Nov. 22 (Bloomberg) -- A profitable General Motors Co. is poised to shake off a half decade of U.S. government oversight next month, underscoring the comeback of a once-moribund industry and gaining leeway over a $26.8 billion cash pile that it can use to lure talent while weighing a dividend.
The U.S. Treasury Department expects to sell its remaining 31.1 million GM common shares by year-end, depending on market conditions, the government said yesterday. The exit would end restrictions on pay for top executives that the largest U.S. automaker has said hampered recruiting.
The sales mark the end of an era of U.S. government intervention in an industry that was near collapse in 2008, before bailouts from the administrations of George W. Bush and Barack Obama. The investment gave new life to GM and Chrysler Group LLC, slashing debt and rekindling growth. Auto sales are headed for the best year since 2007, and GM, Chrysler and Ford Motor Co., which didn’t get a bailout, are profitable again.
“The first step will probably be a dividend,” said Michelle Krebs, an analyst at auto researcher Edmunds.com. “That will be a significant move toward normalcy as they become a truly publicly traded company. They’ll also be able to pay executives more money, which has been a constant complaint.”
With government loans repaid and the Treasury out of GM, “people will feel really good about the company,” Mark Reuss, the Detroit-based automaker’s president for North America, told reporters Nov. 20 at the Los Angeles Auto Show. “It will help our sales when it goes.”
In another sign of the industry’s rebound, Chrysler advisers are discussing a valuation of about $10 billion for the carmaker before an initial public offering that could take place next month, people with knowledge of the matter said yesterday. In 2009 the automaker was considered worthless and Obama had to personally intervene to save it from liquidation.
GM fell 1.3 percent to $37.63 at 4:15 p.m. in New York. The shares have gained 31 percent this year, as the Standard & Poor’s 500 Index advanced 27 percent.
The end of GM’s pay restrictions may also mean the automaker has the flexibility to look outside the company for a replacement for Chief Executive Officer Dan Akerson as he nears retirement, said Krebs, who is based in Southfield, Michigan. The CEO turned 65 last month.
GM said in April that it adjusted the compensation mix for Akerson in 2012 because of the possibility he may retire before his long-term restricted stock vests in three years. At least four executives, including Reuss, 50; Mary Barra, 51, head of global product development; and Chief Financial Officer Daniel Ammann, 41, have been mentioned as CEO contenders.
Akerson has signaled that retirement is on the horizon and has said he prefers his successor comes from within to avoid disruption.
“The board will decide what’s best for the company,” GM said in an e-mailed statement yesterday. “We’re very comfortable with our succession plans which we have in place for all our key officials.”
The U.S. government’s GM stake has fallen to about 2.2 percent, with the Treasury’s statement yesterday that it had completed the sale of 70.2 million shares under a third previously announced plan.
“If average daily trading volumes continue at recent levels, Treasury anticipates that it will complete the sale of its remaining shares by the end of the year,” the government said.
The U.S. has recovered $38.4 billion of the $51 billion it spent to bail out and restructure GM, the Treasury said.
“While the U.S. Treasury’s equity stake draws to a close, our work to transform GM continues,” GM said yesterday in an e-mailed statement. “We’re making great progress in our efforts to make the most of this second chance by building outstanding cars and trucks, creating jobs and reinvesting in our country.”
The Canadian government still owns 7.9 percent of GM and a United Auto Workers health-care trust has 10 percent, according to data compiled by Bloomberg. GM doesn’t face any governance restrictions on pay or other activities from those holdings.
The new freedom “could allow GM’s management to return capital to shareholders in early 2014,” Joseph Amaturo, an analyst at New York-based Buckingham Research Group, said yesterday in a note to clients. He said that an 80 cents-a-share annual dividend is a possibility, and that a payout of that amount would cost GM about $1.2 billion a year.
GM’s last quarterly common dividend was in June 2008, said Dave Roman, a company spokesman.
“This board understands our shareholders are in here to get a decent return on their money,” Akerson told analysts on an October conference call.
“We understand what we’re here for and one of them is to return money to our shareholders,” he said on the call. “And that will be a continuing theme not only this quarter, but the next year and the year after.”
If GM doesn’t move quickly to return money to shareholders, either through a dividend or a share repurchase, the automaker may face activist investors trying to force the action, said Harry J. Wilson, founder of restructuring adviser Maeva Group LLC in Westchester, New York, and a former member of the Obama auto task force that helped restructure GM.
“They will be watched very closely,” Wilson said in an interview. “They need to focus on improving operating margins, continue to invest in new product and create a more efficient use of capital.”
Akerson has spent the past three years pushing to fix the parts of the GM that weren’t addressed during its quick run through bankruptcy, including management structure, the speed of product development and rebuilding parts of the company’s captive finance capabilities.
He assigned Ammann the task of implementing a new financial reporting system to help better track the company’s sales in countries around the world. Chief Information Officer Randy Mott got a mandate to bring more information-technology functions back inside GM to help speed innovation.
Akerson has set several ambitious mid-decade goals, including increasing North American operating margins, stemming European losses and boosting sales in China. He’s revamped GM’s main global brands, Chevrolet and Cadillac.
GM is bringing out 18 new or refreshed vehicles this year and 14 next year as its works to transform its lineup from among the oldest into one of the newest.
The Chevrolet Impala was the first U.S. car chosen as the best sedan on the market by Consumer Reports, and the Cadillac CTS was picked as Motor Trend’s car of the year.
The wind-down of the U.S. stake in GM would bring to an end a linchpin of the government’s Troubled Asset Relief Program. The auto industry’s revival was a flashpoint during last year’s presidential campaign, and Obama turned the issue against Republican candidate Mitt Romney to help win the key states of Ohio and Michigan.
The rescue saved 1.14 million jobs in 2009 at automakers and companies that depend on the industry, according to Center for Automotive Research in Ann Arbor, Michigan. A collapse would have cut $96.5 billion in personal income in 2009 and 2010, and it also would have cost the federal government $28.6 billion in extra jobless benefits and reduced Social Security contributions and income taxes in those years, the center said.
GM said it has invested $8.8 billion in U.S. facilities since 2009 and created 25,500 jobs for new and existing workers.
“It’s a template for how government can help in extreme cases,” Steven Rattner, the investment banker and first leader of Obama’s auto task force, said in a telephone interview yesterday. “I don’t think it should be viewed as an indicator that government should just willy-nilly start messing around in the private sector. It does give you a road map for government intervening in a positive way.”
To contact the reporters on this story: Kasia Klimasinska in Washington at email@example.com; Jeff Green in Southfield, Michigan at firstname.lastname@example.org; Tim Higgins in Los Angeles at email@example.com