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But more and more, today's GM looks to me like a different company. This post-bankruptcy GM is investing in bold new products, aiming not just to participate, but to lead in some of the industry's toughest segments, and showing impressive financial discipline.
The automaker still has a long way to go, but it's becoming clear that this isn't your father's General Motors. It isn't even last decade's General Motors. But with the company's IPO just a few weeks away, has GM done enough to convince investors to join its ride?
The latest in a series of un-GM-like moves
Various news outlets, citing anonymous sources within GM, have said that the company will launch its initial public offering before Thanksgiving -- "by November 19," said Bloomberg earlier this week.
Anything the company does in the next few weeks will be viewed through that lens, as it should be. Every company wants to have its house (and balance sheet) as clean as possible before going public, and potential investors should view any last-minute maneuvers with a skeptical eye. But the financial moves the company announced on Thursday deserve a closer look on their own merits:
- A VEBA good move. A $2.8 billion payment to retire part of the company's debt to a UAW health care trust (often called a "VEBA"). Similar to a payment announced by Ford (NYSE: F ) earlier in the week, the move is expected to reduce GM's ongoing interest payments significantly.
- Getting some credit. GM has secured a $5 billion line of credit from a syndicate of lenders led by Citigroup (NYSE: C ) and Bank of America (NYSE: BAC ) . This isn't likely to be used any time soon, since the company has plenty of cash (almost $27 billion as of June 30). Instead, it's a rainy-day fund, one that potential investors may have insisted upon.
- Another payment to the Feds. As compensation for bailing out GM, the U.S. government received both common and preferred stock. Most of that common stock will be sold off in increments once the company is public, but GM will be buying back the preferred stock early at a small premium. GM said on Thursday that it would pay a bit more than $2 billion, or 102% of the stock's liquidation value, to buy back the preferreds. This isn't just a patriotic gesture: Those preferreds paid a 9% dividend. Between this buyback and the VEBA payment, GM expects to save about $500 million a year.
- Beefing up the pension plan. GM's salaried and hourly pension funds were actually well-funded until the market crash in 2008, when many of the funds' investments lost significant value. Now there's a hefty shortfall, and many potential investors have noted that it could become a big issue for the company in a couple of years. This is maybe the most uncharacteristic of GM's moves: It's confronting this issue head-on, in advance, promising a $6 billion cash-and-stock contribution shortly after the IPO.
All of these are sound moves, particularly given the company's cash position. But while new GM CEO Dan Akerson is known for his high-tempo style, it's hard to say at this point whether these are really characteristic of the new GM, or simply moves recommended by advisors like JPMorgan (NYSE: JPM ) and Morgan Stanley (NYSE: MS ) , the upcoming IPO's lead underwriters.
I'm leaning toward "new attitude"
On Thursday, GM announced a $190 million investment in a Michigan factory to tool up for a new small car. On the surface, this is just one of many similar investments that automakers make all the time, announcing spending (and new jobs) in advance of a product launch. Most don't generate headlines beyond the Detroit media.
But Akerson's tone made this one a little different. The small car in question, which is expected to debut sometime in the next couple of years, is a new Cadillac sedan aimed squarely at top-selling models from BMW and Mercedes. "We've ceded this segment of the market to our foreign competitors for far too long," said Akerson, according to the Detroit Free Press. Then he added a dig at Mercedes' compact sedan: "They call it the C-Class because it's very average."
Yikes. For a Detroit CEO, those are fighting words, ones that last decade's GM would never have been able to back up. But this is starting to look like a much more aggressive company. The real proof will unfold over the next few years, but I'm thinking that we might have to take GM a lot more seriously this time around.
Do you agree? Or is this all just window-dressing? Scroll down to leave a comment and let me know.
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