DETROIT – General Motors Co. moved to strengthen its finances ahead of an initial public stock sale, announcing plans on Thursday to cut debt and pension obligations by $11 billion.
The moves, including a big payment to U.S. taxpayers, are aimed at making the automaker’s balance sheet look more attractive to potential investors who might buy GM stock in an offering expected next month.
The debt repayment is a huge milestone in GM’s comeback from a financial calamity that began in 2008 after years of billion-dollar losses. The auto giant, once a symbol of American industrial might, nearly ran out of money and needed bankruptcy and a huge government bailout to stay in business. Thursday’s plan is another sign that GM has begun rebuilding itself and wants to cut ties with the government, its largest shareholder.
The $11 billion reduction includes paying back $2.1 billion owed to U.S. taxpayers, as well as paying $2.8 billion to a United Auto Workers health care trust. The company also plans to put $6 billion in stock and cash toward its pension plans, which are underfunded by roughly $27 billion. GM will fund the moves with its stockpile of cash, which now totals about $24 billion.
When all of the debt reductions are complete, GM will save about $500 million in interest payments each year.
Under the plan, GM will buy 84 million shares of its preferred stock from the government for $2.1 billion. The preferred shares were issued as partial payment for the nearly $50 billion the government gave the company to survive bankruptcy protection last year. When the payment is made, after the IPO, GM’s total repayment to the government will reach $9.5 billion.
U.S. taxpayers still hold a 61 percent stake in GM in the form of common stock. The government is hoping to recoup its remaining investment, about $40 billion, by selling common stock in the IPO and several follow-up sales that could take years.
GM CEO Dan Akerson told employees at an assembly plant in Lansing, Mich., on Thursday that the company wants the government to get its money back.
“Over the coming months you’ll see that GM is, indeed, a resurgent company,” he said.
GM needs potential IPO investors to agree. It’s asking them to weigh a troubled past, including four CEOs in 18 months, against strengths such as a strong presence in China, the world’s largest car market.
It also hopes they’ll focus on the company’s recovery. In a 40-day bankruptcy that ended in July of 2009, GM shed money-losing assets and lowered its debt from $104 billion to $8 billion. Its vehicles, especially new models such as the Chevrolet Equinox crossover and Buick LaCrosse sedan, are beginning to sell and be recognized for quality.
The improved cars and lower costs helped GM earn $2.2 billion and rebuild its cash supply in the first half of this year.
It has hinted that the third quarter will be profitable when results are released early next month.
The payment to the retiree health care trust will save GM about $1.4 billion in payments that it would have made through 2017.