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GM readies major product push in emerging markets as IPO nears

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GM readies major product push in emerging markets as IPO nears

Staff and wire reports June 29, 2010 - 12:01 am ET

DETROIT -- General Motors Co. -- laying the foundation for an initial public offering as early as this fall -- told analysts today it will introduce 70 new or upgraded models in international markets by 2014.

New product launches and robust demand in emerging markets are crucial to the automaker's growth, GM executives said.

Nearly half of the growth in global automotive sales through 2014 will come in Brazil, Russia, India and China, analysts forecast. Those markets accounted for 74 percent of GM's sales last year.

And in the first quarter, international markets accounted for 52 percent of GM's sales volume.

"Nobody can top our position in the world," GM Chairman Ed Whitacre told analysts. "And we are maintaining a balance sheet that supports and grows the business rather than constrains it."

GM is on track this year to be the first automaker to sell more than 2 million vehicles in China, now the world's biggest market, said Tim Lee, head of GM's international operations.

Chinese new vehicle sales will rise 20 percent this year to 16.5 million.

North America update

Mark Reuss, head of GM North America, said the company is now selling more vehicles in the U.S.market -- with four fewer brands -- than last year. Average transaction prices have climbed by $3,000 a vehicle, and average discounts have dropped by $1,200, reflecting reduced inventories and GM's lower cost structure following its emergence from bankruptcy last year, he said.

"Our plants are running at a healthy 85 percent of capacity and our beak-even point is near record lows," Reuss said.

The automaker's biggest challenge in North America, Reuss said, is rationalizing and retooling dealerships.

"Customer service is key," said Reuss. "We haven't spent much time on this - creating "wow" moments for consumers and regaining customer confidence."

GM's planned public stock sale is likely to leave the U.S. government with a minority stake while also raising new funds for the automaker, people briefed on the still-developing plans said.

The U.S. Treasury, which owns 60.8 percent of GM stock as a result of its $50 billion bailout last year, aims to sell about 20 percent of its holdings as part of the stock sale, two sources with knowledge of the preparations said.

That would leave the U.S. government with a 49 percent stake before accounting for the further dilution from new GM share issuance.

GM is considering issuing new capital in the stock offering, chipping away at the one liability on its balance sheet that the government-funded restructuring failed to address: a $27 billion shortfall in its pension funding, the sources said.

The retiree health-care trust, affiliated with the UAW but administered independently, also plans to sell part of its 17.5 percent stake in GM to raise cash and diversify its portfolio, the sources said. The health-care trust is the No. 2 GM shareholder after the U.S. Treasury.

The sources asked not to be named because they were not authorized to discuss the confidential negotiations and no final decisions have been made.

The sources could not detail plans for the two smaller GM shareholders. The governments of Canada and Ontario own 11.7 percent of GM, while bondholders in the Old GM, now known as Motors Liquidation Co., have 10 percent.

Beyond the balance sheet

At today's presentation, GM underscored how a stronger balance sheet emerging from bankruptcy has made it possible to break even despite sharply lower U.S. sales, and how it plans to address remaining issues, like funding the restructuring of its money-losing European unit Opel.

In Europe, GM plans to break even by 2011, executives said.

Mirko Mikelic, a fixed income portfolio manager at Fifth Third Bank in Grand Rapids, Mich., said he sees a risk of a return to recession in the United States.

"There's concern about a double dip out there," said Mikelic. "That's probably the biggest thing that's weighing over GM coming to the market because that's going to keep (auto sales) down for another year or two," he said.

Industry-wide U.S. sales have stabilized in the first half of the year above 11 million units on an annualized basis but have failed to show signs of the recovery that automakers, including GM, had expected to see.

Reuss acknowledged there was some "volatility" in the U.S. market now.

"It's going to be a delicate recovery," he said.

Whitacre has been focused on changing the way GM executives operate. He wants faster, simpler processes and decision-making.

"When I arrived a year ago I found a shell-shocked GM," Whitacre said today. "GM was a company constrained in attitude and action, and struggling to find a new business model."

"We are a new and different company than 12 months ago," he said. "We have a clear and simple vision at GM. We have a new management team that gets it… most importantly, we're making money."

GM generated a first-quarter profit of $865 million.

Reforming GM's bureaucratic decision-making and shaking up its product development were top priorities for GM even under former CEO Fritz Henderson, who steered the automaker through bankruptcy before being ousted in December.

GM executives say that process has accelerated under Whitacre.

Whitacre, in his push to simplify and flatten decision-making, put Reuss, president of North American operations, in charge of turning around U.S. operations.

Who's in charge?

Whitacre, who still commutes back to his home in Texas on weekends, was initially frustrated by the way GM's reporting lines and responsibilities were tangled, particularly in vehicle development and marketing.

"He wants to be able to say, who's in charge of this, and to point to that person," one aide said.

Other GM executives, including Vice Chairman Tom Stephens, say the radically simpler mission statement credited to Whitacre -- "Design, build and sell the world's best vehicles" -- has the automaker's engineers motivated to do better with launches still in the pipeline.

Karl Stracke, vice president of global vehicle engineering, said: "The real change came along when Ed Whitacre said, 'Guys, what is important in this company?' And he said the product is the most important. So, now, there are no financial people in the middle of everything anymore."

U.S. sales for the first five months of 2010 showed a 15 percent gain for GM, a better percentage of growth than the top two Japanese rivals, recall-restrained Toyota Motor Corp. at 10.5 percent and Honda Motor Co. at 13 percent. The overall U.S. market rose 17 percent.

A stock listing could allow GM to start to rebuild consumer confidence in brands tarnished by years of quality missteps and criticism that it became "Government Motors," analysts said.

A successful GM IPO would also represent an important political win for the Obama administration, which engineered bailouts for both GM and its smaller rival Chrysler in 2009 in the face of Republican criticism and public opposition.

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20100629/OEM/306289907/1216#ixzz0sHPfv9un

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