The year 2008 wasn't kind to General Motors (GM). It began its slide into bankruptcy the following year and lost its "number one global carmaker" title to Toyota (TM). But Toyota has plenty of its own problems these days, which means GM should be back on top again this year. Which isn't necessarily reason for celebration, as it turns out.
Let's take a look at the pros and cons here:
- Morale: Management at GM hasn't been especially stable since the company emerged from bankruptcy. Most recently, well-regarded CFO -- and Microsoft (MSFT) veteran -- Chris Liddell announced his departure. CEO Dan Akerson isn't known for being patient, so vindication of the company's future gives workers something to cheer about -- and distracts from the demands of restoring steady profits.
- China: GM is kicking butt in the Middle Kingdom, outselling all its rivals and even doing better than in the U.S. Being number one on the world's largest growth market for autos is contributing greatly to the cause of being number one overall.
- Destiny: Toyota's woes with recalls and now with the post-quake supply chain crisis suggested to GM that its global rival didn't really deserve to be number one. Now that GM is back where it thinks it naturally belongs, it can leverage its status and success against its much-improved, streamlined portfolio of brands. Toyota wasn't good at being number one. And GM isn't good at playing catch-up.
- Old, bad habits: GM has spent generously on incentives this year to jack up its U.S. market share. In the past, the company always did this to defend its position as the reigning North American carmaker. It often overproduced to meet demand that wasn't there, and then discounted to get rid of vehicles, which undermined profits and forced the company to borrow. This is challenge of being number one: you start to focus on being the top dog rather than running a business that makes money.
- Pressure on the U.S. government to get out: GM's return to number one goes beyond symbolism. It makes it appear as if the company is doing well enough for the government to completely exit its remaining equity stake, possibly by the end of summer. Right now, GM isn't anywhere near the $53 per share price the Treasury needs to recoup the taxpayers' investment. But it would very much like to escape the executive compensation cap that the government stake imposes.
- Weak products: When it was in trouble a few years back and in the midst of a restructuring, GM saw its decline as an excellent justification for developing new vehicles that are leading its current revival. But there's nothing that stalls invention quite like success. GM was number one from 1932 until '08, and during that time its vehicles were frequently far less compelling than the competition. But the overall power of the brand kept it on top. It now risks repeating that pattern.