GM Gains, But Weaknesses Remain
GM has pushed market share to 21% in October after running below 20% most of the year. But it took incentives of more than $4,000 a vehicle to get there. Docherty says she wants to try to pull back on incentives. GM also needs to boost sales to get its factories running more profitably. In the quarter, GM built just 53% of its production capacity.
There are some signs of life, however. In October, GM got 91% of its sales from its four remaining brands: Buick, Cadillac, Chevrolet, and GMC, said Susan Docherty, GM North America vice-president for sales. Those surviving brands gained market share during the month. GM has also been crowing about its newest models, especially its important family-oriented sedans and SUVs. Crossover SUVs like the Chevrolet Equinox and Cadillac SRX both sell for at least $4,000 a vehicle more than the models they replaced. The Buick LaCrosse sedan sells for $9,400 more than the old model. Docherty says GM has added third shifts to the plants that build the Chevy Malibu, LaCrosse, and Equinox and GMC Terrain SUVs. When the company gets up to full production for those new vehicles, "we can get market-share increases," Docherty said. GM is also finding a lot of buyers for its new Chevy Camaro retro muscle car, which fetches more than $34,000 a copy. Shifting the CostsGM does have more cost cuts coming, too. Next year, it will set up a Voluntary Employee Beneficiary Assn. (VEBA) trust, to pay union employee health-care benefits the same way a pension funds pays retirement benefits. When the fund is up and running, GM can save $2.5 billion to $2.8 billion a year in cash, Henderson said. Debt-Free in 2010?The latest results are strong enough that GM has started to repay loans to the various governments that helped keep the company afloat. GM has paid €500 million back to the German government and owes a further €400 million. Henderson said GM plans to start repaying the U.S. and Canadian governments. The company will pay the two of them $1.2 billion in December, with $1 billion of it going to the U.S. Treasury. GM owes the Treasury $6.7 billion and an additional $1.4 billion to the Canadians. Henderson said that GM could have the debt portions of its obligations to those governments paid off by June of next year. However, some of the money could come from $17.4 billion held in an escrowed account from the U.S. and Canadian governments. Can GM completely repay U.S. taxpayers? The federal General Accounting Office says that GM is unlikely to fully repay the public for its investment of nearly $50 billion. Obama Administration officials have said that the initial $9.4 billion lent by the Bush Administration will likely not be paid back. The rest depends on how much GM's stock will be worth, Henderson says. The company hopes to issue new stock next year, but the timing depends on GM's health and a rebound in the car market, he says. If GM gains momentum, then the government could get a big piece of its investment back through its 60% ownership of the company. If the company can't make a serious comeback, taxpayers will fall short. Henderson and Obama's Auto Task Force originally hoped for a summer 2010 initial public offering, but GM has backed off that timetable. The company needs to make sure it shows results, financial markets must fully return to health, and the economy needs a rebound. "Clearly, they wouldn't be ready to go public in the first or second quarter," Phillippi says. "This is more likely a fourth-quarter event." And that only happens if GM stops talking about its progress and starts backing it up with some real profits.