GM’s $19bn profit to need near-record US car sales

General Motors Co is telling prospective investors that its peak $19 billion operating profit forecast would require a near-record 17 million level for US auto sales, said two people familiar with the presentation.

In a mid-level market of about 15 million deliveries, the automaker could post as much as $13bn in earnings before interest and taxes, Chief Financial Officer Chris Liddell said in a meeting in New York November 8, according to the people, who asked not to be identified because the meetings to promote the initial public offering are private.

Liddell gave the profit projections in an online presentation last week without detailing the sales levels needed to reach them. To attain the highest profit targets, the company projected US vehicle sales of about 17 million annually, he said in the meetings. The US light-vehicle sales record was 17.4 million in 2000.

“Selling 17 million cars is probably five to seven years out,” said Joe Phillippi, principal of AutoTrends Inc., a consulting firm in Short Hills, New Jersey. “We’re still looking at 10 per cent unemployment.”

US sales last year fell to 10.4 million, according to researcher Autodata Corp based in Woodcliff Lake, New Jersey. Annual deliveries had averaged 16.8 million from 2000 to 2007. Industrywide light-vehicle sales rose to a 12.3 million seasonally adjusted annual rate in October, the fastest pace of the year, researcher Autodata Corp said.

Liddell, Chief Executive Officer Dan Akerson and several other executives were in New York the past two days making the case that the new GM has much larger profit potential than the old GM, said the people.

To break even, Detroit-based GM previously needed 25 per cent of a US market of 15.5 million vehicles a year, or “around mid-cycle,” Liddell said in the video. It now can be profitable at a 10.5 million rate and about an 18 per cent share, he said.

GM also said in a meeting at Guastavino’s, an event space in Manhattan, that the mid-cycle profit projection includes about $2bn in profit from GM’s pension investments, two people said.

Liddell didn’t say when he expects to see auto sales climb to 15 million and higher. GM uses Lexington, Massachusetts-based research firm IHS Automotive for forecasting. IHS predicts that auto sales will reach 15 million vehicles in the US in 2012 and 17 million in 2015.

GM executives are trying to show that the company has unforeseen profit potential as it tries to sell 365 million shares for $26 to $29 a share after a 3-for-1 split. A successful offering would reduce the US Treasury Department’s stake to 43 per cent from 61 per cent, according to a regulatory filing for the IPO.

The shares that are scheduled to be offered on November 17 represent 24 per cent of the equity in the company. The company aims to raise as much as $10.6 billion for the U.S. Treasury and other shareholders with the IPO.

The automaker is selling the shares to help return to taxpayers their $49.5bn investment in the company. Including the repurchase of the Treasury’s preferred shares after the IPO, taxpayers will have received $9.5bn in repayments, interest and dividends from GM since the automaker emerged from bankruptcy in July 2009, according to the Treasury.

To break even, the Treasury needs to sell GM for an average of almost $44 a share. The government is relying on secondary offerings to fetch higher share prices to recoup the public’s investment in GM.

Meetings to pitch the IPO also are scheduled for Boston, Kansas City, Denver, Houston, Dallas, Los Angeles and San Francisco, two people familiar with the matter have said.

Selim Bingol, a GM spokesman, declined to comment about the IPO.