Bankers eye next big GM sale: $4 billion in assets

Automotive News | July 16, 2008 - 9:38 am EST

DETROIT (Reuters) — As General Motors struggles to sell cars in a deeply depressed U.S. market, a more important sale is shaping up for its bankers: finding buyers for up to $4 billion in assets.

GM is already entertaining offers on its military-inspired Hummer SUV brand, a sale analysts expect will bring in less than a billion dollars.

But in announcing a sweeping restructuring plan on Tuesday, GM also kicked off a process of shopping around other assets — and possibly other brands — as it looks to shore up its cash position through 2009.

GM plans cut costs, borrow and sell assets to add about $15 billion to liquidity and support a restructuring made even more urgent by a decisive shift in demand to smaller vehicles and away from large trucks and SUVs due to soaring gas prices.

Industry-wide, U.S. auto sales have fallen to the lowest levels in more than a decade amid a weak U.S. economy and high gas prices, and car companies have begun to factor in the possibility sales will see little improvement through 2009.

The Saturn and Saab brands could be divested, although with the U.S. auto industry in a tailspin and with GM having announced a need to raise capital by selling assets, the few willing buyers will likely make low-ball offers, bankers said.

Other assets GM could sell include its OnStar vehicle communications system, or it could sell more of its remaining minority stake in GMAC to Cerberus Capital Management LP, which acquired the majority stake, bankers said.

"We believe that we can raise significantly liquidity, $2 billion to $4 billion from asset sales without impacting the strategic direction of the company," GM CEO Rick Wagoner told reporters.

Wagoner said GM could not sit back and wait for conditions to improve. The automaker’s U.S. sales were down about 16 percent in the first half of 2008 and industry conditions have deteriorated rapidly in recent months.

"I don’t want to get more specific than the discussion we have had on Hummer so far," Wagoner said. "We are pursuing them expeditiously, but obviously the timing is going to be driven in part by market conditions and the way that interested parties are going to react."

Saturn will likely be the next brand to go — its own independent dealer network makes it an attractive asset for an overseas buyer looking to gain a foothold in the United States, two bankers said.

"While the sale is good because they have too many brands and they need the capital, it’s also bad because it empowers another competitor in the U.S. market," one banker said of a possible Saturn divestment in a saturated industry.

GM also could have difficulties marketing its Swedish brand Saab. As a niche brand, Saab lacks the broad sales volume of a mass-market brand, but also lacks premium luxury positioning, one banker said.

Saturn and Saab account for a small fraction of overall U.S. light vehicle sales — with Saab at less than 1 percent and Saturn at 1.4 percent.

"It is noteworthy that asset sales may be as dependent on capital market conditions as secured debt as the entity making the acquisition might require access to the markets, as well," Calyon Securities analyst Mark Warnsman said in a note.

Those difficult conditions got decidedly more hostile in recent weeks, effectively limiting GM to a borrowing of $2 billion to $3 billion, President and Chief Operating Officer Fritz Henderson told reporters.

Raising the $5 billion to $15 billion analysts had speculated about would have been too risky in today’s market environment, Henderson said.

"They are shoring up their cash position. But I don’t think it is the end of the cuts, or the selling of some of the businesses," Global Insight analyst George Magliano said. "You are probably going to see some more cuts."