To Sell GM's IPO, Whitacre Needs to Show One Year of Success Was No Fluke

In the run-up to a likely General Motors initial public offering, the biggest task for Chairman and CEO Ed Whitacre Jr. is to persuade investors that the "New GM" won't backslide into the bad habits of "Old GM."

To that end, GM must consistently achieve a one-two punch it hasn't managed in decades: to grow market share and cut discounts at the same time.

GM has pulled that off for the last year. The company said U.S. market share for its four remaining brands, Buick, Cadillac, Chevrolet and GMC, grew from 15.4 percent in the first quarter of 2009 to 19.2 percent through May. At the same time, the average incentive at GM fell from $4,676 to $3,230.

The biggest changes are lower production levels and therefore lower inventories of unsold cars, plus new models that are outselling the models they replaced, like the Buick LaCrosse and the Chevy Malibu.

One year, of course, is a short track record. Yet GM and its major shareholder, the U.S. government -- that is to say, the U.S. taxpayer -- don't want to wait another year to prove GM can keep that up. That leaves it up to Whitacre's persuasive skills to get people to believe that last year's results weren't a fluke, the result of a rising tide lifting all boats.

"I've chosen my words carefully," Whitacre said, kicking off a presentation to about 200 analysts and investors. "Because I want to make an important distinction. We're not reintroducing GM today. We're introducing a new GM ... because we are a new and much different company than we were 12 months ago," he said.

For decades, "Old GM" had the worst of both worlds with regard to market share and incentives. That is, falling share despite higher incentives. The company didn't set out to do that, but it was trapped into consistently building more cars than it needed, because it needed the revenue to pay high fixed costs for labor and health care whether the plants ran or not.

Far too many GM products also became a commodity. Discounts became the only way to move the metal, and the company had no choice but to move the metal. Profit margins got thinner and thinner, until they finally disappeared.

Bankruptcy restructuring broke that vicious cycle, allowing GM to close plants and repudiate its prior commitments. Now the hard part is keeping the recovery going.

Chart: GM