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GM adds output pledge to stock deal

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GM adds output pledge to stock deal

Automaker estimates 1.8M vehicles this year, 1.93M in 2011

David Welch and Craig Trudell / Bloomberg News

General Motors Co. says its pledge to maintain certain levels of vehicle production in the U.S. remains in effect through 2014, or until the government has recovered all $49.5 billion it invested in the automaker.

GM had proposed making 1.8 million cars and trucks in the U.S. this year with output rising to 2.26 million in 2014.

It pledges to make at least 90 percent as many vehicles in the U.S. as planned as long as it is commercially reasonable.

The repayment condition was added to GM's registration statement for an initial stock offering in an amendment this week.

The agreement between the Detroit-based automaker and the Treasury Department underscores the balancing act between the government's aim of preserving jobs and the automakers need to make a profit.

"GM is probably able to reach the targets because it has been adding shifts and production for new models," said Joe Phillippi, principal of AutoTrends Inc., a consulting firm based in Short Hills, N.J.

"I suspect the government wants out by the end of 2012 at the absolute latest," said Phillippi. He added that the U.S. may not be able to enforce the agreement if it has sold all its shares.

For the U.S. Treasury to recoup its investment in GM, it needs to sell at an average price, before splits, of $131 a share, a person familiar with the matter said last month.

The stock will be split to sell at an initial price of around $20 a share, said that person and two others.

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, put the break-even figure at $133.78, before splits.

While the U.S. bailout was paid for with TARP money, only a portion of the government's stake will be sold in the initial offering.

The automaker's projected U.S. manufacturing levels include targets of 1.93 million for 2011, 1.998 million for 2012 and 2.16 million for 2013.

The production commitment is absent a material adverse change in its business or operating environment that would make the target non-economic, GM said.

The Treasury Department can appoint someone at GM's expense to monitor whether the automaker is being compliant should the company fail to meet the covenants, the filing said.

From The Detroit News: http://detnews.com/article/20101028/AUTO01/10280353/1148/GM-adds-output-pledge-to-stock-deal#ixzz13f75Ikin

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