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Reborn GM plans to repay loan, offer stock soon

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Reborn GM plans to repay loan, offer stock soon

BY TIM HIGGINS

FREE PRESS BUSINESS WRITER

New financial numbers by General Motors show the company is moving closer to breaking even, giving greater credibility to claims that the Detroit automaker could see an operating profit this year.

GM said Wednesday that it lost $4.3 billion after leaving bankruptcy July 10 through the end of 2009.

But most of GM's losses during the period were caused by one-time expenses, such as $2.6 billion for the UAW's retiree health care trust.

Absent those costs, GM posted an operating loss of $600 million during the last three months of 2009, GM Chief Financial Officer Chris Liddell said. It also generated $1 billion more than it spent operating after emerging from bankruptcy.

"It's getting close to breakeven," Liddell said.

That's encouraging to some experts, and suggests GM is making progress toward becoming a publicly traded company again. Said Joseph Phillippi, a veteran industry consultant: "There's no question that they're on track."

Liddell reiterated that GM has a chance at profitability this year "at least at the operating level."

"There's nothing in the first quarter ... that changes my opinion," he said.

"General Motors should never be in the financial position it found itself in last year," Liddell added.

The company's 2009 annual report uses fresh-start accounting, essentially wiping GM's books clean after its bankruptcy reorganization last summer and starting over.

"This was a major undertaking ... and our first step in preparing to take GM public," GM Chief Accounting Officer Nick Cyprus said.

GM's bankruptcy reorganization reduced liabilities by $83 billion. Under the new accounting, GM's property, plan and equipment were valued at $19 billion -- an $18-billion reduction.

GM has paid back $2.8 billion of its loans from the U.S. Treasury and Canadian government. The outstanding balances -- a total of $5.6 billion -- will be repaid by June at the latest, GM reiterated.

But U.S. taxpayers' real payoff for the nearly $50 billion pumped into the automaker will come when GM goes public again and the government sells its shares in the company.

"I know there's a huge interest in when that might actually be, and the best I can indicate is: when the markets and the company are ready," Liddell told analysts and reporters.

A chance for profitability

Based on GM's turnaround plan from May 31, GM financial advisers estimated in a presentation to GM's board of directors that the new GM would lose $1.3 billion before taxes this year and make $3 billion before taxes in 2011.

Those projections say that GM will make $1.6 billion in 2010 on an operating basis, also known as earnings before interest and taxes.

From July 10 to Dec. 31, 2009, GM lost $4.3 billion on $5.7 billion in revenue.

A big chunk of those losses include $2.6 billion spent on the UAW's retiree health care trust and $1.3 billion from foreign currencies being measured differently.

"Despite the results that you've seen for the fourth quarter, I believe we have a chance of achieving profitability this year, at least at the operating level," Liddell said. "This is a long way from the results that we're showing for last year but reflects the progress that we intend to make in the marketplace and on our cost structure."

GM said it ended 2009 with $36.2 billion in cash and marketable securities, dramatically better than at the end of 2008, when GM had just $14.2 billion on hand, thanks to U.S. government loans.

Fresh start pays off

Last November, GM gave third-quarter results under a different accounting system. At the time, it said it lost $1.2 billion in the quarter after emerging from bankruptcy and ended the period with $42.6 billion in cash.

On an earnings basis before interest and taxes, GM lost $4 billion during the fourth quarter under its fresh-start accounting.

The bulk of those losses, $3.4 billion, occurred in GM's North American operations for the United States, Canada and Mexico, while GM's international operations, which include China, was a bright spot, posting earnings of $738 million.

As expected, GM's operating cash fell $1.9 billion during the fourth quarter.

It's hard to compare GM's results with previous years because of the accounting changes.

"I kind of think the historical results don't mean that much. ... It's a whole new company, so it's kind of like the Tigers' record last year," said Van Conway, a restructuring expert.

In 2008, GM lost $30.9 billion. During that year's third and fourth quarters, the automaker lost $12.1 billion.

The losses came as GM was marching on a path that ultimately led to a government-backed bankruptcy reorganization that lasted 40 days last summer.

The automaker has been working since to implement a turnaround plan that is supposed to allow the company to break even in a U.S. sales market of just 10 million vehicles.

Through the first quarter of 2010, GM's sales have increased by 16.8%, but the gains come after GM's sales dropped 29.9% in 2009.

link:

http://www.freep.com/apps/pbcs.dll/article?AID=/20100408/BUSINESS01/4080391/1331/&template=fullarticle

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