GM Profit Rises to $1.54 Billion, Plans IPO Up to $16 Billion

General Motors Co., 61 percent owned by the U.S. government, reported second-quarter net income of $1.54 billion on increased vehicle sales and production as the Detroit automaker prepares for an initial public offering.

Profit rose 44 percent from $1.07 billion in the first three months of the year. Revenue increased 44 percent from a year ago to $33.2 billion on growing sales of the Buick Excelle in China and Chevrolet Equinox in the U.S., the company said today in a statement. Operations in Europe will continue to improve, the company said.

Showing profit growth is part of Chief Executive Officer Ed Whitacre’s march toward selling shares in the nation’s largest automaker after emerging from bankruptcy reorganization in July 2009. GM is seeking to raise $12 billion to $16 billion in the offering, which would make it the second-largest in U.S. history, said a person familiar with the plan.

“They continue to head in the right direction, even if the pace is plodding,” said Rebecca Lindland, an analyst at IHS Automotive in Lexington, Massachusetts. “At least they are tracking as expected.”

The automaker’s European operations continued to weigh on GM’s overall results with a $160 million loss. The unit lost $506 million in the first quarter. GM reported a $123 million gain on the sale of Saab to Spyker Cars NV.

“There’s no doubt it’s tougher in Europe,” said Joe Phillippi, principal of AutoTrends Inc., a consulting firm in Short Hills, New Jersey. “GM is just going to have to be even tougher.”

Europe Next Year

The automaker is “confident” it can break even in Europe next year, Chris Liddell, GM’s chief financial officer, said during an interview on Bloomberg Television’s “In the Loop.”

“We still have confidence that we can achieve, let’s say, break-even in Europe by next year and then profitability thereafterwards,” he said. “We’re closing a plant. We’re looking at changes in employee relationships which will lower our costs and looking to really invest in the product range, as well. That’s been very successful, that formula, here in North America.”

GM’s North America operations had profits before interest and taxes of $1.59 billion, a 31 percent increase from the first quarter’s $1.2 billion. The company’s international operations declined 44 percent to $672 million.

GM’s sales in the U.S. rose 12 percent to 601,700 cars and trucks during the second quarter from 535,400 a year earlier, according to researcher Autodata Corp. The company increased its U.S. customer discounts in the second quarter by an average of 7 percent per vehicle to $3,624, according to Autodata.

Increasing Output

GM said it built 731,000 vehicles in North America, an 85 percent increase from the same months last year.

GM’s revenue and profit gains in the second quarter were driven by an increase in output and higher productivity in its plants.

“Last year GM was shutting down plants when they filed” Chapter 11, said Wall, who is based in Grand Rapids, Michigan. “This summer, most of its U.S. plants were running full out.”

Models such as the Chevrolet Equinox, GMC Terrain and Cadillac SRX are selling well and with higher profit margins because GM lowered its costs in bankruptcy, Wall said.

GM said it generated $3.85 billion in cash from operations, up from $1.7 billion in the first quarter. GM ended June with $32.5 billion in cash and marketable securities, including funds in a Canadian medical trust escrow.

Growth in China

Through the first half of the year, GM’s China sales, including those of its joint ventures, rose 49 percent to 1.2 million vehicles compared with last year, according to the automaker. That exceeded the 1.1 million cars and trucks GM sold in the U.S. in the year’s first half.

Chevrolet brand sales more than doubled in the first half in China, driven by strong sales of the Cruze small car. Buick sales rose 29 percent, according to J.D. Power & Associates. GM is the No. 2 seller in China, behind Germany’s Volkswagen, according to J.D. Power.

“GM went through a rough time last year, but they never backed away from China,” said Tim Dunne, an analyst with J.D. Power. “China provides the bulk of their revenue and profits from Asia.”

During the second quarter, GM finished repaying $8.4 billion in U.S. and Canadian loans assumed as it emerged from bankruptcy.

Eager for IPO

Whitacre has said he is eager for the U.S. government to sell its 61 percent share of the automaker.

“We don’t like this label of Government Motors,” he said last week.

A more than 500-page document, called an S-1, is likely to be filed tomorrow, though it may not happen until Monday, said the person familiar with the plans. The exact value of the offering may not be fully detailed in the filing with the U.S. Securities and Exchange Commission, said the person, who asked not to be named because the discussions are private.

GM has obtained as much as $5 billion in a revolving line of credit from a group of at least 15 banks as of last night New York time, said the person. More than half are named in the draft of the document as underwriters, including Morgan Stanley, JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Credit Suisse Group AG.

Selim Bingol, a GM spokesman, declined to comment on details of the IPO.

The IPO would include a fifth of the U.S.’s shares, people familiar with the plan have said, which would bring the Treasury’s stake below 50 percent.

Time is Now

“You’ve got to get the money when the market is giving it,” Shelly Lombard, debt analyst with New York-based Gimme Credit, said in a telephone interview before the release. “Now is the time for GM to do an IPO.”

The UAW retiree medical fund now holds 17.5 percent of GM, the Canadian government has 11.7 percent and debtors are left with 10 percent.

GM’s announcement this week that its board had changed the rules of minimum ownership to call a special meeting to 25 percent from 15 percent was likely taken in preparation for an IPO, said Logan Robinson, a distinguished visiting law professor at the University of Detroit Mercy.

“You want to get your takeover defense in place before you go public,” said Robinson, a former general counsel at Delphi Corp., where he worked on the auto supplier’s IPO and spinoff from GM.

To contact the reporter on this story: Tim Higgins in Southfield, Michigan at thiggins21@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net.

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