General Motors Co., preparing for an initial public offering as soon as the fourth quarter, said U.S. consumers are paying more per vehicle than last year.
Customers in the U.S. are paying $3,000 more on average for GM’s cars and trucks, Mark Reuss, president of GM North America, said today in a conference call as part of a daylong presentation to analysts and potential investors.
Chairman and Chief Executive Officer Ed Whitacre and other top executives gave a review of Detroit-based GM’s current business operations, including restructuring in Europe, growth in other markets and 85 percent capacity utilization in North America. The U.S., which holds 61 percent of the automaker, may sell 20 percent of its stake in the IPO, making it a minority owner, said two people familiar with the plan.
“We are not re-introducing GM,” Whitacre told the audience at the automaker’s technical center in Warren, Michigan. “We are introducing a new GM.”
Chevrolet has 94 percent of the Uzbekistan market, said Tim Lee, GM’s president of international operations. The automaker also plans to grow “significantly” in South Korea, he said.
GM is now positioned to break even during troughs in demand, Whitacre said. The management team is executing well, he said.
The automaker’s equity is worth $70 billion, according to a May 20 report by Eric Selle, a JPMorgan Chase & Co. debt analyst who projects a return of 47 cents on the dollar for holders of bonds issued by GM’s predecessor, General Motors Corp., that will be converted to stock and warrants in new GM. At today’s bond prices, GM’s equity is worth about $47 billion.
GM, the maker of the GMC Terrain, Cadillac SRX and Chevrolet Camaro, reported first-quarter net income of $865 million, helped by higher production and smaller discounts. Chief Financial Officer Chris Liddell on May 17 called the profit a “good, useful step” toward an IPO.
The company’s first-quarter operating profit was $1.2 billion in the first three months of the year, and the company generated $1 billion in free cash flow, GM said. Revenue rose 40 percent from the same period a year earlier to $31.5 billion.
GM’s Opel and Vauxhall operations in Europe lost $506 million in the first quarter. GM is restructuring the business with plans to take out 20 percent of its production capacity and cut 8,300 jobs.
GM is changing its culture by cutting the bureaucracy that made the company so slow, said Vice Chairman Steve Girsky. His industry-analysis group used to prepare 94 reports a month, he said, and now it does three.
The company also has been moving executives to other operations within the company to bring different perspectives, he said.
“That allows people to ask the basic stupid question that hasn’t been asked for 30 years,” Girsky said.
Board members thought that managers had too many direct reports, with some exceeding 20, Girsky said.
“Someone with 15 is pretty hard to find” now, he said.
GM has the opportunity to increase annual sales by about 2.6 million vehicles by 2014 if GM holds its market share in key regions, Liddell said. He cited a forecast from Lexington, Massachusetts-based research firm IHS Automotive that calls for annual global auto sales to grow by 25 million vehicles by 2014.
GM has a “massive global opportunity if we are successful maintaining market share,” Liddell said.
The automaker also needs to reduce its debt, Liddell said. Debt, preferred shares held by the U.S. Treasury and underfunded pension plans total $42.2 billion while GM has $30 billion in cash, he showed in a slide presentation.
GM’s pension plans are underfunded by $26.8 billion, GM said. It doesn’t have to put any cash in now, Liddell said.
The company will probably have to put cash into the pension fund, while investments could take care of some of the shortfall, Liddell said.
“The pension plan is a huge continuing liability,” Liddell said. “Almost certainly we will have to put cash in at some stage. Once fully funded, we’ll change the investment strategy to lock in.”
GM will most likely rely on outside lenders to finance the sale of cars to consumers and dealers, Liddell said. Banks and other financial institutions have better access to cheap funds than GM, which doesn’t have investment-grade credit, he said.
Rather than saddle GM’s balance sheet with banking assets, the company will find lenders to handle different types of loans. GM has AmeriCredit Corp. handling subprime lending and U.S. Bank for leasing and Ally Financial Inc., formerly GMAC LLC, handling the bulk of dealer financing and car loans to consumers.