GM rebound pivots on sales after CEO cuts costs

General Motors Co. Chief Executive Officer Fritz Henderson, buoyed by $50 billion in U.S. bankruptcy aid, slashed debt and operating costs without returning to profit. His challenge now is to sell more cars.

A 28 percent drop in GM's U.S. deliveries overwhelmed benefits from lower expenses in the third quarter, tempering the automaker's announcement that it plans an early start on repaying its government borrowing. Even as GM generated $3.3 billion in cash, it posted a $1.15 billion loss.

GM's release yesterday of its first financial data since leaving Chapter 11 in July underscored the hurdles Henderson must clear to complete a turnaround. October's increase in U.S. sales was its first since January 2008, and the biggest domestic automaker hasn't posted back-to-back monthly gains since 2007.

"They still have to bring people into the showrooms," said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. "The loss of market share still hasn't stopped. They haven't really made a U-turn yet."

When the so-called cash for clunkers incentives drove the U.S. auto market to its first expansion in 22 months in August, Detroit-based GM lagged behind Ford Motor Co. and Toyota Motor Corp. GM's average U.S. transaction price also fell from the second quarter as it relied more on less-profitable small cars.

'Real Surprise'

"The decline in revenue per vehicle was a real surprise," said Mikelic, who helps manage $19 billion in debt and equity, including debt in auto-finance units. "I thought they would do better there."

GM was led out of bankruptcy on July 10 by Henderson, who took the job when predecessor Rick Wagoner was forced out by the U.S. auto task force, and new Chairman Ed Whitacre. The company shed the remnants of the old General Motors Corp., which remains in court protection and is now called Motors Liquidation Co.

Henderson, 50, has a $42.6 billion war chest to help him finish overhauling the company. That reserve helped enable GM to announce a plan to begin early repayment of $6.7 billion of U.S. borrowing that isn't due to mature until July 2015.

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