GM Repays thru Buyback - Analyst Blog

The Treasury Department of U.S. announced that it has received $2.1 billion against the sale of preferred shares to General Motors (GM) that were issued in GM's bailout last year.

The buyback of Series A preferred stock by GM was agreed at a price of $25.50 per share in October. The automaker said it would record a $700 million charge against its net income in the 2010 fourth quarter for the difference between the purchase price and the recorded value of the preferred shares. The preferred stock will be converted to common stock in 2013.

Last month, the Treasury received $11.7 billion by selling 358.5 million shares in the initial public offering (IPO) announced by GM. In addition, the Treasury received $1.8 billion at the beginning of this month as bankers, handling the IPO exercised options to purchase an additional 53.8 million shares of its stock.

These, along with $6.7 billion in debt repayments and $800 million as interest and dividend payments in April this year, have brought the total repayments by GM to the U.S. government to $23.1 billion.

The Treasury is now left with 500 million shares of GM, which is equivalent to a 33% stake in the company, down from 61% at the time of the bailout. Thus, the Treasury would need to sell its remaining shares of GM at nearly $53 each in order to recoup its $49.5 billion loan to the automaker.

However, the targeted price is much higher than the existing market price of $33.61. Therefore, the Treasury needs to wait for a healthier economy and stronger GM sales and profits in order to sell its shares at the target price.

In the third quarter of the year, GM has topped both its hometown rivals, Ford Motor Co. (F) and Chrysler LLC, by showing a profit of $2.16 billion or $1.20 per share in sharp contrast to a loss of $858 million or 73 cents per share in the year-ago quarter. Operating income was $1.85 billion versus a loss of $1 billion a year ago.

During the quarter under review, Ford reported a profit of $1.91 billion while Chrysler posted a loss of $84 million. In North America, GM earned $3,005 per vehicle due to its effort to boost truck output during the summer. In contrast, Ford earned $2,710 per vehicle and Chrysler earned $593 per vehicle in the region.

GM's profit was fueled by the company's turnaround performance in North America, which had been witnessing substantial losses earlier, and impressive growth in sales volume in GM's International Operations segment.