GM will make a $1.2 billion payment to the US and Canada on its $6.7 billion senior note from the Treasury and Canadian government, probably in December. The $6.7 billion is the entire sum of money owed to the governments. Eighty-five percent of the money will be paid to the US with the balance going to Ottawa. The money given to GM beyond that $6.7 billion is an equity investment that will have to be paid by an IPO or private sale of GM or some of its assets.
GM also announced that it lost $1.2 billion in the third quarter and had an adjusted EBIT loss of only $261 million. GM had total debt of $17 billion at the end of the period.
GM still has to overcome low sales in the US and Europe. It has decided to keep its European operations including Vauxhall and Opel. It will turn to several EU governments to help fund a refinancing of these units, but some of the capital will almost certainly have to come from GM itself. That raises the uncomfortable question of why US taxpayer money is being sent overseas.
GM can thank two developments for its new-found if tenuous health. The first is the tremendous cost cutting the company did as it was shepparded through Chapter 11 by the Treasury Department. The second is the company’s remarkably successful business in China which is growing at a rate of over 60%. GM car unit sales in China last month almost matched those in the US. GM and VW are now the largest auto firms on the mainland.
GM will try to pay back the Treasury its entire senior note by 2011. That is ambitious. Some analysts expect almost no improvement in the American car market in 2010. They argue that unemployment is far too high for a rebound and that the “cash for clunkers” program pulled 2010 sales into this year.
The American taxpayer will get a small amount of the money he loaned GM back. An IPO of the auto maker is still the key to whether the entire sum is repaid.
Douglas A. McIntyre