General Motors CEO Fritz HendersonREBECCA COOK
General Motors Co. has promised to begin paying back part of the bailout money provided by the federal and Ontario governments, but taxpayers are unlikely to get all their money back unless the auto maker's market capitalization hits a level it has never reached.
GM will repay $1.54-billion (U.S.) of the $9.5-billion it borrowed from the two governments by making eight quarterly payments of $192-million starting next month, company officials said Monday as they revealed the first financial results for GM since it emerged from Chapter 11 bankruptcy protection on July 10.
Repaying U.S. and Canadian taxpayers is "a personal commitment," said GM chief executive officer Fritz Henderson. GM will first repay the $1.54-billion directly.
But the longer-term payback plan involves GM becoming a widely held public company again, allowing governments to monetize their shareholdings.
The U.S. and Canadian governments hold 72.5 per cent of the common shares: 11.7 per cent of those are owned by the federal and Ontario governments.
Ottawa and Ontario also hold about $400-million worth of preferred shares.
The governments would need to receive about $7.6-billion from the proceeds of a GM initial public offering if they are to be repaid all the $9.5-billion they provided to the company.
But the total equity value of GM must amount to more than $66-billion if all governments are to be repaid in full, according to an analysis by the U.S. government's Government Accountability Office (GAO). That value could be a tall order for GM; the GAO study showed GM's market capitalization peaked at $57-billion in 2000.
"It is my mission to disprove the GAO," Mr. Henderson declared, "to create value in the company, generate results in the company so in fact the taxpayers can get a return on the investment." GM is preparing for an IPO in the second half of next year, he added.
The federal government still hopes to be repaid in full, despite Prime Minister Stephen Harper's comments in June that Ottawa was not counting on getting money back from the sale of the equity stake.
It could take eight years to unwind the equity position, but Ottawa will move as quickly as possible, while still aiming to maximize its return. Other opinions suggest governments could be repaid if GM's market capitalization hits $57-billion.
"We are not in the auto business for the long term," a senior official said Monday. "We expect to see taxpayers' dollars returned to the government."
GM added that it contributed $4-billion to its Canadian pension plans to restore them to health, confirming filings it made with Ontario pension regulators in September.
The announcement of the loan payback came as the auto maker reported that revenue and market share rose, structural costs fell and billions of dollars of debt were wiped out.
But one thing did not change - the company lost money in the equivalent of the third quarter.
The results are "certainly better than our plan going into bankruptcy, but nevertheless it is a loss and you cannot be satisfied with it," Mr. Henderson told reporters.
GM lost $1.2-billion in the period July 10-Sept. 30, which was better than an expected loss of $4.2-billion was forecast with its bankruptcy filing. Results were better than expected in North America, although GM is still losing money in its home market. It lost $651-million before interest and taxes. It also posted a loss in Europe, another troubled market where it is trying to restructure its key Adam Opel GmbH division.
Profits in Latin America and the Asia-Pacific region, which includes China, did not offset losses in North America and Europe. Asia-Pacific operations registered $429-million in earnings before interest and taxes.
A full comeback for GM depends, however, on vehicle markets improving around the world, particularly in North America and Europe. GM also needs to roll out more hit vehicles that replicate the success of such Canadian-made vehicles as the Chevrolet Camaro and Equinox and GMC Terrain, while executing a successful restructuring of Opel.
"We need at least another year of consistently improving results" before assessing whether GM can return to full health, said industry analyst Bill Pochiluk, president of consulting firm AutomotiveCompass LLC.