General Motors could turn a profit of as much as $13 billion a year, the maker is touting, as it begins the nonetheless challenging task of selling investors on its upcoming IPO.
Though the maker has yet to set a final date for the initial public offering, it is expected to take itself public again on November 18th, and has confirmed that it will offer its new shares for somewhere between $26 and $29 apiece. The sale is expected to reduce the U.S. government’s holdings in the company from 60.1% to around 40%, though it is being estimated that the Treasury could lose as much as $5.4 billion on the sale.
But both the automaker and government officials are hoping to not just sell out the anticipated offering of 365 million shares but build buzz that could drive demand for future stock sales – at a higher price.
And, with GM officials setting out to meet with potential investors, they are prepared to make some sweeping, upbeat forecasts.
“I know a great investment opportunity and the new GM is just that,” GM CEO Daniel Akerson said in an online video presentation. “We can make significant profit even in today’s difficult environment.”
The scenario he and senior colleagues outline is that of a largely debt-free GM that has sharply reduced labor costs and other expenses, resolved its quality issues, trimmed its long-bloated bureaucracy and developed a line of high-demand products.
Meanwhile, CFO Chris Liddell explained in the videos that margins of 7 to 8% are do-able, pushing pr-tax profits to $13 billion and above, especially if the industry returns to sales levels seen during the middle of the last economic cycle, which would mean somewhere in the 16 million to 17 million annual range.
In fact, pre-tax earnings, the CFO suggested, could reach $19 billion, with margins as high as 10%, at the next industry peak.
Tempering that forecast, however, were comments made by GM’s sales chief, Don Johnson, earlier this week. In response to a question from TheDetroitBureau.com, Johnson acknowledged that there is a “very realistic” possibility sales will not reach prior peaks during the next cycle. That reflects the fact that American buyers appear to be watching spending more carefully and, with vehicles more reliable than ever, may hold onto existing models longer than in the past. (Click Here for more.)
But even if the U.S. market doesn’t regain its former glory, GM still has plenty of opportunity to drive volumes, especially in emerging markets, such as China, where it became the first maker ever to sell more than 2 million vehicles in a single year, in October. (Click Here for more.) The maker has also agreed to expand its relationship with Chinese partner SAIC (Click Here for that story) in a bid to expand demand in other emerging markets, such as India. Overseas sales currently account for about two-thirds of GM unit volume, though for a smaller share of revenues.
And even at home, the maker could turn a sizable profit in a smaller market, company officials have emphasized, the reorganization plan created to pull GM out of bankruptcy projecting the maker could break even at volumes of as little as 10.5 million vehicles annually in the U.S.
With October industry sales climbing to their highest level of the year, GM has indicated it expects to turn a profit of up to $2.1 billion for the third quarter of 2010.
One thing that could help the company achieve its profit target is the fact that it will get carry-forwards from its losses, prior to the bankruptcy, that could amount to $45 billion. (Click Here to read more.)
With CEO Akerson planning to shuttle between them, two teams of senior GM executives, including CFO Liddell and Vice Chairman Steve Girsky, a former Wall Street analyst, will be meeting with potential investors, in the coming days, hoping to build demand for the IPO.
Tags: GM IPO, GM stock, Government Motors, auto news, car news, chris liddell, dan akerson, gm $13 billion profit, gm bailout, gm bankruptcy, gm earnings, gm news, gm profit, paul a. eisenstein, paul eisenstein, thedetroitbureau