GM Gets a Second Chance

With a clean balance sheet and lower costs, it may yet succeed.

PAUL INGRASSIA

For decades, General Motors has been lumbering and cumbersome, lagging every market trend from SUVs in the 1990s to hybrid cars today. But now it's set a land speed record for something -- getting in and out of bankruptcy. This is good for GM and for America.

Most experts had predicted it would take 36 months, but the company re-emerged from Chapter 11 on Monday just 36 days after it went in. Appeals are coming, but the bankruptcy court's decision to approve GM's restructuring plan almost certainly will stand. The company's case moved far more quickly than almost anyone imagined, thanks to the U.S. government's considerable powers of persuasion and $50 billion of taxpayer money.

Spending that much money wasn't on anybody's fun list, but we live in the age of bailouts. And the auto industry has made bail, so to speak, far more smoothly than Citigroup, AIG and the other financial firms. One overlooked hero in this story is Sen. Bob Corker, the Tennessee Republican. Last fall, when the lame-duck Bush administration and Nancy Pelosi's House Democrats wanted simply to throw money at Detroit, Mr. Corker marshaled the GOP Senate caucus to insist on attaching tough conditions to any federal aid. His goal was to help the companies emerge with competitive cost structures.

Martin Kozlowski

When the Republicans defeated the Bush-Pelosi plan in the Senate last December, President George W. Bush put Mr. Corker's stipulations in his executive order granting GM and Chrysler emergency financing. Then President Barack Obama's Auto Task Force -- to its immense credit -- went further, building on Mr. Corker's plan and imposing even tighter strings.

For example, the task force insisted that GM dump four of its eight brands. The company's own television commercials now acknowledge that eight brands were too many. The task force also used the bankruptcy to overhaul GM's capital structure. This critical move greatly reduced the company's crushing debt load, substituting it with new equity instead. As a result the U.S. government will own 60% of GM's stock. The United Auto Workers (UAW) union gets another 17.5% which will provide health care for retired workers, taking that burden off GM.

No one really likes this, especially the UAW, which wanted cash instead of stock for the money that GM (and Chrysler too, for that matter) owed the union. But the union has to become part of the solution at GM, not part of the problem. Taking stock in the car companies was a sacrifice, not a victory, for the UAW.

Others also are sacrificing -- including GM bond holders and dealers. Consider John Wolf in Belvidere, Ill. Mr. Wolf and his family ran a Chevrolet store for 85 years and four generations. GM is revoking his franchise as part of its effort to downsize a dealer network that was built for the company's glory days 40 years ago. Mr. Wolf is appealing the decision, but the outcome remains uncertain.

Painful stories like this, sad as they are, were inevitable, because GM had to downsize to become commercially viable. Task force leaders Steve Rattner, Ron Bloom and Harry Wilson are all Wall Street veterans of corporate restructurings but had no auto industry experience. Against all odds, that turned out to be a good thing. They weren't bound by the untested "truths" that automotive executives took as gospel -- that bankruptcy, for example, means sure death for any car company. GM's sales have held steady and even improved a bit during the process.

A couple weeks ago, Messrs. Rattner and Corker had dinner together in Washington. They found they agreed on a lot more issues than expected. Maybe the other b-word -- bipartisanship -- is possible after all.

The bottom line now is that GM gets a second chance, a rare and precious thing in life, as any survivor of a serious illness knows. The company faces significant challenges. That's the nature of second chances. But with minimal debt, lower labor costs, fewer brands and dealers, and the shedding of health-care expenses for retired workers, the pieces are in place for the company to succeed.

One high profile test will be the company's new plan to build a high-mileage small car at its factory in Orion Township, Mich., north of Detroit. It's a politically convenient move that will appease Congress and the UAW. GM previously had planned to build the car in China because it couldn't make money on small cars built in the U.S.

But if Honda can make money on an American small car -- which it can and does -- the new GM should be able to as well. The UAW has agreed to lower wages at the plant -- from a base wage of $28 an hour to $15 an hour on average. Overall, GM's total compensation for workers under its amended contract stands between $50 and $55 an hour. That's about equal to compensation at the Japanese auto plants in America, and 30% less than GM previously paid.

Another key test: standing up to the many pressures that inevitably accompany government money. Not long ago, Rep. Barney Frank asked GM to keep open a parts facility in his district and CEO Fritz Henderson agreed. Not good. Mr. Henderson needs a tape recording to play for inquiring congressmen that says, "Our mission is to make enough money to repay the taxpayers -- the people whom you represent. Period. It isn't to build green cars. Or red cars or blue cars. Or to provide jobs in any particular congressional district. Thanks and good-bye."

To repay the taxpayers, GM must upgrade the reputations of both Cadillac and Chevrolet, its two major brands. Both divisions make some pretty good cars, such as the Cadillac CTS and the Chevy Malibu sedans. Now the company can focus on them, which it couldn't do when it had eight brands to feed in the U.S. and still more overseas.

Finally, GM must overhaul its inbred corporate culture and revamp its relationship with the UAW. Both tasks should top the agenda of the new board of directors. Neither will be easy. We'll know the company has accomplished the former if it launches a steady stream of cars that Americans want to buy, finally reversing 30 years of steadily declining market share. As for the union, if workers rush to repair a broken robot instead of taking a break while waiting for an electrician to arrive, we'll know things have changed on that front too.

I'd like to be optimistic that General Motors will survive and thrive -- not with anything approaching its dominance of yore, but with a new effectiveness that the company has lacked for about 30 years. In truth, whether GM will last is hard to say. We're in uncharted territory. But its survival is up to the company and all its employees, including UAW members. Let's hope they make the most of their second chance.

Mr. Ingrassia is a former Detroit bureau chief for this newspaper and Dow Jones executive. His book about the auto industry bailout, "Crash Course," will be published by Random House in January.