General Motors on Wednesday took a big and symbolic step toward shedding the stigma of government ownership when CEO Ed Whitacre announced the company had repaid the remaining $5.8 billion of $8.1 billion in government loans.
"GM has repaid the U.S. Treasury and Export Development Canada loans in full, with interest, years ahead of schedule," Whitacre said at a press conference in Fairfax, Kansas this morning. "GM’s ability to pay back the loans ahead of schedule is a sign that our plan is working."
GM still has a way to go before it can claim independence. It owes an additional $45.3 billion to the U.S. government. That will be repaid when GM makes a public stock offering, which GM executives have indicated is likely to happen next year.
GM went through Chapter 11 bankruptcy in 2009 during which time it received the loans, in addition to the federal government taking a 61% stake in the automaker. The company was separated into two companies at that time: an “old GM” that contained unwanted factories, real estate and the like; and the “new GM,” which is made up the company’s current brands, and valuable factories and assets it needs to go forward.
GM was de-listed from The New York Stock Exchange when it entered bankruptcy, with the “new GM” currently privately owned. Whitacre predicts GM will operate in the black this year, paving the way for a good reception by the markets in 2011. After the IPO, President Obama has said it is his intention to gradually unwind the taxpayer’s ownership of the automaker.
Prior to today's announcement, GM owed the U.S. government $4.7 billion and the Canadian government $1.1 billion. The U.S. government invested a total of $50 billion in GM to get the company through bankruptcy. Besides the debt, the U.S. holds $2.1 billion in preferred stock and stock warrants for a total 61% stake. The U.S. also aided GM with more than $20 billion more before the Chapter 11 bankruptcy to keep it afloat, but that money is not expected to be paid back.
GM said it lost $3.4 billion in the fourth quarter of 2009 on revenues of $32.3 billion. But things are on the upswing: Sales and production have increased, and GM, surprising many analysts, has gained U.S. market share since the start of the year even while closing down some of its brands.
For the period from July 10, when GM emerged from bankruptcy protection after shedding billions in debt, through Dec. 31, GM lost $4.3 billion on revenues of $57.5 billion. But much of that loss was for one-time items, including a $2.6 billion payment to the United Auto Workers union for retiree health care. The company also reported several signs of improving health: It took in $1 billion more than it spent in the period and began this year with $36 billion in cash and $60 billion in debt. At the start of 2009, it had $14 billion in cash and $104 billion in debt.
"General Motors should never again be in the financial position it found itself in last year," GM Chief Financial Officer Chris Liddell said earlier this month during a conference call with analysts and media.
New FacesThe turnaround of GM is coming faster than many expected, but it is not a surprise to everyone. GM vice chairman Bob Lutz pointed to two issues that have received attention.
“GM’s two biggest problems from a management standpoint were a dysfunctional finance department and the sales and marketing organization, and both have been dramatically overhauled since last year with the right people in charge,” said Lutz to AOL Autos earlier this month. Lutz will retire on April 30.
CFO Chris Liddell came to GM from Microsoft. Whitacre came to GM from retirement after a long career at AT&T where he had been CEO. Mark Reuss, who had been running GM’s Holden division in Australia, was named head of GM’s North American operations last December, and he has overhauled GM’s sales and marketing apparatus. The company also has a new communications/government relations chief.
“GM is plainly coming back faster than many people had expected and Ed Whitacre is trying to keep the momentum of feeling going by announcing the loan payback,” says Dennis Keene, a Los Angeles-based independent marketing consultant who counsels companies on image management. “Having proven that people are still interested in buying Chevys, Cadillacs and Buicks even after a Chapter 11, the company has got to keep up a flow of positive story lines as it navigates itself to the big IPO,” says Keene.
When GM went into Chapter 11, it was struggling under the weight of tens of billions of dollars in pension and healthcare obligations to retirees and current employees. In addition, it had eight brands in North America, which was too many to support. It has sold off Saab, and closed down Pontiac, Saturn and Hummer. Analysts who have long followed the company say that the new streamlined GM, made up of Chevy, Cadillac, GMC and Buick, as well as Opel in Europe and Holden in Australia is poised to become a consistently profitable company again.
“I think GM is going to succeed and surprise a lot of people,” says John Casesa, partner at Casesa Shapiro Group, a private investment and advisory firm with investments in the auto sector.
Since the government’s massive investment in GM, the company has taken on the nickname of “Government Motors.” Moreover, aiding GM, and Chrysler, has been a rallying cry of complaint by the Tea Party political movement, which has been a leading topic of news coverage for the last three months. "Small government" libertarians and Tea Party activists have use the bailout of the auto industry to buttress their argument that the Federal government has gotten too big. The popularity of the sentiment, and the air-time given to the shouters is irksome to GM executives hoping consumers forget about the bailout and just focus on the new cars and trucks in the showrooms.
Ford Motor Co., meanwhile, has greatly benefited from avoiding bailout money from the taxpayer. GM executives have said they believe their brands will benefit when the company can finally announce no more government/taxpayer ownership of the company.