A year after going public, GM’s stock has lost third of its value

November 15, 2011 http://detnews.com/article/20111115/AUTO01/111150369 A year after going public, GM’s stock has lost third of its value Worries about its overseas operations make investors wary DAVID SHEPARDSON AND CHRISTINA ROGERS / The Detroit News Washington —One year after its much-heralded IPO, which raised a record $23.1 billion, General Motors Co.’s stock has swooned 30 percent from its initial offering price. And taxpayers are still holding a big chunk of stock on which they’ll lose money if the government were to sell off its stake now. Wall Street analysts remain optimistic the stock will rebound, eventually, listing it at a "moderate buy" based on the automaker’s consistent quarterly profits, its focus on emerging global markets and its ambitious U.S. investment plans. But a slowdown in the world market and troubles in Europe have prompted analysts to dial down earlier expectations. GM stock tumbled 10.9 percent last Wednesday — to $22.31 — after the Detroit-based automaker revised its year-end outlook, saying fourth-quarter earnings will be flat over 2010. The company no longer expects to break even in Europe this year, a reversal of its previous forecast. On Monday, GM stock closed up 2.1 percent, to $22.99. "What we are looking at is an increasingly challenged economic environment going forward with a lot of uncertainty," GM Chief Financial Officer Dan Ammann said. GM execs also say they aren’t satisfied with the company’s profit margins, which are below chief industry rivals and could improve with further global restructuring. "We are not going to accept the level of profitability that we have shown in the quarter we have just announced here," Ammann said. One year ago this Friday, post-bankruptcy GM made its triumphant comeback to Wall Street as a new, slimmer company with fewer workers, less debt and a lower cost structure. The U.S. Treasury, which in 2009 took a 61 percent stake in GM for its $49.5 billion bailout, also reduced its majority ownership, selling off 419 million shares of common stock in the IPO. The IPO — the world’s largest ever — raised $23.1 billion. GM shares quickly jumped above the $33 initial offering price and soon rocketed to near $40 in January. But the ascent was short-lived. GM’s share price plummeted to a low of $19.05 in early October. Despite seven consecutive quarters in the black and profits of $7.4 billion so far this year, investors have largely withdrawn to the sidelines. Morgan Stanley last week dropped GM from its list of recommended stock. Barclays Capital analyst Brian Johnson cut GM’s forecast for 2012 to $36 a share, down from $38. "We believe GM still offers upside, although it may be stalled as some of the recent momentum has been broken," Johnson said. U.S. holding shares The sharp drop has prompted U.S. Treasury officials to indefinitely hold off selling its remaining 27 percent stake — about 500 million shares in all. At the current trading price, the government stands to lose about $15 billion on its investment in GM. The stock would have to climb to at least $53 a share for the U.S. Treasury to break even. In a report to Congress on Monday, U.S. Treasury upped its overall estimate of forecasted losses from its auto industry bailouts to $23.6 billion, up from $14.33 billion. The government anticipates steeper losses in its GM stock and majority stake in Ally Financial Inc., the nation’s largest new car lender. Despite its performance in the stock market, the new GM is on much more stable financial footing now, having eliminated four brands, let go tens of thousands of workers and closed 1,500 dealers during its bankruptcy restructuring. Last week, the company reported it had $33 billion in cash, and another $5.9 billion in available credit. Global market share was up from 11.4 percent to 11.9 percent. North America — GM’s most lucrative market — continued to be a strong money maker, generating $2.2 billion in pretax profits. This fall, the automaker negotiated a contract with the United Auto Workers that holds labor cost growth at about 1 percent annually, its smallest rise in decades. GM leaders also say they’re more diligent about costs, hoping to achieve what they describe as a "fortress balance sheet," a financial structure that can withstand volatility in the market. Ammann said GM is focused on reducing its debt and liabilities before returning money to shareholders through dividends or a share buy-back program. GM plans to completely address its U.S. pension plan underfunding in the next few years. GM has cut its pension underfunding from $18 billion in late 2010 to $8.7 billion as of Sept. 30. Europe spells trouble Europe remains a trouble spot. After years of bleeding red ink, GM has tried to restructure its operations in Europe, only to have efforts hindered this year by the eurozone debt crisis and flagging consumer confidence. GM’s grip on South America, another key market, also has begun to slip. The automaker reported a loss of $44 million there in the third quarter. GM CEO Dan Akerson, in a call with investors last week, described losses in Europe and South America as "not sustainable and not acceptable" and hinted at more Europe restructuring. "We are convinced that GM is moving in the right direction in terms of improving product attractiveness, cost competitiveness and balance sheet strength," auto analyst Adam Jonas wrote in a recent report. "Ford has shown GM what can be done, but GM can’t catch up overnight." dshepardson@detnews.com (202) 662-8735 Additional Facts Akerson at Econ Club GM Chairman and CEO Daniel Akerson will speak to a lunch meeting of the Economic Club of Detroit at the Detroit Marriott Thursday – the eve of the first anniversary of GM’s initial public stock offering. Akerson is expected to address the future of GM, the industry, the region and the nation; his appearance will be moderated by Detroit News columnist Daniel Howes.

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