver less profit.
4. Creative accounting probably played a role
GM polished up its balance sheet by "cleverly pushing money around," suggests Drea Knufken at Business Pundit. Wise move, says Jesse Snyder in Automotive News: GM needs strong first-quarter numbers, since the only "plausible path for a quick GM recovery" is to "post a couple quarterly profits, gain investor confidence, go public in the fourth quarter, and use the IPO funds to buy out the feds."
5. GM is actually making cars and trucks people want to buy
GM's "new vehicles, if not best in class, are near best in class," says Plante & Morgan analyst Craig Fitzgerald. Despite all the "reasons to doubt whether GM's traction is for real," the numbers don't lie, says Daniel Howes in The Detroit News. The average incentive spending dropped from $5,000 to $3,000 per vehicle and "dealers report shortages of hot, well-equipped models like the Chevy Equinox crossover...." The U.S. wasn't alone: GM sales doubled in China and grew robustly in Brazil.
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- The mystery behind China's aggressive push into space
- Here's the schedule very successful people follow every day
- The best places to find love — and lust — according to science
- What would a U.S.-Russia war look like?
- Why GOP reformers are bound to fail
- Sex can't explain the culture war
- Boyhood's refreshingly unsentimental take on motherhood
- How a drafting error could doom Obama's carbon regulations
- This simple hack for slicing cherry tomatoes will astound you
- The 5 best and worst states for a well-lived life
Subscribe to the Week