Steven Rattner, the Obama Administration's "car czar" who oversaw the bankruptcies and bailouts of both General Motors and Chrysler, went on CNBC this morning talking about what he described as General Motors' "stretch goal" of $10 billion in profits and a 10 percent profit margin in 2012 (and beyond). Rattner also took the opportunity to ding Mitt Romnney for his "flip-flops" on whether the bailouts were a good thing (read all about them here on the op-ed page of the New York Times). GM is expected to report an $8 billion profit for 2011, so it's getting much tougher to argue that this is a company that shouldn't have been allowed to survive.
Rattner is obviously proud of his work and has good reason modestly boast while supporting GM's "energy and ambition." But I think he might be wrong to side with a Wall Street Journal piece (sorry, can't find the link) that insists GM should never again focus on market share over profitability. The idea here is that making money is more important than pursuing an abstract number that doesn't necessarily contribute to the bottom line. After all, you could have 10 percent share of the U.S. market (GM currently has about 18 percent, down from 21 percent for 2011) and still make a lot of money.
But for a company the size of GM, that could be a problem. Toyota, GM's biggest rival, is down to about 13 percent U.S. market share and will need to spend huge amounts of money to get back to where it was before its decline began in 2010. This is money that Toyota could spend developing new cars and trucks to go up against GM. So share isn't unimportant.
Just look at Volkswagen, which has established some very ambitious goals for North America. With just a 3 percent share, it will be forced to pour money into the U.S. — money sucked out of the very region where GM needs work, Europe. Not to mention China, where GM and VW are battling for share in that rapidly developing market.
Profits and share are interconnected. It's fashionable to say that GM should never again manage the company to mantain share, because that's partly what drove GM into bankruptcy before. Profits always sound better. But profits need to scale — in GM's case, to remain at 10 percent even as the company's U.S. share moves into 20-25 percent territory. This is how you silence the naysayers and put GM on a course for the Treasury to finally sell off the last of its equity stake and get GM's stock into the kind of valuations that $10 billion on the bottom line justifies.