Last Thursday automaker General Motors posted its largest ever annual profit of $7.6 billion dollars in net income in 2011. Only two years apart from a controversial bailout that is still argued to this day, GM’s comeback has been hailed as one of America’s greatest economic turnarounds post-recession and this profit will surely make its way into the political debate surrounding the bailouts. However, taking politics of the bailout out of the discussion; one can conclude that despite some positives, GM’s business still underperformed this past fourth quarter and the company still has a long way to go in order to truly be deserving of such positive recognition. GM’s stock value declined by nearly 26 percent from February 2011 to February 2012, even with decreased production from competitors such as Honda and Toyota, due to the Japanese tsunami. It still faces problems in regards to its global pension plan that is under-funded by $24.5 billion. GM also struggled in regards to sales outside of North America, as it posted a $747 million pretax loss in Europe and a $122 million pretax loss in South America, while only earning $1.9 billion in Asia which is down from 2010 sales. GM was also able to write off taxes due to a loss carry over of $46.4 billion dollars and avoided paying the $2.98 billion dollars in taxes they would have theoretically under the 39.2 percent U.S. corporate tax rate. That would have resulted in net income of little over $4.5 billion, hardly a record.

GM faces many problems going forward, but their weak sales in China and the excessive optimism reported by the press for baby steps has really blurred the picture of what they are and what they aren’t. A significant chunk of the $7.2 billion profit from last year came from cost cutting measures, specifically wage cuts. New hires at GM face a 50 percent wage cut from what they would’ve earned in the past. Health care benefits for current and retired workers are being cut and the company has frozen pay and shrunk bonuses for all of its salaried employees. To try to soothe investor concerns about their underfunded pension program, GM has also worked to transition future retirement contributions from traditional pension payments into 401(k) plans. Savings of this nature might bolster short term stock prices and depict an optimistic outlook, but the fact that GM is struggling in international sales bleaks the outlook for their potential growth. They are planning to increase profitability in Europe mainly through factory and job cuts, signaling that they’ve lost that market to better competitors and are in no position to expand.

Furthermore, in a world where GM would have to pay back it’s bailout money, have to pay taxes and compete against strong Japanese manufacturers, it’s safe to say that GM’s “record profits” and miraculous recovery aren’t all that they are cracked up to be. The Chevy volt, GM’s supposed innovative attempt at a plug-in electric vehicle has failed to sell, and has even been probed by the government due to a knack for catching on fire. This struggle in innovation hasn’t been remedied two years after the bail out. The hybrid car market is still dominated by Toyota. Throw in Honda’s and Hyundai’s hybrid vehicles and even Ford’s Fusion hybrid, it is very evident that GM faces an incredible deal of competition, and thus far hasn’t been able to outperform its competitors to be considered a top-tier auto manufacturer.

Although GM has made gains over the past two years that should be recognized, mainstream news titles of “record profits for GM” are misleading. These types of titles are prone to gain more attention than titles such as “GM is improving” and are constructed for easy linkage into politics. GM still faces a great deal of problems. GM over time will either sink or swim depending on its ability to innovate and compete in international markets. Cost cuts, though necessary and beneficial in the short term, are not the panacea to slow overseas growth, and GM’s ability to compete with strong firms such as Toyota will be dictated by their success or failure in innovation and increased sales in the emerging markets. With an improving balance sheet, committed management and increased investment into research and development, GM will have a chance to prove their critics wrong in the future, but lets not call mission accomplished before its actually accomplished.