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GM's Henderson sees signs of progress, reason to be cautious

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GM's Henderson sees signs of progress, reason to be cautious




NOVEMBER 16, 2009 - 5:34 AM ET

UPDATED: 11/16/09 4:30 P.M. ET

DETROIT -- GM CEO Fritz Henderson stuck to a theme in announcing a third-quarter loss after exiting bankruptcy and in outlining plans to repay U.S. loans early:

Things are looking better, but we've got a long way to go.

"As I look at it … some signs of progress and signs of stability," the General Motors Co. chief said today in a meeting with reporters after GM reported the $1.15 billion loss. "But nonetheless, it's a loss, and we cannot be satisfied with it."

Still, Henderson said the "managerial net loss" for the period from July 10, the day GM left U.S. Bankruptcy Court protection, through Sept. 30 was better than the $4.2 billion operating loss reported a year earlier. And the automaker hadn't expected to trim its losses this much after its bankruptcy or keep so much cash, he said.

GM generated $3.3 billion in operating cash during the shortened third quarter, putting overall liquidity at $42.6 billion -- “candidly, well in excess of what we would have thought,” Henderson said.

The better-than-expected results are allowing GM to start repaying its government debt next month while making plans to finish the task by the end of 2011. GM was not required to make any payments on the loans before they matured in July 2015.

The repayment, which could be completed as early as June 2010, will come from leftover funds set aside by the Obama administration to finance GM's fast-track sale out of bankruptcy in July.

The automaker will begin quarterly loan payments in December by shelling out $1 billion to the U.S. government on the way to paying back $6.7 billion. At the same time, GM will start repaying a loan to Canada, worth $1.4 billion U.S., by paying back an initial $192 million.

GM also said that by the end of this month, it would pay off the rest of the debt owed by its European Opel brand to the German government. In November, GM has repaid 500 million euros (about $700 million) of the 900 million-euro loan.

‘Expected better'

Despite the early repayment plans, analyst Aaron Bragman of IHS Global Insight echoed Henderson's dissatisfaction with the quarterly loss. He called the results "surprising and a little disappointing."

"The bankruptcy was effective in some ways -- the debt is a lot less, the structural costs are dramatically less -- but why are they still turning in a loss?" Bragman said. "We expected better."

GM said its positive cash flow isn't continuing this quarter. Through December, GM will pay out $2.8 billion for Delphi Corp.'s bankruptcy settlement; $2 billion for "payment term adjustments"; $2.5 billion for loan repayments to the U.S., Canadian and German governments; and $1 billion in restructuring costs.

Henderson also said the company's breakeven point has increased because it plans to spend more on marketing.

Revenue for the entire three-month period rose to $28 billion, up $4.9 billion from the second quarter. GM attributed much of that increase to a global seasonally adjusted annual sales rate of 67.8 million units in the quarter, about 5 million more than in the second quarter.

Last week GM said today's results wouldn't comply with generally accepted accounting principles. For its release of first-quarter figures next year, the automaker will switch to fresh-start accounting, which is applied to corporations after bankruptcy.


And with that, the press conference is over. Thanks for joining us today. ...

Henderson: "I've been asked 100 times, 'When are you going to start paying back the taxpayer?' The answer is: Now." ...

Henderson says bankrutpcy damage is "tens of billions of dollars" for all parts of company. ...

Henderson: GM's new board spends 30-to-40 percent of its time discussing European operations. ...

Henderson's personal priority

Henderson said repaying government loans is a personal priority.

“I've been asked since we went into the bankruptcy, probably a hundred times, ‘When are you going to start paying back the taxpayer?' he said. “The answer is, ‘Now.' "

This month, the Government Accountability Office said it didn't think GM would become profitable enough for the government to recoup its investment. But Henderson said that outcome will depend on the performance of GM's stock after an initial public offering.

“I'm accountable for results. We're accountable for results. And it's my mission to disprove the GAO, to create value in the company," he said. “The value of the stock is driven by how management performs.”

GM could alter its loan repayment schedule to accommodate its plans for an initial public offering, Henderson said. The company aims to be ready for an IPO by the second half of next year, he said. But the condition of capital markets, the auto industry and GM's finances will determine when the company actually goes public.

The $6.7 billion in senior debt to the U.S. Treasury Department is only a small portion of the $50 billion in aid provided to GM. Much of this was converted into a 61 percent equity stake, making Treasury GM's largest shareholder.

GM today pegged its total debt as of Sept. 30 at $17 billion, counting a combined $9.4 billion from the three governments and other debt amounting to $7.6 billion. The figures don't include more than $12 billion in debt related to preferred stock and a union retiree health care trust fund.

International funds

Addressing concerns that GM may use some of its U.S. loan to fund operations outside the country, Henderson said the automaker is a global company.

“In order to run as a global company, you need to be able to move funds around the world,” he said.

European operations lost a little more than $400 million from July 10 to Sept. 30, Henderson said, but earnings in the other regions of the world gave GM's international unit an overall profit of $238 million before interest and taxes. By contrast, GM's North American operations lost $651 million.

This month the automaker said it would keep its European Opel operations rather than complete a sale of a majority stake of the unit to a consortium led by Canadian supplier Magna International Inc.

The search for a CEO for Opel will take “months, not weeks,” Henderson said. “My guess is that 30, 40 percent of the time our board has met, it's been about Europe.”

GM predicted fourth-quarter global demand will slip about 2 million units from last quarter to an annual rate of 65.4 million units.

The automaker said the seasonally adjusted annual rate for total U.S. vehicle sales will be 10.7 million in the last three months of this year. GM said adjusted demand averaged 11.7 million units in the third quarter, buoyed by the federal government's cash-for-clunkers program. Annual light-vehicle sales are typically 200,000 to 300,000 below total vehicle sales.

The U.S. sales rate will be about the same in November as it was last month, Henderson said. October's light-vehicle sales rate was 11.2 million units, according to the Automotive News Data Center.

In October, GM's U.S. sales rose 5 percent for their first year-over-year gain since January 2008. For the year, GM sales are down 34 percent.

In 2010, global sales will total 62 million to 65 million units. In the United States, total vehicle sales will hit 11 million to 12 million. That's down from 13.2 million in light-vehicle sales last year and 16.2 million in 2007.

In discussing cost-cutting actions GM has made to operate in a slimmer sales environment, Henderson said GM has completed its planned white-collar job cuts and will start 2010 with about 23,800 salaried employees.

Reuters contributed to this report

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