HOW IT CAME TO THIS FOR GM

The empire is dismantled as cash becomes king

GM raised billions from foreign assets, GMAC

In 2005 and 2006, General Motors needed cash. It was time to sell assets.

In 2005, it sold Electro-Motive for an undisclosed amount. In March 2006, it sold 78 percent of GMAC Commercial Holding Corp. for $8.8 billion, netting $1.5 billion in cash. In November 2006, it sold 51 percent of GMAC Financial Services, formerly known as General Motors Acceptance Corp., to a consortium of investors led by Cerberus FIM Investors LLC for $7.4 billion, plus other considerations that promised additional cash to GM. But mostly it sold its stakes in foreign affiliates.

GM was like a sports franchise selling off players to rivals. Some of those players had failed to live up to expectations, others still held potential. But any worries about selling them to rivals had to be set aside. What mattered was raising cash.

Everything must go
GM built up stakes in Isuzu, Suzuki, Fiat and Subaru-builder Fuji Heavy Industries over more than 30 years. It then sold off those stakes in under 2 years. Here are the details of those sales.
 SALE DATECASH RAISED FROM SALEPURCHASED
FiatFeb. 2005$2 billion2000
Fuji HeavyOct. 2005$727 million1999
SuzukiMar-06about $2 billion1981
IsuzuApr-06$300 million1971

Hefty losses

In 2005, GM faced tough times. It lost $8.6 billion that year. In part, that was because GM had wanted to get out of its troubled relationship with Fiat, and the price for withdrawal was steep.

In February 2005, GM bought its way out of its alliance with Fiat, paying 1.55 billion euros, or $2 billion at the time, to cancel the put option that GM CEO Rick Wagoner had signed in 2000. That put option allowed the Fiat Group to force GM to buy Fiat Auto. GM also returned its remaining 10 percent share of the Italian automaker to Fiat.

GM earlier had written down to zero on its books the $2.4 billion it had paid for what was originally 20 percent of Fiat Auto.

The reasoning that followed the withdrawal from Fiat was simple. If GM had been forced to cough up cash to end one alliance, why not sell off other alliances to scrape together the cash to make up for the hole in its wallet?

Besides, with GM's high-margin SUVs selling well, who needed Japanese automakers whose expertise was in small, fuel-efficient cars? And some of GM's alliances with its Asian partners weren't generating the industrial or financial returns GM wanted.

"Each of those alliances had an investment premise as well as an industrial premise," says GM COO Fritz Henderson. "I think it's smart to be always assessing whether or not you're getting a return on that investment."

In the case of Fuji Heavy Industries Ltd., maker of Subaru cars, GM wasn't getting the desired return. Attempts to have Saabs and Subarus share parts had foundered on Fuji Heavy's insistence that consumers demanded a horizontally opposed boxer engine in a Subaru.

Sayonara, Subaru

So in October 2005, GM sold its 20 percent of Fuji Heavy. It sold part on the open market. But the biggest chunk, 8.7 percent, went to GM's top rival, Toyota Motor Corp.

For Toyota, the purchase was an opportunity to build Camrys at the underused Subaru of Indiana Automotive Inc. assembly plant in West Lafayette, Ind. In one fell swoop, Toyota President Katsuaki Watanabe grabbed a brand with a distinct niche in the market, plus extra production capacity for its bread-and-butter model in the United States.

On paper, GM took a bath on the Subaru sale, just as it had on the Fiat deal. It recouped just $727 million, or less than half of the $1.5 billion at which it had valued Fuji Heavy on its books.

But GM wanted cash, not paper assets. All of that $727 million was cash.

In March 2006, GM sold 17.4 percent of Suzuki Motor Corp., leaving it with just 3 percent. That was the big payoff. GM raised about $2 million in cash, roughly what it spent to get out of Fiat.

GM retained 3 percent of the small-car specialist. Suzuki remains GM's partner in GM-Daewoo Auto & Technology Co. in Korea and in CAMI, an assembly plant in Ingersoll, Ontario.

Exit from Isuzu

In April 2006, GM followed those sales by ditching its final 7.9 percent stake in Isuzu Motors Ltd. GM had first bought 34.2 percent of the truckmaker in 1971. The stake grew as high as 49 percent before GM trimmed its holding as part of a restructuring of the loss-ridden Isuzu. The sale raised $300 million.

Again, Toyota's Watanabe swooped in for assets GM couldn't afford to keep. In November 2006, he bought 5.6 percent of Isuzu.

This was an even greater prize. Toyota desperately needed diesel-engine technology to compete in Europe. Isuzu had not only the technology but also the engineers. Now the engineers who developed GM's successful Duramax diesel engines are available to Toyota.

You can reach James B. Treece at jtreece@crain.com

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