GM files plan for Autumn IPO

By David Phillips, Crain News Service

Detroit. Michigan -- General Motors Co., moving to unwind itself from government control, filed plans last week to go public and begin selling common shares as early as this Autumn.

The filing--anticipated for weeks--came just 13 months after GM was restructured in bankruptcy with $50 billion in direct aid from the US government.

GM said the amount of securities offered will be determined by market conditions and other factors at the time of the offering. The number of shares to be sold and the price range for the offering have not been determined, the auto maker added.

GM hopes to raise $12 billion to $16 billion with the stock sale, Bloomberg News reported, making it among the biggest initial public offerings ever.

To make the offering appeal to a wider group of investors, including hedge funds, GM said it may also issue preferred shares.

Risks and challenges

In a bid to preserve cash, the auto maker said it does not plan to pay a dividend on the common shares after the initial offering.

In the filing, GM said weak sales, underfunded pensions and the success of its restructuring efforts in Europe pose risks for the car maker.

While the auto industry has recovered this year, GM said "there is no assurance that this recovery in vehicle sales will continue or spread across all our markets."

Still, the auto maker said it expects its global market share to rise to 12.4 percent by 2014 from 11.9 percent this year.

GM´s ability to achieve long-term profitability depends on the company´s success at enticing customers to consider its products when purchasing a new vehicle, the filing said.

"Our competitors have been very successful in persuading customers that previously purchased our products to purchase their vehicles instead," the company said.

In North America, GM also blamed its market-share losses over the past three years on negative consumer brand perception. To overcome consumer concerns, the auto maker plans to enhance the fuel efficiency of its model lineup--a strategy it said is also key to sustained profits.

The success of the IPO will go a long way in determining how much American taxpayers will recover from their 61 percent stake in the auto maker. Bloomberg said GM wants to sell a fifth of the government´s 304 million shares.

After the sale, the government´s stake in GM is expected to drop below 50 percent.

In a statement 18 Aug, the Treasury Department said it “will retain the right, at all times, to decide whether and at what level to participate in the offering.”

In addition to the federal government, a United Auto Workers (UAW) retiree health-care trust controls 17.5 percent of GM. Other stakeholders include the Canadian government, with 11.7 percent, and former GM bondholders, with 9.8 percent.

In its statement, GM said the common shares would be sold by "certain stockholders."

In recent weeks, President Barack Obama has pledged the government will recover all the taxpayer money his administration provided to bail out the auto industry last year.

For the government to recoup its full investment, GM´s market value must reach $70 billion-or 10 times the auto maker´s market capitalisation before it sought bankruptcy protection in June 2009.

Ford comparison

Ford Motor Co.?, which is more profitable, has a market cap of about $41.8 billion.

Some analysts believe GM needed to produce several more quarters of profits and robust cash generation before undertaking an initial offering.

But GM management, as well as the Obama administration, is eager to free the company and ease lingering taxpayer concerns about GM´s $50 billion government bailout.

GM used bankruptcy to shed billions of dollars in debt and healthcare obligations, eliminate brands and slash costs. The restructuring has allowed the auto maker to produce healthy profits even though industry sales volumes remain near multi-decade lows.

GM posted second-quarter profits of $1.3 billion on worldwide revenue of $33.2 billion. The results included earnings of $1.6 billion in North America, where GM has struggled to produce consistent profits in the past. In the first quarter, GM earned $865 million on revenue of $31.5 billion.

Asia growth

In addition to the rebound in its core North American operations, GM has relied on solid sales growth and profits in China and other markets to offset losses in Europe.

The auto maker last posted an annual profit in 2004, when U.S. sales reached almost 17 million light vehicles. Sales are expected to come in under 12 million units this year.

In North America, GM said it will launch 19 new vehicles from Chevrolet, Buick, GMC and Cadillac between 2010 and 2012. The new models will primarily be marketed in growing car and crossover segments, where, in some cases, GM is under-represented.

Another 27 new vehicles will debut between 2013 and 2014.

“GM has a lot of great product in the pipeline,” said Joe Phillippi of AutoTrends Consulting. “But the most recent economic forecasts make the timing of the IPO a little more problematic.”

GM will be the second U.S. auto maker to go public this year after electric car maker Tesla Motors Inc.´s June IPO.

Prior to this year, Ford Motor Co. was the last U.S. auto maker to go public when the Ford family decided to sell part of the company to the public in 1956 while maintaining voting control though a special class of shares.

This report appeared in Automotive News, a Detroit-based sister publication of European Rubber Journal.