Automakers lack buyers as deadline looms
Written on February 18, 2009
Eight months after announcing a sweeping plan to sell off assets to raise cash, General Motors Corp has reached a critical moment: hours before it has to submit a new survival plan to U.S. officials, it still has no buyers.
GM has been hoping to sell its Hummer and Saab brands. It has also tried to offload a medium-duty truck business, a manufacturing operation in Strasbourg, France, and its ACDelco aftermarket parts business.
The hope as late as November was that those efforts would raise $2 billion to $3 billion this year. But so far, a fast-declining global auto market and tight credit have made it hard for GM to get out of the starting box.
In exchange for a $17.4 billion federal loan, GM and Chrysler have to submit their viability plans to the government for its approval on Tuesday. As part of those plans, the government expected the automakers to show progress on several fronts, including asset sales.
Since GM hired Citigroup to seek buyers for its iconic Hummer brand in June, no buyer has emerged. Moreover, several expected buyers have publicly denied interest.
With vehicles that average between 9 and 14 miles a gallon, Hummer has not been a particularly attractive asset. Also, the brand’s biggest strength is also its biggest weakness: it is a niche model with a limited product line. That is not ideal for any automaker buying the brand to gain a U.S. presence.
Automakers in India, Russia and China — the likely regions for a Hummer buyer — have denied interest.
Some media reports suggested that a U.S.-based private equity firm might buy Hummer quickpayday loan. But short of selling it for pennies on the dollar, industry experts do not expect to see a sale.
Investment bankers had initially said Hummer could fetch up to $750 million, but tight credit markets and worsening auto sales have hurt valuations over the past few months, prompting them to expect no more than $500 million for the macho nameplate. Hummer sales fell more than 50 percent in 2008.
Still, $500 million is important money to GM, which has lost more than $50 billion in the past three years.
SAAB, ANYONE?
Additionally, GM included the sale of Saab as part of its more recent restructuring plan but it has yet to distribute a sales prospectus on the Swedish unit, according to sources familiar with the matter.
GM Vice Chairman Bob Lutz said last month that Saab had never made money for the automaker in the nearly two decades it has owned the brand. “Frankly, they’ve been on GM life support,” he said. “It’s just an unending string of losses.”
As part of its viability plan, GM has to prove it can yield positive cash flow, a difficult prediction with loss-making brands on its balance sheet. And with a high-cost manufacturing base in Europe, Saab is an expensive company to run.
Another element that complicates the sale of Saab is its integration with its parent company. GM has been trying to make that unit operate on more of a stand-alone basis.
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