New Day Dawns For General Motors

General Motors has spent the last 40 days in bankruptcy proceedings. The new GM has been cleansed of massive debt and burdensome contracts. The new company must build successful vehicles and win back skeptical consumers.

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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. Good morning, I'm Steve Inskeep.

If you have any connection with General Motors, today is the first day of the rest of your life. The company announced, this morning, that it's left bankruptcy. Here's GM CEO Fritz Henderson.

Mr. FRITZ HENDERSON (CEO, General Motors): It's an exciting day for General Motors. Today marks the beginning of a new company.

INSKEEP: NPR's Frank Langfitt is reporting on the hard work that lies ahead after an incredibly swift bankruptcy. Frank, Good morning.

FRANK LANGFITT: Good morning, Steve.

INSKEEP: Given that people weren't even sure if General Motors could restructure in bankruptcy, how they get it done in 40 days?

LANGFITT: Well, it was extraordinary. What happened is the government - helped arrange a lot of deals in advance with the company's creditors. And then, frankly, they just rammed it through court. And the bankruptcy was sort of doing what executives for a long time, really decades, couldn't do with GM and that was like really shrink the company and simplify it. So what they were able to do was get rid of about tens of billions of dollars in debt and labor obligations, and then strip the company down, it used to have eight divisions, now it's going to be four.

So, Saturn, Saab, Hummer, Pontiac, they're gone. Chevy, Cadillac, Buick and GMC are going to be this new GM. And it's very helpful to running the company, because the idea is, instead of being forced to spend money feeding like a failing brand or making up for rising health care costs for workers, now, at least ideally, the company should be able to direct things towards research and development, more competitive cars, things like that. And so, frankly after bankruptcy really there shouldn't be any more excuses.

INSKEEP: Although, does this mean they're profitable on day one having made all these changes?

LANGFITT: Oh, not at all. I mean, this is going to take quite some time. In fact one thing we really have to watch is the cash burn. This was the thing that got them into trouble in the fall. They were spending far more money than they were bringing in. And as we watch the company going forward, as investors, this is something we really want to focus on.

INSKEEP: Well okay, where did it go wrong?

LANGFITT: It could go wrong in a number of ways. I mean one thing is, we're still in the middle of this recession. It's a terrible market out there for cars, of course. There is also incredibly - incredible competition. You know, while GM was struggling and was in bankruptcy, Ford was actually taking the company's market share. As a price of gas, nobody really knows exactly where it's going to be. People think it's obviously going to go up over time, but if it were to spike soon, that could really hurt GM's truck sales, the Chevy is very strong - they're very reliant on that.

The other thing is, if you talk to GM folks, they are concerned about government meddling. The government owns now about 60 percent of the company and there's been political pressure on GM recently, to sort of keep some operations open, build cars in the U.S., so they could create jobs here - even though we have very high labor costs. Now the Obama administration, going forward, is going to try to protect the company from this.

INSKEEP: Oh Frank, I know you've covered the auto industry a long time. Do people at GM, or at any of the automakers, really know precisely what kind of car people are going to want and that they can make money selling them in the future? For example, can they really make a lot of money of high efficiency cars with new kinds of propulsion?

LANGFITT: That's a huge issue. I mean they've never been able to. One of the problems is, with their smaller cars, they often really built them just to meet fuel economy standards and didn't put a lot of money into them, never really been able to make much money on them. Now, this is the thing we're really going to have to watch. If gas prices do go up, as most people expect, this is an area that GM just has to be competitive in. One place to - one thing to watch, next year is the Chevy Cruze.

It's going to be coming out in 2010 out of Lordstown, Ohio, a factory there. They say it can get up to 40 miles a gallon, and unlike some of the earlier cars - let's say, like the Cobalt, the Chevy Aveo, which were pretty cheap looking - the Cruze, it - much better interior, much better style. And so one way that, you know, we as investors can track this, is to see, you know, is the Cruze selling? Is it doing really well against things like the - Corolla and the Honda Civic?

INSKEEP: Okay. If they get that going, is there any chance the tax payers are going to get their $50 billion back?

LANGFITT: Well, this is a tough one, Steve. The government has said it wants to get out of GM as fast as it can. It doesn't want to be, you know, the owner of a big car company. And there's a - they're looking, I think, to make an initial public stock offering next year. Now this could be really good for GM, get out of public ownership and hopefully any meddling from politicians - but not necessarily so good for us, the tax payer. Because, as you were just - as you were just noting before, the company's just got out of bankruptcy - in order for us to make all that money back, the value of the company would just have to explode in a very short period of time, and that seems highly unlikely. So, we're likely to lose a fair bit of this investment.

INSKEEP: That's NPR's Frank Langfitt on news that General Motors emerged from bankruptcy today. And you can see GM's news conference today at our Web site, NPR.org/thetwoway.

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