GM, free of government control, underscores auto industry comeback

Bloomberg NewsNovember 21, 2013 


A worker inspects a 2014 Chevrolet Corvette Stingray at General Motors’ Bowling Green Assembly Plant in Kentucky.


— A profitable General Motors is poised to shake off a half decade of U.S. government oversight next month, gaining leeway over a $26.8 billion cash pile that it can use to lure talent while weighing a dividend.

The U.S. Treasury Department said Thursday that it expects to sell its remaining 31.1 million GM common shares by year-end, depending on market conditions. The exit would end restrictions on pay for top executives that the largest U.S. automaker has complained hampered recruiting.

The government exit outlook underscores the resurgence of the U.S. auto industry, which was in collapse in 2008 before a bailout from the administrations of George W. Bush and Barack Obama kept GM and Chrysler afloat. Auto sales are headed for the best year since 2007, and GM, Chrysler and Ford, which didn’t get a bailout, are profitable again.

“The first step will probably be a dividend,” said Michelle Krebs, an analyst at auto researcher “That will be a significant move toward normalcy as they become a truly publicly traded company. They’ll also be able to pay executives more money, which has been a constant complaint.”

With government loans repaid and the Treasury out of GM, “people will feel really good about the company,” Mark Reuss, the Detroit-based automaker’s president for North America, told reporters Wednesday at the Los Angeles Auto Show. “It will help our sales when it goes.”

The end of the pay restrictions may also mean GM has the flexibility to look outside of the company for a replacement for Chief Executive Officer Dan Akerson as he nears retirement, said Krebs, who is based in Southfield, Mich. The CEO turned 65 last month.

Dividend could return

The U.S. government’s GM share stake has fallen to about 2.2 percent, with the Treasury’s statement Thursday that it had completed the sale of 70.2 million GM shares under a third previously announced plan.

“If average daily trading volumes continue at recent levels, Treasury anticipates that it will complete the sale of its remaining shares by the end of the year,” according to the statement.

Through the end of October, the U.S. had recovered $37.2 billion of the $51 billion it spent to bail out and restructure GM, the Treasury said in a November report to Congress.

“While the U.S. Treasury’s equity stake draws to a close, our work to transform GM continues,” GM said in an emailed statement Thursday. “We’re making great progress in our efforts to make the most of this second chance by building outstanding cars and trucks, creating jobs and reinvesting in our country.”

The Canadian government still owns 7.9 percent of GM, and a United Auto Workers health care trust has 10 percent, according to data compiled by Bloomberg. GM doesn’t face any governance restrictions on pay or other activities from those holdings.

The new freedom “could allow GM’s management to return capital to shareholders in early 2014,” Joseph Amaturo, an analyst at New York-based Buckingham Research Group, said Thursday in a note to clients. He said that an 80 cents-a-share annual dividend is a possibility, and that a payout of that amount would cost GM about $1.2 billion a year.

GM’s last quarterly common dividend was in May 2008, said Dave Roman, a company spokesman.

Rescue was a flashpoint

The wind-down of the U.S. stake in GM would bring to an end a linchpin of the government’s Troubled Asset Relief Program. The auto industry’s revival was a flashpoint during last year’s presidential campaign, and Obama turned the issue against Republican candidate Mitt Romney to help win the key states of Ohio and Michigan.

The rescue saved 1.14 million jobs in 2009 at automakers and companies that depend on the industry, according to Center for Automotive Research in Ann Arbor, Mich. A collapse would have cut $96.5 billion in personal income in 2009 and 2010, and it also would have cost the federal government $28.6 billion in extra jobless benefits and reduced Social Security contributions and income taxes in those years, the center said.

GM said it has invested $8.8 billion in U.S. facilities since 2009 and created 25,500 jobs for new and existing workers.

In the Treasury statement Thursday, Deputy Assistant Secretary Tim Bowler said that “all three American automakers are now profitable” and “more than 340,000 new auto jobs have been created since GM and Chrysler emerged from bankruptcy in 2009.”

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