INVESTOR CONFIDENCE IMPROVES FOR GM
New vehicles, overseas growth also boost automaker
An important indicator of investor confidence in General Motors
Corp. is at its highest level in almost two years.
"There is recognition GM has made progress and people are
getting more confident," Mark Oline, a Fitch Ratings analyst,
told Bloomberg.
Prices on credit-default swaps, which have become a key barometer
for the financial markets on credit quality, fell to $377,900 based
on $10 million of GM bonds, well below the peak of $1.35 million
at the end of 2005, according to Bloomberg.
Credit-default swaps enable traders to bet on a company's ability
to repay its debt. They were designed to protect bondholders by
paying the buyer face value in exchange for the underlying securities
should the company default. A decline suggests that the company's
credit risk has improved, and the risk of it filing for bankruptcy
has declined.
To increase the company's cash, GM sold $17 billion of assets over
the last 15 months. The company may be due for its first debt ratings
increase since 1998 and there's just a 27 percent chance of a bankruptcy
in the next five years, down from 68 percent in December 2005, based
on swap prices and a JPMorgan Chase & Co. valuation model, according
to Bloomberg.
GM Chief Executive Officer Rick Wagoner said new models have helped
boost the company's results by $1 billion in each of the first three
quarters of last year, and that the company plans to increase capital
expenditures this year.
The future
GM is committing almost $9 billion for new product development
in 2007 to continue its string of producing high quality, well-received
vehicles that the public wants to drive. New vehicles are expected
to account for 40% of showroom sales this year.
Last year, GM introduced the Chevrolet Silverado pickup, Pontiac
Solstice, Saturn Sky roadsters and other new products with curb
appeal. GM is also winning prestigious quality awards, improving
what had been a badly tarnished reputation.
Overseas markets hold much promise for GM as the world economy
strengthens. Last year, 55% of sales were outside the United States.
Asia, in particular, has seen rapid growth for GM. Since 2000, GM's
Asian assembly plants increased from five to 14, and sales volumes
grew from 313,000 vehicles to 1,105,000. GM's focus on emerging
markets made it the leading band with a market share of 11% in 2006.
Though GM's turnaround is impressive, it's not complete. Resolving
GM's exposure to Delphi remains a top priority, structural costs
need to be reduced further, earnings must continue to improve and
both cash flow and market share need to stabilize.
GM's domestic market share in 2006 was 24.2%, down 1.7% from 2005,
and could fall further as it seeks to reduce less profitable fleet
sales and concentrate on its retail trade. Adjusting to a global
economy with strong foreign competition has been challenging for
GM, as the domestic auto business has realigned. These changes,
however, have brought opportunities in countries like China, India
and Brazil. While GM has a way to go, 2006 showed a level of commitment
and seriousness to righting its ship that surprised many.
01/16/07
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