2 years after IPO, GM is piling up cash

Two years after a wounded General Motors returned to the stock market, the symbol of American industrial might is thriving again.
Associated Press
Nov 19, 2012

Sunday marks the anniversary of GM's initial public stock offering in November 2010. The company has made money for 11 straight quarters, piling up more than $16 billion in profits. Its cars and trucks are selling for good prices. And sales are strong in China.

But there are signs of trouble. GM's U.S. sales, the prime driver of its profits, aren't rising as quickly as the overall market. There's been turmoil in the executive ranks, and the company is hemorrhaging cash in Europe.

Since the IPO, here are GM's achievements, struggles and question marks.

ACHIEVEMENTS:

BIG PROFITS: GM is making money — nearly $4 billion so far this year. Most of that came from the U.S., where GM cars and trucks are selling for almost 6 percent more than they did in January of 2011. The average selling price is $32,662, says the TrueCar.com auto pricing site. GM also is making good money in China and the rest of Asia, and it has turned around its money-losing South American operations with a host of new products.

BETTER CARS: Before its 2009 bankruptcy, GM relied on trucks and SUVs to make money. Cars were an afterthought, and GM got a reputation for poor quality. The business model worked fine until gas prices spiked over $3 per gallon around 2005 and buyers shifted toward cars. Since bankruptcy, the company has rolled out new compact, subcompact and mini cars that are selling well. Car-based crossovers, which are more efficient than traditional truck-based SUVs, also are selling. Trucks accounted for 32 percent of GM sales in 2008, with cars and crossovers making up 68 percent. Now, trucks are down to 27 percent. Sales of the Chevrolet Cruze compact are closing in on 200,000 through October, far better than GM's previous compact and a strong counterpunch to Toyota and Honda. Also, the Chevy Sonic, the only subcompact made in the U.S., has become the top car in its segment with more than 70,000 sales this year. That's more than 10 times the number of subcompacts that GM sold in the first 10 months of 2011.

CASH PILE: GM, which nearly ran out of cash at the end of 2008, ended the third quarter with $31.6 billion in cash and securities. Bankruptcy wiped out old GM's debts and burdensome contracts, and the new company's cars and trucks have sold well around the world. The cash allows GM to invest in products and restructuring. It even bought a U.S. auto finance company, which helps it to offer low-interest loans and cheap leases. GM also is bidding for international assets of Ally Financial, GM's former finance arm, to help make cheap loans in Europe and elsewhere. Early in November, GM took out $11 billion in new credit lines, giving it access to more than $42 billion. The giant figure leads many analysts to believe that GM is preparing to buy back at least part of the U.S. government's 26.5 percent stake in the company.

NEW LINEUP: As it headed into bankruptcy, GM cut spending on research. So for much of the past two years, the company had few new models to offer. But now it's flush with cash and spending millions to update or replace 70 percent of its North American lineup by the end of next year. That includes much-anticipated full-size pickup trucks, which pull in big profits. Cadillac also is getting a makeover with the new full-size XTS and the ATS, a small luxury sport sedan designed to compete with the BMW 3-Series, a top-seller in the luxury market. Buick gets the Encore small SUV, while Chevy is getting an all-new Impala big car as well as a new Malibu midsize car.

STRUGGLES:

STOCK PRICE: Shares of GM sold for $33 when the company re-entered the stock market on November 18, 2010. For a few months, everything looked good. The stock peaked in January of 2011 at almost $39. But then the bottom dropped out and the shares tumbled. In July of 2012, they hit a low of $18.72, weighed down by a slowing U.S. economy and troubles in Europe. They've recovered some since, but are still almost 30 percent below the IPO price. That means the U.S. government can't sell its 500 million shares in the company without losing billions. The government got its stake in exchange for a $49.5 billion bailout almost four years ago. But the taxpayers are still $27 billion in the hole on the investment, and GM shares would have to sell for $53 each for the government to break even.

U.S. MARKET SHARE: GM's share of the critical U.S. market has dropped to 18 percent from 22 percent since the end of 2008. That means rivals like Toyota are taking away buyers who used to drive a Chevy, Buick, Cadillac or GMC. There are more troubling signs ahead. GM's U.S. sales are up only 3.6 percent this year, far behind the 13.8 percent growth of the overall market. GM blames the slow growth on having the oldest model lineup in the market. That will soon change to the newest lineup, the company says. By the end of next year, GM will roll out 21 new or refurbished models, including a key Chevy Silverado pickup. GM, which relies on U.S. sales to turn big profits, could run into trouble if the new models don't sell.

EUROPE: GM has lost $16 billion in Europe in the past 12 years, but it's trying to resuscitate the business with cost cuts and new products. CEO Dan Akerson said this week that European operations are making progress toward profitability and he expects them to break even before taxes by the middle of this decade. Reaching that goal will be tough, though. The company expects to lose $1.5 billion to $1.8 billion in Europe before taxes this year, and analysts say it has 20- to 30-percent more factory capacity in the region than it needs. Closing more plants will require drawn-out negotiations and expensive buyouts of union workers.

QUESTIONS AHEAD:

LEADERSHIP: Akerson became CEO in September of 2010, GM's fourth leader in two years. He took the reins as the company's recovery from bankruptcy was hitting its stride. The board hoped his background in private equity would give him a fresh perspective and allow him to shake up the slow-moving company. Despite streamlining decision-making, many in the company view him unwilling to listen. He recently removed the heads of sales, marketing, and Europe, which some critics viewed as too much change too fast. Akerson has pushed to bring products to market faster, but has hit resistance from engineers who fear that quality could suffer. Finally, he has bred resentment among employees by complaining that GM's culture is risk-averse and slow. "If I'm told the culture I've been brought up in is bad, then it's almost like a personal insult," said Michel Anteby, a Harvard Business School professor who studies organizational behavior. Anteby says it takes longer than two years to change a company the size of GM.

 

Comments

2cents

(Bankruptcy wiped out old GM's debts and burdensome contracts,)

Let's do this with out national debt! Screw the Chinese loans, LOL

Kimo

Like

Licorice Schtick

If GM's hidebound functionaries and engineers WERE NOT complaining, I'd be concerned.

Go, Akerson!

verdict

You "Like" this article? Uh, did you read the second half of the article or did you just read the headline and make assumptions? Try the second half. Start with "STRUGGLES:" and continue down to "QUESTIONS AHEAD:"

The article basically confirms what many of us have been saying for months. We are currently losing half of the investment that taxpayers made and we may very well lose the entire investment soon..heaping more debt onto our children.

What is the point of taxing the rich a little more when you will just end up giving it (or more) right back in a bailout? We now set a precedent. What incentive do the rich have to be careful with their business if they are now labeled "too big to fail?"

Wouldn't it have been better to let them fail so Ford could absorb them (their customer base, assets, and their employees)? Ford did not have a bailout and they re-emerged like a titan.
Oh, Nooo..everyone got emotional and lost their compass. I wonder who caused that? The town crier-in-chief?

There you go again

And Democrats talk about Romney throwing employees under the bus! There are many retirees of GM who lost their healthcare because of the GM bailout. And do you really think Obamacare is going to take care of them? They are the "victims" of Obamacare and will be the ones losing benefits. Try being 84 years old and shopping for healthcare, like my father.

Had the media properly reported Romney's stance on GM we might have thought differently about the bailout. A GM bankruptcy, with proper assistance from the government, might have protected all employess equally. Yep, the union workers made out in this one!

DGMutley

There you go again, Your father isn't eligible for medicare?

coasterfan

There Again: Oh, baloney. The media DID report Romney's stance on GM accurately, and Romney made it easy for them. It was he who wrote an editorial for the New York Times in 2008, clearly stating his stance on the issue. Wasn't the title "Let Detroit Go Bankrupt?". Just another example of a conservative living inside the "no facts get in" bubble...

Personally, I think your father should take his chances with Obamacare. Under Romney, he absolutely would have been paying for a sizeable portion of his medical expenses out of pocket, as a result of voucherized Medicare.

verdict

What is wrong with letting the business owners fail? Ford could have absorbed them (or even a combination of auto manufacturers could have split up the pie) and then we wouldn't be heaping more debt onto our children. The employees might have been on unemployment for a month or two but they could have gotten their jobs right back under the new owners.

You say the rich should be held accountable but yet you bail them out? You are reckless in my opinion and, yet, seek to advise people on how they should vote.

kURTje

Or try being close to retiriment & losing it all. Welcome to a difficult America There you go. Your father knew a much better time compared to those 50 & under. Blame lies mostly with greed @ the top.

my oh my

Time for the unions to ask for raises LOL....

Contango

From the article:

"GM also is bidding for international assets of Ally Financial, GM's former finance arm, to help make cheap loans in Europe and elsewhere."

Ally is the old bankrupt GMAC which is still about 70% owed by the U.S. taxpayers.

Subprime loans and channel stuffing are helping to propel GM sales.

http://news.investors.com/busine...

Subprime loans worked out well for housing didn't it?

Financial smoke and mirrors.

buttermaker

@Contango, you are so correct, and to add to your point, GM is not paying any tax of any kind since they filed for bankruptcy protection. Must be nice...

smeltz

"They've recovered some since, but are still almost 30 percent below the IPO price. That means the U.S. government can't sell its 500 million shares in the company without losing billions. The government got its stake in exchange for a $49.5 billion bailout almost four years ago. But the taxpayers are still $27 billion in the hole on the investment, and GM shares would have to sell for $53 each for the government to break even."

And every one was praising Obama for "saving" the auto industry...he might have helped them, but he screwed the rest of America. So interesting that this point wasn't made stronger during election. This is the reason I would never buy a GM (Government Motors) Vehicle. Ford didn't take any money from the government and they have come out stronger than any other American Auto company...something to be said about not leaning on the government to make it through a hard time!!

Unabasho

~
Too much wasted fuel
Fat Americans, fat cars
Instead, buy smarter
~

Kimo

@kURTje

GM = too much planned obsolescence while the Japanese were building for the long haul.
GM = I want a big profit now tohellwithtomorrow .

Kimo

I remember one of my customers; an engineer for Ford in the sixties, told me “For every engineer we have to make the product better, we have another to make sure it’s not too much better".

OMG.LOL.WT_

The sky is falling! The sky is falling! The sky is falling! The sky is falling!

totallyamazed

:o
:o
See, all you naysayers said the prez wouldn't turn around the auto industries - HA! We're marching forward. He'll also turn around/expand abortion services, entitlements, unemployment benefits, and affirmative action rights - HA!
I don't believe I've ever been so proud to be an American as I am today - HA!
:o
:o

Randy_Marsh

@Totallyamazed
So you are happy about fetus genocide,Socialism, Everyone living off the government because there are no jobs and racism. Glad you folks are showing your true colors. HA!

totallyamazed

:-(
:-(
Actually, there was a a bunch of sarcasm in my post (guess it come across right - sorry about that). No, I'm a believer in capitalism, moral standards, pro-life, one man/one woman marriage....the whole bit.

As far as the auto industry, I do wish them well but I think it's going to take a miracle for the US auto worker to survive. Gov bailouts won't be the factor that will save them.
:-(
:-(

Randy_Marsh

@Totallyamazed
Sorry about the mistake, But lately the left has come out and approved of everything from killing citizens to confiscating property in the name of the messiah.

buckeye15

Come on guys. Knuckledragger explained all this to us a few weeks ago. To show sarcasm, you MUST use the ~ symbol. Is it really too much to ask?

grandmasgirl

I got it! I think it was the "ha's" that did it.

Randy_Marsh

@grandmasgirl
Its "HA!" You have to put somthing behind it and show a little enthusiasm. HA!

TaxpayJerK

No, it's Ha! Ha!
,drool
,
,
,

mikel

so why haven't they paid back the fed gov't the $30+ billion they still owe instead of using american taxpayer money to refurbish/build plants in other countries?

Bleeding Turnips

Obama said Romney sent jobs to China, GM is sending even more, thanks American Taxpayers!
Make your own conclusions:
http://www.youtube.com/watch?v=L...

goofus

How can they not make money after Obozo's closing 2000 mostly republican dealerships at the onset. Oh wait a minute without bankruptcy protection and revamping, they still have Opel losing money by the second LOL!

The Big Dog's back

Obama! Obama! Obama!

Pete

Liar! Thief! Parasite!

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