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GM makes Wall Street sales pitch

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GM makes Wall Street sales pitch

Carmaker ripe for overseas growth, key execs tell analysts

Robert Snell / The Detroit News

A parade of General Motors Co. executives put the hard sell on bankers and financial analysts Tuesday, promising they'll continue to make money, as the company heads toward its initial public stock sale.

At a meeting with some 200 invited guests at its Warren Tech Center, GM executives talked about global growth opportunities and their product plans. They cautioned investors about future market volatility. And they emphasized positive changes in the "new" GM that emerged from bankruptcy last summer.

But GM made no mention of the event in its short-term future that prompted the gathering: an initial public stock offering that is expected to end the government's majority stake and begin to repay taxpayers for their bailout of the automaker.

Analysts left the meeting encouraged that GM has a clear product plan targeting growth in emerging markets, and financial discipline after years of mismanagement.

And they were optimistic that the initial public offering, perhaps this fall, will be successful.

"This will be a hot deal," said Maryann Keller, an auto analyst and head of Maryann Keller & Associates in Stamford, Conn.

She praised Chief Financial Officer Chris Liddell's straight-forward presentation of GM's financial situation, which she said should breed confidence among investors.

"You always like to have a sense there is a firm hand on the tiller. When you look back on past GM CFOs, that often wasn't the impression," Keller said.

"They were glib. Even when the world was coming to an end, they never admitted it."

GM executives spotlighted several key trends emerging in the past year: increased prices for new vehicles, a higher market share for their remaining four brands and a reduction in retail incentives -- all of which boost the company's bottom line.

But talk of an initial public offering, and timing, was off limits.

GM said at the start of the six-hour business meeting that it would not discuss the IPO or take questions about the stock offering. The media, barred from attending the meeting, were allowed to listen via phone and webcast.

An initial public stock offering would be the government's first step toward selling its ownership stake.

GM stock could be offered as early as October, and raise $20 billion as the U.S. Treasury Department divests 20 percent, or more, of its 61 percent stake in the company. The automaker still is working on its stock registration.

Executives assessed

Tuesday's meeting gave Wall Street insiders a chance to assess three GM executives in crucial, and new, positions: Liddell; Vice Chairman of Global Product Operations Tom Stephens; and GM North American President Mark Reuss.

"Those are the three really key guys who are going to drive revenue and the bottom line," said auto analyst Joe Phillippi of AutoTrends Consulting in Short Hills, N.J.

"This gave (Wall Street analysts) a chance to take the measure of key guys who are probably more important" than Chairman and Chief Executive Ed Whitacre.

The meeting also was a primer of sorts on GM's global operations and included details on the restructuring of its struggling Europe unit, with an eye toward breaking even in 2011.

While GM shed billions in debt and obligations through bankruptcy, the automaker is carrying $42.2 billion in debt and pension obligations. Liddell's goal is to boost GM's $30 billion in cash, fully fund its pension obligations, and slash remaining debt.

GM's pension plans cover about 650,000 people and are underfunded by $13.6 billion, according to a government report.

"Every spare dollar will be put toward that use over the next few years," Liddell said.

Growth in overseas markets could help.

GM expects that 45 percent of the auto industry's growth through 2014 will come from four countries: Brazil, Russia, India and China. It will launch 70 new vehicles internationally between now and 2014, to feed demand in those emerging markets.

In the U.S., GM forecasts the auto industry will grow by 45 percent by 2014, with sales on an annualized basis to rise from 12 million to 17.5 million by then.

Market share still 'flat'

Among the automaker's other selling points to analysts and potential investors:

• It has slashed the amount of cash incentives on each vehicle since last year from almost $4,700 to $3,230.

• The U.S. market share of Chevrolet, Buick, GMC and Cadillac has risen from 15.4 percent in the first quarter of 2009 to 19.2 percent this spring.

But GM's overall market share, which includes sales of discontinued brands remains "flat," Liddell conceded.

• GM's average transaction prices have climbed $3,300 from a year ago, more than double the industry average.

• Through May, sales of GM's four core brands were up 31 percent, a jump of almost 207,000 vehicles from a year earlier, which is nearly double the volume lost by shedding Hummer, Saturn, Saab and Pontiac.

But GM cautioned against counting on steady gains, given increased competition, a fragmenting auto industry and volatility in financial markets and the global economy.

"The message we all need to understand is the next 10 years will be tougher than the last 10," Vice Chairman Steve Girsky said. "And the last 10 were pretty tough."

From The Detroit News: http://www.detnews.com/article/20100630/AUTO01/6300354/1148/GM-makes-Wall-Street-sales-pitch#ixzz0sLTWv64Z

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Execs tell Wall St. General Motors ready to thrive

Wall St. also gets numbers on turnaround



As it prepares to go public again after its historic bankruptcy last year, the new General Motors is portraying itself as a growing powerhouse in a crucial emerging market, noting that it expects to be the first automaker to sell more than 2 million cars in a year in China.

In the U.S. -- GM's challenging home market -- the automaker long known for its trucks is trying to position itself as a leader in reducing oil dependency, with cars such as the electric Chevy Volt and compact Chevy Cruze.

The shifting market for gasoline-powered cars will make the next decade even more challenging for GM, said Stephen Girsky, GM vice chairman for corporate strategy.

"Fuel economy standards are likely to dry up traditional sources of profit and revenue," he said. "Selling more trucks will not be enough in the future."

Speaking Tuesday to a group of Wall Street analysts at the GM Warren Technical Center, CEO Ed Whitacre and other executives laid the groundwork for GM's public stock offering expected later this year -- painting a picture of a GM that has broken with its past and is positioned to make money.

Whitacre said the new GM is not the same "shell-shocked ... overly complicated" automaker that emerged from bankruptcy. "Today we're selling more vehicles with four brands than we did a year ago with eight brands."

Whether analysts believe that could be critical to GM's public stock offering.

Fresh voices, ideas make new GM's point

General Motors has largely convinced industry observers of its leadership in the expanding markets of China, Brazil and Russia, so Tuesday it wanted to show how it's behaving differently at home.

Earlier this month, after Detroit Tigers pitcher Armando Galarraga pitched a near-perfect game, blemished by an umpire's mistake on the potential last out, Mark Reuss, GM North American president, decided to give Galarraga a new Chevrolet Corvette the next day.

"In the old GM, that would have gone through three committees," Steve Girsky, vice chairman for corporate strategy, told a group of Wall Street analysts in Warren on Tuesday for a special GM business briefing. "Mark went to the game, thought the guy got stiffed and he just thought he deserved a new car."

Voices of newcomers such as Girsky, who spent 20 years as a Wall Street analyst, and new Chief Financial Officer Chris Liddell, who came from Microsoft, will be key to convincing investors that GM has transformed itself.

At least a third of the top 40 executives are new to the company or in new positions.

"That gives us the ability to ask the basic stupid question that hasn't been asked in the last 30 years," Girsky said.

But even those who have built their careers at GM are talking in fresher ways.

"Today, we are 96% dependent on petroleum and you can't have sustainable transportation in the long term if you have that kind of dependency," said Tom Stephens, vice chairman for global product operations. "We are working to make sure we use electricity as well as hydrogen."

To the automaker's credit, some of the changes are measurable. For example, GM earned $1.2 billion before taxes in North America in the first three months of 2010.

Part of the reason is stricter control of production. That has resulted in GM cutting its inventory of unsold vehicles in half to 400,000 in the U.S. from about 800,000 a year ago.

"We are (selling new vehicles) at about $3,000 more per vehicle than a year ago," Reuss said. "Incentives are about $1,200 lower than a year ago."

Girsky tempered the mostly upbeat presentation to analysts by warning that "the next 10 years is going to be tougher than the last 10 years."

While many industries, such as airlines, are experiencing consolidation through mergers and acquisitions, the auto industry is fragmenting.

Girsky talked about a recent meeting he had with executives from Fisker Automotive, a start-up manufacturer of luxury plug-in hybrid cars that recently bought a former GM assembly plant in Wilmington, Del.

"They said they planned on putting GM out of business," Girsky said. "They told me, 'We're going to take the best of what you do and keep it, and take the worst of what you do and leave it behind.' "

CFO Liddell told analysts that the new GM plans to be profitable at the bottom of future economic cycles, an accomplishment that has eluded even the most revered automakers such as Toyota.

The changes in the U.S. will not divert GM from building on its expansion in China, which surpassed the U.S. last year as the world's largest new vehicle market. With Chinese consumers expected to buy about 16.5 million new cars this year, up from 13.7 million last year, GM likely will be the first automaker to sell more than 2 million vehicles in a year.

GM's weakest region is Europe, where it lost $500 million before taxes and interest payments in the first quarter. Last month, the automaker reached an agreement with governments and unions in Germany and the United Kingdom that will save more than $330 million annually by eliminating about 8,300 jobs. Even with those cost reductions, GM Europe is not expected to be profitable until 2011.



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