GM Could 'Print Money' As Sales Recover

DETROIT (AP) -- General Motors Co. has cut costs and improved its products so much that an analyst expects it to be "printing money" when vehicle sales return to normal in the next few years.

Morningstar analyst David Whiston, in a note to investors Monday, wrote that GM's initial public stock offering, which is likely to occur in November, could be a good investment. He set a preliminary fair value of the shares at $134 each.

Whiston wrote that GM finally has healthy North American operations, and saved about $3 billion a year alone when it shifted retiree health care costs to a United Auto Workers union trust fund. The company can break even before taxes even if U.S. vehicle sales slump to 10.5 to 11 million vehicles, he wrote. So far this year sales are running around 11.5 million.

"We think the normative demand for U.S. light vehicles is about 16 million-17 million units, so we expect GM to be printing money as vehicle demand comes back over the next few years," he wrote.

Also, GM is selling cars and trucks for more money than last year. Car prices are up $2,100, trucks are up $1,800 and crossover vehicle prices have risen $3,000 on average, he wrote.

"GM no longer has to overproduce to attempt to cover high labor costs, and then dump cars into rental fleets," Whiston wrote. "It now operates in a demand-pull model where it can produce only to meet demand and is structured to break even at the bottom of an economic cycle."

Whiston wrote that the risks of government and union ownership exist, and the timing of a recovery in auto sales is in question. Also, GM's European operations are still losing money. But he wrote that doubters do not realize that GM has lower costs and the quality of its models have improved.

Its shares, he wrote, are likely to price far below his estimate, making the investment wise for long-term shareholders.

GM reduced much of its costs while under bankruptcy protection last year. The U.S. government had to put up $50 billion to keep the company in business. GM has paid $6.7 billion, and the rest of the bailout money was converted to a 61 percent stake in the automaker.
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