GM is about to stockpile $16B in cash amid uncertainty, coronavirus outbreak

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Mary Barra, chairman and CEO of General Motors, speaks before the General Motors shareholder's meeting at the Renaissance Center in Detroit on Tuesday, June 12, 2018. - Kimberly P. Mitchell/Detroit Free Press/TNS

DETROIT — General Motors is stockpiling as much cash as it can to guard against the uncertain fallout from the coronavirus pandemic and will consider other measures including continued payment of its dividend as it evaluates market conditions.

The automaker said Tuesday it will draw $16 billion from its revolving credit facilities as a proactive measure to boost its cash reserve. That will give GM financial flexibility because of the uncertainty in global markets.

GM is expected to have $15 billion to $16 billion in cash at the end of March, so this added money will serve as a supplement.

“We are aggressively pursuing austerity measures to preserve cash and are taking necessary steps in this changing and uncertain environment to manage our liquidity, ensure the ongoing viability of our operations and protect our customers and stakeholders,” said CEO Mary Barra in a statement.

Barra noted that over the last several years, GM made strategic decisions and structural changes to transform the company and strengthen the business, “better positioning us for downturns.”

About this time last year, GM cut nearly 4,000 white-collar jobs and idled its transmission plants in Warren and Baltimore as well as the Lordstown Assembly plant in Ohio. GM has since sold the Lordstown facility to electric-truck maker Lordstown Motors.

In addition, GM Financial (GMF) has strong liquidity and capitalization. GMF had $24 billion of liquidity at the end of last year. It expects to end the first quarter at similar levels. Its liquidity level is intended to support at least six months of cash needs, including new loan originations, without access to capital markets. GMF is managing below its target leverage ratios.

Analysts said GM is exercising good judgment at the right time.

“Everyone is stockpiling cash because it’s the best way to deal with uncertainty,” said David Whiston, equity strategist for U.S. Autos at Morningstar Research Services. “They are leaving themselves about $1.3 billion of availability on the credit lines so there’s still a small buffer left.”

Whiston noted that GM did not mention its plans for paying a dividend in its announcement Wednesday, “so I’m guessing they will try to maintain it for now. If they were going to eliminate it, today’s announcement would be the time to do it.”

GM paid a first quarter dividend on Friday, it has “about a month before we would typically declare our second quarter dividend. We will evaluate how the macro backdrop evolves before deciding,” said spokeswoman Julie Huston-Rough.

GM said its financing arm, GM Financial, has maintained a strong financial position and has access to cash. It can “navigate the challenges created by this environment without capital from GM,” said Dan Berce, GM Financial CEO.

That’s good, said Whiston because, “GM Financial is going to continue to pay the auto side of the company $800 million this year, too, so that’s good to see it can still do that.”

GM also said it is suspending its 2020 guidance as to what impact the coronavirus crisis will have on its bottom line because of the continued uncertainty shrouding the markets.

But other analysts said this pandemic will bring on hard times the longer it goes.

“At this stage, no one escapes this from a financial impact,” said Jeff Schuster, president of Americas Operations and global vehicle forecasts for LMC Automotive.

Schuster said the auto industry as a whole will take a hit to revenues and a recession is looming.

“If we can’t contain it in the next three weeks, that will extend the impact further into 2020 and possibly 2021,” said Schuster. “I think a recession is inevitable at this point. It’s just a matter of what’s the duration and magnitude of it.”

GM is following Ford Motor Co. in announcing adjustments to its balance sheet amid the pandemic. Last week, Ford, among other moves, said it would suspend its quarterly dividend payments to shareholders. The dividend represents an annual cost of $2.4 billion to the Dearborn-based automaker.

Ford also said it’s drawing on two credit lines to put another $15.4 billion in cash on its balance sheet.

Last week GM, Ford and Fiat Chrysler Automobiles said they would shut down production at assembly plants until at least the month’s end or longer. They are running their parts depots on a paid-volunteer basis.

Whiston views Wednesday’s news as a possible indication that GM expects the shutdown to last well into April.

“Even that isn’t shocking though if you see that governors have shut states down at least a week past April 1 plus the rampant spread in New York city indicates the virus will not abate by the end of March,” said Whiston.

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