09 July 2010

New GM on Steady Track to IPO as Old GM Fades Away

USA Today

DETROIT — This weekend, a year since General Motors' split into old GM and new GM, the new GM is barreling toward an IPO, while the old GM languishes in bankruptcy court.

The new GM is a healthier company, one with a manageable cost structure, less debt, fewer brands and lower pension and health care obligations.

"We are a new and much different company than we were 12 months ago," CEO Ed Whitacre said recently. The company he joined last year was "shell-shocked," he said, and overly complicated. He's worked to give executives more responsibility for decision-making so things work faster.

The old GM is winding down, selling off parts and dealing with the legal morass that sucks in companies involved in complex bankruptcies.

There was fear that GM's bankruptcy would scare off customers, killing any chance of a profitable future for the new GM. Some customers have been turned off by the bankruptcy and the government's majority ownership stake in GM: About 32% of people surveyed by Cars.com recently said they wouldn't consider a GM vehicle.

But, for the most part, GM has weathered the year fairly well. Even with four fewer brands, its sales are up 14.3% year to date, just off the overall industry increase of 16.7%.

While the auto market rebound is slower than hoped, GM says it can turn a profit if industry sales are 11 million this year. June sales were at an 11.08 million annual pace, according to Autodata.

Credit the bankruptcy reorganization for getting GM's break-even point to a manageable level, says Edmunds.com CEO Jeremy Anwyl. "They got stuck," says Anwyl. "They couldn't get past a certain point, and there was no way they were going to accomplish something in the order of magnitude that was needed without bankruptcy."

Now, GM is gearing up for a public stock offering that would let the government begin recouping money lent to save it. Of more than $50 billion in loans, more than $40 billion was converted to a 60.1% stake in GM.

The company could file as early as August its application to register an initial public offering with the Securities and Exchange Commission. That could allow the IPO before the November midterm elections.

Is it too soon for a successful IPO? "I can think of several reasons why they should wait, and not one reason why they should rush," Anwyl says.

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