Rick Wagoner might have been boasting too soon. When General Motors recently announced second-quarter earnings that surprised and impressed Wall Street, the CEO crowed, "Conventional wisdom is that you can't turn a ship as big as GM around quickly. We aim to prove that conventional wisdom wrong."
Well, that would be great. Investors, workers, and most ordinary Americans would love to see one of the nation's bedrock companies become healthy again and reverse billions in losses compiled over the past few years. But Wagoner's optimism--widely embraced by analysts and journalists eager for a fresh storyline out of Detroit--may dip about as fast as the gas gauge on one of the monster SUVs his company sells. There's still a lot of bad news ahead for GM and Detroit, which analysts started to point out only after the upbeat headlines seemed to herald a breakthrough. If GM is once again overpromising or exaggerating its prospects, then nothing at all is new at America's biggest automaker.
The good cheer came largely from the reversal of some terrible trends. GM's loss on North American operations, for example, was a mere $85 million, compared with $1.1 billion for the same period a year ago. And its average transaction price rose by about $1,200 instead of falling. But that doesn't mean GM is in good shape. It still lost $3.2 billion in the second quarter. And the road to revival remains lined with red flags. Some of them:
There's plenty of misery to go around in Detroit. Ford Motor Co. has the same big-truck problem as GM, and its "Way Forward" program to restructure the company has so far been sliding sideways. The No. 2 U.S. automaker lost $123 million in the second quarter, compared to a $946 million profit a year earlier, prompting CEO Bill Ford to pledge for the umpteenth time that the company will accelerate turnaround efforts, including more cost-cutting and probably layoffs. Even Chrysler, the darling of the domestics for the past three years, has drifted into the doldrums. First-quarter operating profit fell 94 percent, with a loss predicted for the third quarter.
Nearly every company (except maybe ExxonMobil) has earnings setbacks from time to time. But Detroit has dealt itself repeated credibility setbacks. Rick Wagoner and Bill Ford both have made many promises they've failed to keep, from hitting profitability targets to leading the way on environmental technology. In the industry, pronouncements from Detroit tend to be viewed more as guesses or PR verbiage than as the decisive word of chief executives. It would be nice if Rick Wagoner proved the conventional wisdom wrong.