Morningstar

GM's Dividend Suspension Prudent Given Closed Plants

The move to us is about debt extension, and we believe it does not create new funding for the automaker.

Securities In This Article
General Motors Co
(GM)

GM GM announced on April 27 that it is suspending its dividend and share repurchase program, and we are leaving our fair value estimate unchanged. Neither move is shocking given GM’s North American factories are closed due to COVID-19. We also think the move became more likely once the UAW said last week it was not comfortable with its members returning to work in early May. The move saves GM nearly $2.2 billion of annual dividends, with 2020 savings of about $1.6 billion given first quarter’s dividend already paid. The company also said $3.6 billion of its $4.0 billion credit line due in April 2021 is now due in April 2022. GM now cannot buyback stock as long as any amounts are drawn on this line and two other lines, nor can it pay a dividend as long as over $5 billion is drawn on those same three lines.

The move to us is about debt extension, and we believe it does not create new funding for GM. The company drew about $16 billion in late March (see our March 24 note) to add onto about $15 billion-$16 billion of cash as of March 31, so we believe this April 2022 credit line is already maxed out or nearly maxed out, as are all of GM’s automotive credit lines. GM now has the $3.6 billion line expiring in April 2022, a $3 billion line expiring in January 2022 (though that line becomes a $2 billion line as of July 2020), and a $10.5 billion line expiring in April 2023. GM also has a $1.95 billion line exclusively allocated for GM Financial that expires in April 2021, but perhaps that line’s funds could be moved to the automotive business if needed. Excluding the line for GM Financial and adjusting for $1 billion of liquidity going away in July, we estimate GM currently has $300 million available on its credit lines.

We expect a GM liquidity update on May 6 when it reports first-quarter results, but all that matters now is getting plants reopen as soon as safely possible. We expect a gradual restart, focused on light truck models, to begin sometime in May or June.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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