GM Gears Up Factories, Balance Sheet for Future Starting Now
Stock Chart for General Motors Co (GM)
General Motors Co., preparing for an initial public offering, is showing a different spirit than the failed behemoth that preceded it: investing in small cars, planning to hire workers and paying obligations early.
GM yesterday said it’s investing in a Michigan factory to make a small Cadillac and hire 600 workers. Hours later, it said it paid $2.8 billion to its union retiree health-care trust and obtained $5 billion in credit that it may not need. After the IPO, the Detroit-based automaker said it will buy back preferred shares from the U.S. and put $6 billion in its pension plans.
The rapid-fire moves show how GM will operate under new Chief Executive Officer Dan Akerson after the nation’s largest automaker purged much of its debt and lowered its fixed costs by restructuring in bankruptcy.
“What happened over the past 12 months was ordained by the courts,” said Maryann Keller, an auto industry consultant with a self-named firm in Stamford, Connecticut. “The measure of how good a company GM is starts now. They have to show that they can operate this business by cleaning the balance sheet and investing in the business.”
Setting up the credit line, planning to pay debt and managing pension obligations all were either expected or prudent financial management that will help the company as it goes public, Keller said.
GM has filed its registration statement for the offering with the Securities and Exchange Commission. The U.S. shares will begin trading by Nov. 19, people familiar with the matter have said.
GM will purchase the Treasury’s 83,898,305 Series A preferred shares at $25.50 apiece on the first dividend payment date scheduled to occur after the IPO, the department said.
With the repurchase, taxpayers will have received $9.5 billion in repayments, interest and dividends from GM since the automaker emerged from bankruptcy in July 2009, the Treasury said. The department said its total funds invested in GM include $13.4 billion under the Bush administration and $36.1 billion under the Obama administration.
The Treasury said the repurchase of the preferred shares won’t change its stake in GM’s common stock. After the IPO, the Treasury may hold with less than a 50 percent stake in GM’s common equity. The company and the U.S. aim to hold an IPO of $8 billion to $10 billion, two people familiar with the plan said this month.
GM’s commitment to reducing the obligations shows that its cash flow must be improving, said Joe Phillippi, principal of AutoTrends Inc., a consulting firm in Short Hills, New Jersey.
GM, which earned $2.6 billion in the first half, must expect to remain profitable amid U.S. new-vehicle sales that are running about 30 percent slower than the 16.8 million annual average from 2000 to 2007, he said.
“We’re still not out of the woods with this car market,” Phillippi said. “If they weren’t showing strong cash flow, they wouldn’t take the risk.”
GM hasn’t said when it will report third-quarter results.
The automaker’s 8.375 percent bonds due July 2033, which were issued by old General Motors Corp. and convert to shares in the new GM, rose 1.375 cent on the dollar to 36.375 cents yesterday in New York, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. That was the highest end-of-day price since May 4.
The company will keep pushing out new models and investing in factories as it works to improve its balance sheet. Since bankruptcy, GM has put more than $3 billion into its plants, Akerson said yesterday at a press event at a Cadillac plant in Lansing, Michigan. The plant will build a small Cadillac nicknamed the ATS to compete with Bayerische Motoren Werke AG’s 3-Series line.
GM also is introducing the small Chevrolet Cruze and the Chevrolet Volt, which runs on gasoline and electricity.
Chairman Ed Whitacre, who will leave the board by the end of the year, had added funds to the product plan and pushed the company to develop a flagship sedan for Cadillac and to consider new models such as small pickups and minivans.
GM is reviving its marketing efforts to sell the new products. In the months leading up to bankruptcy, the automaker ended its relationship with golfer Tiger Woods and pulled advertising from events such as the Super Bowl and the Academy Awards. Seoul-based Hyundai Motor Co. now is the exclusive national sponsor of the Oscars, Joel Ewanick, GM’s vice president of marketing and a former Hyundai executive, said at a press event on Oct. 27.
Ewanick started a campaign for Chevrolet with an ad that ran during baseball’s World Series on Oct. 27 to show the brand’s historic position in American culture. The campaign features young women taking babies home from the hospital in Chevy cars and people loading their dogs into Chevy trucks.
Ewanick said GM will spend slightly more on advertising next year than the $2.5 billion the company spent in 2008.
Chevrolet will advertise during the Super Bowl, and Cadillac is considering marketing during television events like the Golden Globe awards. GM has also advertised during the MTV Video Music Awards and Country Music Awards.
“This is where America gathers to watch TV,” Ewanick said. “It’s the best way to start a courtship with a brand that some of them have forgotten.”
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