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GM IPO Could Determine Future Electric Car Strategy Maker needs funds to invest in Volt follow-up effort

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GM IPO Could Determine Future Electric Car Strategy

Maker needs funds to invest in Volt follow-up effort.

by Paul A. Eisenstein on Oct.20, 2010

While GM has scuttled the Cadillac Converj project, the maker is working up a number of other possible battery car programs, insiders report.

Key decisions about General Motors’ long-term electric vehicle strategy could depend on the success – or failure – of the maker’s upcoming IPO.

Though the maker has yet to publicly define its plans, the initial public offering of the “new” GM’s stock is expected to raise billions of dollars in capital. A large chunk of that money is anticipated to go to help repay the federal government for its 2009 bailout of the then-bankrupt automaker. But billions more, observers believe, will be pumped into the corporate treasury, at least in part to help fund product development efforts.

Company officials, including new GM CEO Dan Akerson, have said that coming up with world-class product is essential to the corporation’s turnaround. But the electric vehicle program, in particular, could become particular crucial as the overall auto industry presses into what has been dubbed “electrification.”

The Chevy Volt concept is unveiled at the North American International Auto Show.

GM, this month, is formally launching its first battery-powered vehicle, the 2011 Chevrolet Volt. (Click Here for TheDetroitBureau.com’s review.) Initial reviews – and market feedback – have convinced the Detroit maker there’ll be enough demand to justify boosting production.

But other than a slightly modified version of the Volt, dubbed the Opel Ampera, which will be sold in Europe, China and some other overseas markets, GM has yet to say what will come next in its electric vehicle line-up. The only program the maker has commented on is the prototype Cadillac Converj, a high-end version of Volt that was previewed at the 2009 Detroit Auto Show. After initially considering a production model GM cancelled the project due its financial problems, last year.

At a media preview of the 2011 Volt, this week, several senior executives told TheDetroitBureau.com that further work based on the car’s so-called “Voltec” platform “is moving ahead.” But the insiders declined to provide any specific details of future models that might be under development.

That may be because no further program has been given the green light, an extremely well-placed GM source tells TheDetroitBureau.com, asking for anonymity because of his ranking position in the company.

“Watch to see how well the IPO does,” he said, suggesting that GM hopes to raise enough to justify expanding its battery car efforts.

That comment was confirmed by an additional General Motors source and is in line with comments by CEO Akerson who, during a media breakfast last month, hinted that he will soon have to decide on how to proceed with the corporate battery car program.

There is clear interest in expanding those efforts, especially in light of where competitors like Nissan – which is just launching its 2011 Leaf battery-electric vehicle – are going. The electrification effort is one reason, said Akerson, that GM “will be very different five, 10 years from now.”

“They have to ramp up their spending,” said auto analyst Joe Phillippi, of AutoTrends Consulting.

Phillippi said that making money on the IPO would definitely be a plus, though, “I think they will scrounge and scrape” to get the money needed to fund battery car development.

While GM has filed the preliminary paperwork with the Securities and Exchange Commission needed to set its IPO into motion, it has yet to provide the final details of the stock sale. The maker is expected to stage the event late next month and, in a surprise move, outgoing Chairman Ed Whitacre last week suggested that GM could price its new shares at $20 to $25. That would reflect an apparent four-to-one split that would make it easier on investors to swallow large chunks.

Much, and indeed, perhaps most, of the stock to be offered under the IPO will come out of the holdings of the U.S., Canadian and Ontario governments. The American Treasury currently holds a 61% stake in the giant maker and hopes to recover the $50 billion invested in the bailout.

But Akerson has cautioned that not all the government’s holdings will be sold off “in one fell swoop.”

It remains to be seen if GM will add some new common equity of its own to the stock sale, though it will sell off enough preferred stock – for which it will receive the proceeds directly – to raise an estimated $2 billion to $3 billion, said Phillippi.

And while there has been much talk about focusing the sale in the American market, Phillippi counters that, “This will be an all-out global effort. Anybody, anywhere in the world who wants to jump in will be welcome.”

The automaker’s Chinese affiliate, SAIC, has strongly hinted it will buy some GM equity (Click Here for that story), and it is being reported that investors in the Middle East are being courted, as well.

Sources close to SAIC have suggested that the domestic Chinese maker will look to receive access to some of GM’s battery car know-how in return for any investment in the IPO.



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