Happy days are here again, eh?
The size of General Motors' second-quarter operating profit overwhelmed even the most optimistic Wall Streeters, resulting in a dandy little run-up in GM's share price.
And the second-quarter results are widely viewed as a sign that CEO Rick Wagoner's turnaround plan is working, which already has prompted speculation that the proposed alliance among GM, Nissan and Renault may be unnecessary, or at least less urgent than it seemed last week.
One radio talk show host in Detroit even chirped that GM might be able to teach Carlos Ghosn a thing or two, since Nissan reported dismal earnings for the period.
It was a swell quarterly report all right, but let's not get carried away. GM, which aims to cut annual costs by $6 billion this year, admits that it has a way to go.
A proprietary analysis by management consulting firm PRTM -- formally known as Pittiglio Rabin Todd & McGrath -- shows that even after GM eliminates the $6 billion it has on its plate for this year, the automaker will need to whack an additional $23 billion in structural costs to be competitive with Toyota on the basis of cost of goods sold.
According to PRTM's Dietmar Ostermann, the bummer is that GM can only wring out maybe $12 billion or so without resorting to drastic measures, such as reorganizing under Chapter 11, or in some type of alliance with Renault and Nissan.
The second quarter showed again what happens when a company cuts costs and uses new products with more sensible pricing to boost revenue. But for GM to become competitive and start gobbling back big chunks of lost market share, there is more that must be done on both fronts.
You may e-mail Edward Lapham at [email protected]