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Weighing New GM's Resale Value

October 29, 2010
3 min to read


DETROIT — General Motors Co. has made progress tidying up its balance sheet ahead of a planned initial public stock offering next month, but there's still a big question it has to answer for potential investors: Is GM fixed?


The automaker said it will return another $2.1 billion of the nearly $50 billion in bailout funds it got from U.S. taxpayers, The Wall Street Journal reported. The repayment was one of a series of moves GM, which is majority owned by the federal government, announced to reduce its liabilities and show financial strength ahead of the IPO.

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GM said it will repay the money by buying back 83.9 million preferred shares owned by the U.S. Treasury. In a separate move, it said it will immediately pay $2.8 billion to reduce the amount it owes to a trust fund that covers the cost of health care for retired workers.


After the IPO, the auto maker plans to cut its liabilities further by contributing $4 billion in cash and $2 billion in stock to employee pension funds.


All told, the moves will use $10.9 billion, but will save about $500 million a year in interest payments. GM will be left with $24 billion in liquidity, including a backup $5 billion revolving credit line, which company executives believe is enough to keep it moving forward, especially now that it is making money again.


The stock buyback from the Treasury is significant because the Obama administration is seeking to recoup the entire $49.5 billion that taxpayers poured into GM, starting in the final days of the George W. Bush administration. With Thursday's deal, GM will have returned about $9.5 billion of that money, through loan repayments, interest charges and dividends, the Treasury said.


During a stay in bankruptcy court last year, GM slashed its debt and costs, halved the number of brands it sells and swept out its entrenched leadership in favor of aggressive newcomers.

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Bolstered by a new, lower-cost union contract, some strong-selling models and an improving economy, GM reported a $2.2 billion profit for this year's first half, a sharp turnaround after losing nearly $90 billion between 2005 and its bankruptcy filing in June 2009. GM's U.S. sales rose 6.8% in the first nine months of 2010.


But, as for whether GM is fixed, the answer is yes—but not completely. Many problems linger.


GM's U.S. market share slipped 2.8 percentage points this year through September as overall car sales recovered. One reason is the company still doesn't make enough models that appeal to a broad spectrum of Americans, particularly young, urban drivers and those on both coasts.


GM faces intense competition from a resurgent Ford Motor Co. and newer rivals such as Korea's Hyundai Motor Co., as well as Toyota Motor Corp., which remains a formidable competitor despite its safety recalls. In Europe, GM has racked up years of losses at its Adam Opel GmbH unit.

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