Rinsed and raring to go

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: America's carmakers appear to have returned from the grave. This week the three big ones—Ford, General Motors and Chrysler—all had good news to report. Ford recorded a wholly unexpected profit for the third quarter of nearly $1 billion, thanks in large part to a huge improvement in its North American operations. Sergio Marchionne, boss of Fiat and now Chrysler, laid out a detailed five-year plan for restoring the American company to health in a seven-hour presentation. Most sensationally, GM’s board, citing both the improving business environment and the firm’s own recovering financial health, reversed its decision to sell a majority stake in Opel/Vauxhall, its European subsidiary, to Magna International, an Austrian-Canadian partsmaker, and Sberbank, a Russian bank. Both GM and Ford were also able to post year-on-year increases in sales in October, of 4.7% and 3.3%, respectively.

A year ago, such a turnaround seemed unimaginable. GM had declared losses of $4.2 billion in the third quarter and Ford of $2.7 billion. Both firms had burned their way through nearly $7 billion of cash each during the quarter. The smallest of the three, privately held Chrysler, did not say how much it had lost, but an educated guess was about $2 billion.

The rest is history. The government stepped in to prevent a potentially catastrophic collapse of GM and Chrysler with $62 billion of Treasury loans and then shepherded both firms through “quick-rinse” bankruptcies that shrank their debt, cut the cost of obligations to retired workers and pruned their sprawling dealer networks. Italy’s Fiat was recruited to take over the management of Chrysler and share its advanced technology for small cars in exchange for a 20% stake. Ford struggled on, completing its restructuring without help either from the taxpayer or bankruptcy, thanks to the $23.6 billion it had raised in 2006, before the credit markets froze, by pledging all its North American assets as collateral.

All three firms will now be helped by what may be a quicker and stronger recovery in car sales, particularly in America, than most people are expecting. It will be a long time before sales return to a level considered “normal” by an industry accustomed to pumping up demand with cheap credit and suicidal pricing. But Adam Jonas, an analyst with Morgan Stanley, points out that previous recoveries in car sales have been “V-shaped”, and that this one is likely to be too.