GM prices shares at $33, expects to raise up to $23.1 billion from IPO
From staff, wire reports November 17, 2010 – 7:37 am ET
UPDATED: 11/17/10 5:05 p.m. ET

DETROIT — General Motors Co. today priced its public stock offering at $33 a share — which will generate at least $20.1 billion for the automaker just 16 months after it emerged from its government-sponsored bankruptcy.

If stock underwriters use a so-called “over-allotment” to sell additional shares, GM expects to generate $23.1 billion from the offering, which would make it the largest stock offering of all time.

“As we prepare to enter the equity markets, all of us at GM are excited about this historic milestone,” GM CFO Chris Liddell said in a statement issued late this afternoon.

“We are especially appreciative of those who stood by us through the toughest times, and we are dedicated to creating value for all of our stakeholders.”

The offering allows the U.S. government to drastically cut the controlling stake it acquired when it rescued the automaker last year.

Responding to strong demand, GM today increased the number of common shares on offer by a third. The revised IPO terms could cut the U.S. government’s stake, now 61 percent, to as little as 33 percent.

The strong response to the stock sale reflects growing investor confidence that GM is moving beyond its unpopular, taxpayer-funded bankruptcy with sharply lower costs and higher profit potential.

Including preferred shares — hybrid securities paying a fixed dividend that will mandatorily convert to equity — the IPO would eclipse Agricultural Bank of China’s stock offering in July, which raised a record $22.1 billion.

GM’s move to raise the planned number of common shares it will sell comes a day after it boosted the price range for the IPO and increased the preferred shares on offer by a third to $4 billion.

GM had received orders worth about $70 billion for the common stock portion of the offering as of late Tuesday, a source familiar with the situation said.

From blue chip to basket case

The higher pricing on the stock sale represents a step toward minimizing the cost of a $50 billion U.S. government rescue of the 102-year-old company, which had fallen from blue-chip status to bailout basket case in recent years.

At the time, the Obama administration’s GM restructuring triggered intense criticism from both Republicans and taxpayers and left the automaker with the stigma that it had become “Government Motors.”

But the upsized deal suggests investors see an opportunity for profit and could bode well for other auto industry IPOs.

GM is the first of a slate of auto-related companies — whose ranks include Chrysler Group LLC; Ally Bank, formerly known as GMAC; and parts supplier Delphi — expected to return to public ownership in coming years.

Auto executives and analysts said the reversal in Wall Street sentiment toward an industry that was shut out of the credit markets in 2008 and 2009 was a positive sign.

“This will give us a great, great precursor for the Chrysler IPO. I’m delighted; it couldn’t have gone better,” Chrysler CEO Sergio Marchionne said on Tuesday night.

GM filed to sell 478 million common shares for $33 each, and $4.35 billion worth of preferred shares, according to an amended filing with U.S. securities regulators. The preferred part of the IPO is $4.6 billion including the over-allotment.

The automaker initially filed to sell 365 million shares for $26 to $29 each and $3 billion worth of preferred shares.

‘Case study’

GM earned $5 billion in the first nine months of 2010 and is on track for its first full-year profit since 2004.

At the same time, the automaker has cautioned that fourth-quarter profit will be lower than the rate of the first three quarters because of vehicle launch costs and a higher proportion of less-profitable small cars in its mix of production. GM’s European unit also remains unprofitable.

“You’re not in GM for a three-month investment,” said Tim Leuliette, a director at Visteon Corp. and longtime U.S. auto industry executive, speaking at the Reuters Autos Summit.

“You’re into GM because a critical element, a critical building block of the U.S. economy, has significantly repositioned itself to be competitive in what will, over the long term be, should be, a very attractive position. That’s why you get into those kinds of equities,” Leuliette said.

In a road show for investors spearheaded by GM CEO Dan Akerson and CFO Chris Liddell, the automaker has emphasized both its sharply lower costs and its exposure to key growth markets like China.

One of the open questions remains whether GM’s China partner, state-owned SAIC Motor Corp., will participate in the IPO and how much it will invest.

The two companies have negotiated new cooperation in areas such as electric car programs in talks that began this summer. Under a tentative deal, SAIC had agreed to invest between $500 million and $1 billion in GM pending Chinese government approval, people with knowledge of those discussions said.

But two people familiar with the matter said that as of earlier today, China’s Ministry of Commerce had not approved the SAIC investment.

Sources previously told Reuters that sovereign wealth funds in the Middle East and Asia separately had committed a combined $2 billion to GM’s IPO.

Gov’t still No. 1 shareholder

Treasury will remain GM’s largest shareholder after the IPO. The stake held by Canada could fall from 12 percent to just more than 9 percent. The retiree health care trust affiliated with the UAW could see its stake drop from almost 20 percent to 13 percent.

U.S. officials have said it is likely to take until the next presidential term for the U.S. government to sell off all of its holdings in GM.

With the IPO priced at $33 per share, the U.S. government will need to see the stock rise by 47 percent to just above $48.50 to break even on its follow-on stock sales over the next several years.

At that level, GM would have a market value of more than $90 billion. By comparison, its closest rival, Ford Motor Co., has a market capitalization of $59 billion after a rally that has sent its stock up 65 percent this year.

Obama administration officials have argued that it would represent a kind of success if the White House breaks even only on the $30 billion that it committed to GM. Just over $19 billion in funding came from the Bush administration.

The GM bailout spared the automaker from liquidation and saved hundreds of thousands of manufacturing jobs at the company and its suppliers, officials have said.

Underwriters on the GM IPO were led by Morgan Stanley, JPMorgan, Bank of America Merrill Lynch and Citigroup Inc. The shares are expected to begin trading on the New York Stock Exchange under the symbol “GM” and on the Toronto Stock Exchange under the symbol “GMM” on Thursday.

General Motors has announced recalls of Pontiac Vibe vehicles from the 2005-2008 model years following complaints of engine stalling.  GM will recall 200,000 Pontiac Vibes in total, including 162,000 in the United States, after a “handful” of complaints, according to GM spokesman Alan Adler.

The Wall Street Journal reports the General Motors and Google are discussing a deal that would link cell phones using Google’s Android operating system with the automaker’s OnStar driver information service.  The Journal says that users of Android-based smartphones will likely be able to use OnStar features from their phone while not in their car.  One example, users could get information about their vehicle’s maintenance needs through the Android phone.

Owners of a Chevrolet Volt (GM’s upcoming plug-in electric vehicle) may be able to use the technology to help an owner keep track of the car’s battery charge from a distance, the paper said.  Partnerships like this are yet another indication of how electronics and in-car information systems are becoming of utmost importance  for carmakers.

Chrysler has asked the U.S. Bankruptcy Court to block a new Colorado dealer reinstatement law.  Chrysler has taken similar action against laws of this kind in four other states.  Chrysler is asking the Bankruptcy Court in New York to determine that the Colorado law, enacted last month, is pre-empted by federal bankruptcy laws.  The new Colorado law requires Chrysler and General Motors to offer a rejected dealership the right of first refusal if the company wants to reopen a point in the rejected dealer’s old market. If the automaker already has re-awarded such a franchise, it must offer to reinstate the rejected dealership or compensate it.

In December, Chrysler filed complaints in the same Bankruptcy Court last December seeking to block similar laws enacted by Illinois, Oregon, Maine and North Carolina.  While North Carolina backed off enforcement of its law in a settlement with Chrysler this month; Illinois, Oregon and Maine are continuing to contest Chrysler’s complaint.

General Motors unveiled a new electric concept car in China, aiming to bolster its image as a supplier of non-polluting cars tailored to the crowded mega-cities of the future.  GM showcased the EN-V, short for “Electric Networked-Vehicle,” in China with its joint venture partner, SAIC Motor Corp.  It will be shown during the World Expo to be held in Shanghai from May through October.

The two-seater EN-V, which would communicate with other cars to help avoid accidents and ease traffic in congested major cities like Shanghai, is only at the conceptual stage — it would not hit showrooms for another 10 to 20 years, and would require regulatory changes for it to be allowed on roads.

GM Seeks to Reinstate 661 Rejected Dealerships

General Motors said it plans to reinstate 661 of the 1,160 rejected dealerships that applied for arbitration to get their franchises back, scrapping a nine-month plan to reduce its showroom network by 40 percent. The decision to begin settlement procedures as early as next week stemmed from a desire to avoid the rigors of congressionally mandated arbitration, GM executives said.

Letters of intent are scheduled to start going out as early as Wednesday, March 10. The process could take just a few weeks for some dealers and as long as several months for others, they said. GM hopes to have the effort completed by mid-summer. “By doing this we save a lot of time and energy and dollars,” Jim Bunnell, GM’s general manager of dealer network support, said during a conference call with reporters. Susan Docherty, GM’s U.S. marketing chief, said the company decided “it would have been impossible to arbitrate 1,100 cases in a 120-day period.” Read the rest of this entry →

General Motors will wind down its Hummer brand after a proposed sale to China’s Sichuan Tengzhong Heavy Industrial Machines Co. Ltd. fell through.  GM said in a statement that Tengzhong “was unable to complete the acquisition.”  Reports have indicated that the company failed to win Chinese government approval of the sale.  GM has said it will honor warranties, provide spare parts and will support service for Hummers worldwide. GM currently has 153 Hummer dealers in the United States.

The failed deal likely seals the fate of the last of GM’s four unwanted U.S. brands. GM is winding down Saturn after its sale fell through in September. Pontiac is also being phased out. GM yesterday completed the sale of Saab to Dutch niche carmaker Spyker Cars NV.  GM is open to receiving other bids for Hummer as it winds down the brand, the source said. The sale of Saab arose out of a similar situation: Spyker entered a bid after a proposed sale of Saab to another party fell through in November. Many believe the chances of resurrecting Hummer are viewed as slimmer than they were at Saab.

General Motors will produce the Cadillac Converj plug-in concept car that was introduced at last year’s Detroit auto show according to Vice Chairman Bob Lutz. The two-door Converj uses the same technology as GM’s Chevrolet Volt plug-in electric vehicle, due to be launched late this year. No definite timing for introduction of the Converj has been given, but it has been said it would be after 2012.

At least 100 GM dealerships will be reinstated, Whitacre says
By: Chrissie Thompson, Automotive News

DETROIT — Ed Whitacre, General Motors Co.’s chairman, expects at least 100 GM dealerships will be restored in the arbitration process mandated by a new federal law. “I think a large number will get reinstated,” he said today in a meeting with reporters. “I think that’s a given. It’s in the hundreds.” The law, signed by President Obama last month, sets up a six-month period in which dealers can appeal their rejection to neutral arbitrators. Dealers have until Jan. 25 to give notice that they intend to file for arbitration.

An arbitration judgment must be handed down by June 15. In bankruptcy last year, Chrysler rejected 789 dealerships, while GM said it would wind down 1,350 through October 2010. GM used a “pretty arbitrary” cut-off point in choosing which dealers to reject and probably made some mistakes by cutting some good dealers and leaving some bad ones, Whitacre said. “The way it came out, if you fell above or below a line, you were removed,” he said. “But you had to do it that way. You can’t just go around flipping coins, so you had to have a process.” It was impossible for GM to have a perfect process, he said.

Arbitration could restore good and bad dealerships, Whitacre said. “The bad thing would be if they’re a lousy dealer that has a lousy storefront and through some process they’re put back in arbitrarily,” he said. “If they’re a good dealer and would really push GM in a classy manner, like we want it done, then it would be really good.”

Won’t hurt profits
Restoring dealers won’t jeopardize GM’s profits, Whitacre said. He thinks GM will be profitable in 2010. “You want to be a profitable company, and I think everything else just sort of flows from that — numbers of vehicles, how many fleet, how many in retail,” he said. “We’ve kind of restructured, put our priorities in the right place.” He said he does not feel pressure to take GM public this year. If the company does have an initial public offering in 2010, it would be late in the year, he said.

Detroit Auto Show: An electric cavalcade

With federal mileage standards rising, automakers next week will show a fresh group of fuel-efficient vehicles at the North American International Auto Show in Detroit. Ford will unveil the redesigned production Focus, and Honda will show the production version of the CR-Z hybrid hatchback. Toyota and Volkswagen will roll out hybrid concepts; Audi, BMW and Fiat will display electric concepts.

Show organizers are arranging various electric cars, including one from China’s BYD Auto, in a space on the show floor called Electric Avenue. But high performance will get its due. Judging by vehicles at the show, performance cars and econoboxes will coexist happily in the 2016 model year, when automakers must reach fleet averages of 35.5 mpg.

At the Detroit show, Cadillac will unveil the high-performance CTS-V coupe, and Buick will show a performance sedan concept. General Motors and Chrysler Group may have replenished treasuries after surviving U.S. Bankruptcy Court in 2009, but their fresh resolve won’t be fully reflected on the show floor. Both automakers have modest unveilings. GM will have one production car: the CTS-V. Chrysler will have none. But Chrysler and partner Fiat are showing some concepts that explore their product planners’ ideas for the next few years. They will show a concept version of the Lancia Delta mid-sized hatchback with a Chrysler grille. They also will show an electric concept of the Fiat 500 minicar.

By: Charles Child – Automotive News