November 19, 2010. Copyright 2010, Graphic News. All rights reserved

GM heading back into private hands after U.S. sells shares
By Neil Winton

LONDON, Nov 19, Graphic News: General Motors, which was the world's biggest car manufacturer until it plunged into bankruptcy, is heading back into private hands after the U.S. government sold some of its shares back to the public.

Investors believed that the new GM's prospects were impressive enough to ward off fears about its loss-making European subsidiary.

The U.S. government now owns 33 percent of GM, after selling off 28 percent of its shares. The Canadian Government now also owns about 10 percent and the United Auto Workers union has a small stake.

GM has had a successful 2010, reporting an EBIT (earnings before interest and tax) profit margin of 6.7 percent in the third quarter.

Rating services company Standard & Poors (S&P) reckons that the sale of shares was well timed because it will be difficult for the company to improve much on this level of profitability in the near term.

One big problem remaining for GM to solve is the fate of its ailing European subsidiary, which makes Opels and Vauxhalls. In the first nine months of 2010 GM Europe lost more than $1.2 billion. GM Europe CEO Nick Reilly has said he hopes net profit will reach four to five percent of sales in 2012, but said this might take until 2013 to attain. Break-even is all that can be hoped for in 2011.

The new Opel/Vauxhall Astra has failed to make much market impact. GM Europe has said it plans to spend $4.6 billion restructuring, which involves cutting 8,300 jobs from the 48,000 workforce.

Some experts worried that the sale of GM shares would lead to competitors and foreign governments buying strategic stakes in GM, with the risk of it giving up high technology secrets. In the event that didn't happen, with U.S. mutual funds emerging as the biggest buyers of shares. SAIC Motor, GM's joint-venture partner in China, bought a stake of just under one percent.

After GM collapsed under the pressure of its huge debts, it eliminated four brands - Saturn, Pontiac, Hummer and Saab - and retained Chevrolet, Buick, Cadillac and GMC. Chrysler also followed GM into bankruptcy, and was rescued by Fiat of Italy, which acquired a 20 percent stake. Ford managed to avoid the shame of financial failure, keeping its head above water by selling off its British luxury brands Jaguar, Land Rover and Aston Martin. Ford also dumped Volvo and shut down its U.S. brand Mercury.

According to S&P, GM should be able to sustain its return to profitability in North America, and could do well in growth markets like China and Brazil, where sales remain vibrant but potentially volatile. S&P had no comment on GM's potential European problems.

As well as the problems in GM Europe, GM still has $17.1 billion in unfunded pension requirements.

GM has been displaced from the number one spot by Toyota of Japan. Germany's VW is coming up fast on the rails and wants to be number one by 2018.
/ENDS