GM To Pay US $1 Billion

The latest sign of the improbable recovery of GM is that it will pay the Treasury back $1 billion. According to The Wall Street Journal, it would be another step to bring down the $6.7 billion that the car company owes taxpayers. GM’s management says it plans to have the entire amount back to the federal government by the end of the second quarter.

Some bankers believe that GM will be able to have an IPO before the end of the year, if it continues to make significant financial progress. That would allow the company to repay part of the $50 billion taxpayers have given the company in exchange of a 70% ownership.

It is too early to tell whether the GM turnaround is permanent. Most of the company’s bottom line improvement so far has come from cost cutting that was accelerated by the firm’s Chapter 11 last year. The challenge GM faces is to pick up market share in a domestic environment in which incentives have become increasingly important to keep old customers and bring in new ones. Several analysts expect the largest car companies doing business in the US to pay out more than $2 billion in incentives in 2010, which could create razor thin margins for GM, or even losses.

GM is also in the midst of an overhaul of its European Vauxhall and Opel operations. It has indicated that it is prepared to make a multi-billion investments to bring down costs in the  EU region which still produces weak sales due to a difficult credit environment and high unemployment.

That leaves GM China which has been the one bright spot for the car company. GM’s sales in the People’s Republic were up 67% in 2009 to 1.83 million vehicles. The firm has already posted more strong sales in China for January and February.

GM may be able to send the government a check for $1 billion this month, but if low sales and high-cost incentives last through the year, an IPO is unlikely.

Douglas A. McIntyre

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