Nitpicking GM’s Third-Quarter Results

The Wall Street Journal has a good rundown of General Motors’ third-quarter results, reported today, which have the new company losing $1.15 billion but making money in China as well as achieving profits on some of its new vehicles. At issue for the WSJ is whether GM is really living up to government expectations:

[T]he bigger question is whether the new GM–the quasigovernment enterprise–is on track to meet the goals set forth when Congress approved the car maker’s $30 billion bailout last winter....The government’s goals for the new GM–which were either implicit or explicit in the bailout funds–include expanding its work force in the U.S. and building smaller, more fuel-efficient cars.

Well, if GM keeps making money on crossover SUVs and the new Chevy Camaro, it’s going to potentially have to add production to keep up with demand. That could very easily translate into more hiring. As for the small car thing ... .

If it had its way, GM would probably be content to ignore this mandate. U.S. carmakers have found it difficult in the past to make money on small cars. And they are accustomed to seeing consumers take an interest in small cars when gas prices spike, only to return to larger vehicles when gas prices fall. Still, GM may be planning to at least have some small-car technology and, more importantly, fuel-efficient engines in reserve should gas prices jump up around $4 a gallon again. This is one reason for holding onto Opel, rather than selling the European division.

There’s also the EPA’s insistence that carmakers achieve a fleet average of 35.5 mpg by 2016. Small cars are one way to do this, and, as a result, GM may be compelled to move in that direction. However, GM may also believe that the use of new drivetrain technologies, such as the serial-hybrid in the forthcoming gas-electric Chevy Volt, when applied across the fleet, may get them where they need to be on MPGs.

Regardless of the tricky negotiations required of a company that’s largely owned by the taxpayers, GM is doing exactly what I said it needed to do a while back: Sell as many profitable vehicles as possible, right now, in order to improve its financial position. The company appears, with its new products, to be moving in a direction that will enable it to convert rising market share into profits. And it shouldn’t entirely matter if the U.S. auto market doesn’t support 12.5 million new sales in 2010, as was projected by GM back in April, because the company is supposed to be profitable in a market of only 10 million.

The WSJ is concerned that New GM is behaving like Old GM, chasing profits in vehicle categories that won’t be “sustainable” in the future. The trouble is that unless it chases those profits, sustainability won’t even be an issue. Automakers aren’t in the business of building the cars that consumers think they want to buy—they’re in the business of building cars that make money. In the near term, this should make the GM-owning American citizenry very, very happy. And not just because we get more Camaros.