Last Updated Feb 24, 2011 1:24 PM EST
After its 2009 bankruptcy, GM was revamped to generate profits based on a truly dreadful overall North American market. Just for perspective, in 2005, the U.S. market hit 17 million in vehicle sales. After the financial crisis, it shrank to less than 10 million. GM has been streamlined to turn profits when it's flat on its back -- and to rake it in when the market is operating at normal levels.
Even European losses can't slow the General down
GM's results are even more impressive given that it lost money in Europe. Post-bankruptcy, GM initially decided to shed its Opel division, in a complex deal that involved German government funding, a Canadian buyer, and Russian financing. It fell through, and GM still hasn't turned Opel around. Still, even an $1.8 billion loss in the Old World didn't drag down the company's overall performance.
If GM has an Achilles Heel, Europe is it. But it might not be anything to seriously worry about. Globally, the company's strategy hinges much more on China and other developing markets, where it will seek to tap into the rapid growth that these countries are experiencing.
It's solved its North American problem by slimming down to four brands -- Chevy, Buick, GMC, and Cadillac -- and by aggressively moving toward a no-debt business model that will help it pressure domestic rival Ford (F), which currently has a better product lineup, but also significant debt left over from pre-financial crisis borrowing.
Will GM be able to ride out the coming gas crunch?
A precipitating cause of GM's bankruptcy was the mini-gas-crisis of 2008, when the price of regular unleaded spiked to nearly $5 a gallon in some parts of the U.S. This killed GM's profit drivers, trucks and SUVs (although the company had actually stopped making money in 2005, as it undertook a restructuring under then-CEO Rick Wagoner). The protests sweeping the Middle East have some analysts anticipating another summer of American discontent at the pumps.
This could be why CFO Chris Liddell cited GM's product mix as a "slight negative" in 2010. GM has ramped up truck production in anticipation of a rebound in the that lucrative segment, a sensible bet before Egypt exploded, but one that could make for trouble if consumers swing back to smaller cars and hybrids, as they did three years ago.
Small is not the new big
Of course, when consumers do go small, they generally come back to big once the initial virtuous flush wears off -- and gas prices drop. At base, GM is a big car company, so it has to gamble that Americans (and, increasingly, the world) will favor large vehicles, given a choice.
GM's hedge is to commit more resources to small-car design and to push forward on hybrid and EV development. The idea is to avoid being caught completely unawares should Gas Crisis 2.0 arrive -- but to be careful about overcommitting to cars that it can't sell, year after year.
There are plenty of things that could cause the auto market to crater again. But for now, it looks as if GM has come back from near-death with perhaps the best business strategy it's ever had.