If you are interested in General Motors (GM), you should listen to the conference call, if you have not already done so. You should also read the related articles in the Wall Street Journal, Financial Times, and New York Times.
My quick take is that nothing much has changed. Investors should have expected and continue to expect further reductions in staffing and union concessions. They should also have a change in the dividend rate on their radar screen. As this story continues to play out, there will be both positive and negative events that will affect the stock on any given day. While these events are certainly important, the ultimate test is, does GM offer a compelling and profitable line of vehicles that interests North American buyers? My answer, so far, is no, GM does not yet have a compelling line-up, especially in light of higher fuel prices. Thus, I believe GM will continue to struggle with its various issues for a while longer.
As fair disclosure, I remain short GM stock.
Hey Keven, just wondering what you meant re the dividend. Do you mean one should expect a special dvd from the GMAC sale or a reduction in the dvd b/c of UAW negotiations, lousy earnings, DPH fallout, and lack of GMAC dividend when it gets sold. The board is discussing it in about 2 weeks - any guesses?
Rupert,
I am just taking a simplistic look at GM. If I were a union member being asked to take substantial cuts to my complete compensation package, I would want the pain to be shared by everyone, including stockholders. Thus, in order to agree to cuts, I would want to see a dividend cut as well. The current dividend rate is over 7%. Of course, it is high because the stock has fallen. Nonetheless, I believe that the union membership will drive hard at this point.
Moving away from the union stuff, you have to ask yourself why a company that is bleeding cash is paying out a 7%+ dividend rate. Moreover, there is no light at the end of the tunnel yet. In other words, the bleeding might go on for a prolonged period. I think the Board would be prudent to cut the dividend rate and conserve cash.
With regard to the GMAC sale, I think the Board will have to analyze the the various obligations GM has to its pension and healthcare from GM, Delphi, and possibly GMAC. Will there even be any cash left over?
In summary, until GM can see its way back to profitability with automotive products to sell to the North American consumer, I think the prudent course of action will be to conserve cash wherever possible, including dividend cuts.
I agree wholeheartedly Kevin. I was just wondering if you were alluding to the thought that a GMAC would lead to a higher dividend. It might mean a one time dividend, but dividends are usually linked to cashflow developments. Anyways, we will see how stubborn the board is.....
Anyways, we will see how stubborn the board is.....
I am not sure about the timing. I suspect that GM wants to postpone the dividend cut, because when the dividend cut is announced, it will be viewed by many as an admission of defeat. I do not believe it means defeat, but I think many others will view it in that light.
When more union concessions are required beyond the current healthcare benefits, I expect the dividend cut discussion to be front and center, if it has not already been dealt with.