May was another strong month for America's automobile manufacturers -- sales are rising at double-digit rates. We're approximately one year after two of the big three automakers entered bankruptcy. Along with rising sales, repayment of government loans has concluded -- all that remains to be dealt with is government-owned stock in GM.
The former "car czar," Steven Rattner, who led the Obama administration's efforts to rescue the carmakers, wrote a triumphant op-ed on the topic earlier this week:
Two weeks ago, GM reported its first quarterly profit in nearly three years: net income of $865 million on $31.5 billion in sales. A month earlier, Chrysler's first-quarter report included the news that the company had turned cash-flow positive after nearly bleeding to death in 2008.Both companies are also doing better in the marketplace. Market-share declines have been arrested. Bloated inventories on dealers' lots have been reduced dramatically. Use of sales incentives such as rebates and interest-free financing -- the cocaine of the auto industry -- has been substantially reduced.
While Rattner's extracurriculars are unsettling -- the SEC is seeking to ban him from Wall Street for three years for his part in an alleged interest-peddling scheme that included financing a movie called Chooch -- the decisions he and the rest of the Auto Task Force made at Treasury seem to have been the right ones, despite complaints across the board. It's even possible, if the government's equity is well managed, that a considerable profit could be made for taxpayers.
It's worth reading this thus-far-prescient piece by Phillip Longman that discusses the surprisingly succesful history of American corporate rescues.
-- Tim Fernholz
