Why GM Is Ready to Rebound

Lower costs and good cars could make GM formidable once again

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It may take awhile to convince car buyers, but General Motors has emerged from bankruptcy with better prospects for a profitable future than virtually any of the automaker's critics predicted a few months ago. Here's why:

It exited bankruptcy in record time. Chrysler surprised nearly everybody by emerging from bankruptcy in 40 days. GM, a far bigger and more complex company, beat that by a couple of days. That gives the "new GM" a fighting chance to escape the cloud of failure that has hung over the company for much of the last year. "It helps them get the idea that 'GM equals bankruptcy' out of consumers' minds," says Michael Robinet of forecasting firm CSM Worldwide.

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Its biggest problems are in the past. GM has left behind billions in debt, axed hundreds of low-volume dealerships, and gotten rid of its four underperforming brands: Hummer, Pontiac, Saab and Saturn. It can now spread marketing dollars and other resources among fewer, better cars.

The new GM is built for speed. CEO Fritz Henderson has described how GM is stripping out several "strategy boards" and other layers of management that have been in place for decades, and cutting 450 managers from its white-collar work force. If done right, that could allow GM to bring cars to market faster and respond more effectively to shifting consumer tastes. GM has also reduced its labor costs to the point that they're practically equal to the most efficient automakers, removing another obstacle to profitability.

GM already has appealing cars. Its overall lineup is still spotty, but popular vehicles like the Chevrolet Malibu, GMC Acadia, Cadillac CTS and new Chevy Camaro represent plenty of good product that's available today. Sales of such vehicles could take off if GM can exploit its quick exit from bankruptcy to convince buyers the company is back on its feet, and will be around for the long haul. Chrysler, by contrast, still has huge holes in its product lineup, and they might not be filled for two or three years.

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GM has to work hard to win back consumers. Henderson admitted as much when he said that GM will try to distinguish itself by reaching out to buyers in new ways, such as listing vehicles for sale on eBay. Even if GM only half-delivers, some customer pampering could pay off, as long as GM's vehicles are up to scratch as well. "Consumers have demonstrated they will endure a so-so customer experience to obtain a great vehicle,” says Jack Nerad of car research site kbb.com. “Consumers haven’t demonstrated they will accept a so-so vehicle because of a great customer experience.”

The feds want out of GM. Despite all the rah-rah, many Americans hate the idea of buying a car from a company run by the government. The real measure of success for GM will be a public offering that buys out the U.S. government's 61 percent stake in the company, and the repayment of $50 billion in taxpayer loans. Ahead of schedule. Henderson hinted that a public offering could come as early as next year, with hopes to pay back the loans ahead of the 2015 deadline.

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The feds want that too. " The government is making sure they're setting GM up for success," says Robinet. "This must be done and dusted by 2012." That's because the success or failure of GM will be a big issue when President Obama runs for reelection. One sign of the government's eagerness to exit is the return of GM "car czar" Bob Lutz, widely credited with revitalizing GM's product lineup. Lutz, 77, announced his retirement earlier this year, presumably because he didn't want to work for "Government Motors." GM's federal overseers probably had to promise to stay out of Lutz's business in order to lure him back. Now Lutz, Henderson, et. al. need to convince a lot of skeptical car buyers of the same thing.