Is GM's Dividend Safe?

The Wall Street Journal is reporting General Motors unlikely to cut dividend.

General Motors Corp (GM) is not likely to cut its dividend, even as the automaker is set to lay out restructuring actions on Tuesday at its annual meeting, the Wall Street Journal said, citing people briefed on the plan.

A GM spokeswoman declined to comment.

GM, facing a sinking U.S. market for trucks and SUVs, is expected to unveil steps to conserve cash and cut production of slower-selling models in a bid to shore up a faltering restructuring now in its third year, according to analysts.

Analysts expect GM to confirm deep production cuts of pickup trucks and SUVs in North America as consumers avoid those higher-margin vehicles in the face of record gas prices. They also expect the automaker to take other steps to save cash.

GM pays shareholders a quarterly dividend of 25 cents a share. On Monday, GM said Chief Executive Rick Wagoner and Chief Operating Officer Fritz Henderson would make a series of announcements and take questions from reporters and analysts as part of the automaker's annual meeting for shareholders.

Plant Closures

YahooFinance is reporting GM expected to announce possible plant closures, job cuts before annual meeting.

As General Motors Corp. prepares for its annual shareholders meeting on Tuesday, workers across the country are worried that the next round of the company's restructuring could cost them jobs or even their factories.

GM executives were expected to announce the moves right before the meeting in Wilmington, Del., to deal with an evaporating pickup truck and sport utility vehicle market. It likely will mean shift cuts or even closures of some factories that make truck-based vehicles.

GM spokesman Tom Wilkinson on Monday would not say what moves the company would make, though GM officials previously have said that salaried job cuts are unlikely.

GM Chairman and Chief Executive Rick Wagoner's management team is looking at cuts among the factories that make pickups and SUVs. GM makes full-size pickups in Flint and Pontiac; Fort Wayne, Ind.; and Oshawa, Ontario. Big SUVs are made in Arlington, Texas; Silao, Mexico, and Janesville, Wis.; while midsize SUVs are made in Moraine, Ohio, near Dayton. The company also makes midsize pickups in Shreveport, La.

Among the factories most vulnerable are Janesville and Moraine, according to some industry analysts. Greg Gardner, an analyst with the Oliver Wyman Group, said both are a distance from parts suppliers. Plants in Texas and Mexico can easily satisfy demand for big SUVs, while GM may stop building midsize SUVs in a few years, Gardner said.

Janesville is an older plant that builds the same product as the one in Arlington, Gardner said, and many of GM's large-SUV parts come from nearby Mexico.

"It would be hard to justify closing Arlington," said Gardner.

JP Morgan analyst Himanshu Patel said he would not rule out a cut in GM's 25-cent-per-share dividend, and said in a note to investors Monday the company likely will have to borrow more money.

"GM no doubt needs to raise financing given current cash burn rate -- we think as much as $10 billion of total financing may be needed, though not all immediately," Patel wrote.

Already the company has announced indefinite layoffs of one shift each at the Pontiac and Flint pickup plants, and more are expected.

Last week the company announced that 19,000 of its 74,000 U.S. blue-collar workers had signed up for buyout or early retirement offers. That clears the way to shrink the company's production footprint, but few know where the cuts will come.

Fiscal Insanity At GM

It makes absolutely zero economic sense for GM to pay a dividend when it may need billions in financing. The opportune time to eliminate their dividend was right ahead or on the news of the union agreement with the stock near a 52 week high. Now the stock is near a 26 year low.

GM had a golden opportunity to sell all of GMAC and failed to do so. GM got involved in subprime mortgages with Ditech at the worst possible time. GM is a company that makes mistake after mistake after mistake.

If GM does anything that makes any economic sense, it is either by accident or market pressure as opposed to careful thought processes. With that in mind, it will be interesting to see just what GM comes up with on Tuesday.

The WSJ seems to have the inside scoop that GM's dividend is safe (for now). Assuming the Journal is correct, I doubt that dividend lasts through the year.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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