General Motors (GM) Circles the Wagons to Protect Cash Supply

Watching General Motors (NYSE: GM) in the last few days has been a bit like one of those old-timey Westerns. The GM wagon train carrying gold to the investors has come under attack, and now, the train is circling the wagons in a bid to protect its valuable cargo. That might be a bit of an oblique metaphor, but it does the job nicely in describing recent behavior seen at GM, which is frantically working to protect cash.

The GM Wagon Train Closes Ranks

More specifically, GM is taking two major moves to help husband its cash stock to make it sufficient to get to the other side of the pandemic, reports note. Not only is GM looking to shut down its quarterly dividend, it's also canceling its stock buyback plans.

The dividend represented $1.52 per share every year, which will likely be a loss to large-scale GM holders hoping to take advantage of that dividend in retirement. The market responded to these moves by dropping GM stock like a hot brick; the share prices fell about 2% on premarket trading, and though it did recover some losses with trading in the early day, it's still well below its Friday close of $21.95 a share.

It's a move that's been echoed throughout the industry; Ford, for example, canceled its dividend last month, and both Ford and GM have pulled their full-year guidance.

GM's Plans Look Increasingly Defensive

It's not just the shutdown of the dividend and buybacks, meanwhile, that make it clear GM is in a fight for long-term survival. GM has also taken what it calls “other significant austerity measures”, though just what these are is as yet unclear, especially with so much of the workforce out of play anyway. Further, the company has also extended a revolving credit line to April 2022, a move that helps keep $3.6 billion in available capital in play.

The company had $32 billion in cash available last month, a number which includes $16 billion drawn down from other revolving credit operations. On April 17, the company also noted that it launched a new revolving credit agreement worth $1.95 billion, and has also brought the credit line GM Financial was using.

With plants shut down since mid-March, and any hope of restarting soon somewhat in doubt, the immediate picture doesn't look good for GM. Reports suggest that discussions with the United Auto Workers (UAW) union about restarting have been shaky at best, with the UAW in clear opposition to restarting production in early May. In Michigan, that may not even be a possibility anyway, as governor Gretchen Whitmer extended stay-at-home orders to mid-May.

The Rest of the Field Isn't Exactly Doing Well Either

The news isn't all bad in the auto industry; Fiat Chrysler announced plans to restart production sometime next week, a move which, if successful, would give Fiat Chrysler a significant leg up on its competitors in the field.

Still, even if Fiat Chrysler's plans are realized, it could be a problem. As noted previously, Michigan has stay-at-home orders currently in place running through the middle of the month. While there are reports that suggest the Trump administration may not take such heel-dragging lying down—Bill Barr may be brought to bear on such states—a legal battle will likely have the same effect as a full order; shut down operations.

Even if GM and Ford start production again at about the same time as Fiat Chrysler, they're going to be selling into a ravaged market. While not a lot of study on this has been done yet, it's a safe bet that consumer confidence is about to take a punch in the gut akin to dropping tungsten rods from low Earth orbit. It's hard to feel particularly confident about taking out a six-year car loan when you're not sure if your job will last six minutes after places even can reopen.

Still, something's got to give, and someone's got to go first. If major automakers can get back to work, that gives the rest of us the confidence to get back on the job as well. The more of us working, the more of us are likely to pick up that new car and all those other things that help keep America running. We cannot restore consumer confidence hiding in our houses, and that old car can only be fixed so often.