February 4, 2015 / 12:38 PM / in 3 years

Exclusive: Shareholders may get more cash back later in 2015 - GM CFO

DETROIT (Reuters) - General Motors Co will consider returning more cash to shareholders later this year, on top of a planned 20-percent dividend increase announced Wednesday, the company’s chief financial officer told Reuters.

The General Motors world headquarters is seen in downtown Detroit, Michigan in this file photo taken on May 31, 2009. REUTERS/Rebecca Cook

GM CFO Chuck Stevens said in an interview before releasing its fourth quarter results on Wednesday that further return of capital to investors could happen as soon as legal issues tied to the recall of a defective ignition switch linked to at least 51 deaths are resolved. He added GM prefers to carry the high end of its targeted cash range of $20 billion to $25 billion until then.

“As we get more clarity on those open items, I would expect that we would continue to evaluate further return of capital to shareholders and that could happen as soon as the second half of this year,” he told Reuters.

Stevens said the planned increase, which will boost the company’s annual outlay for dividends by about $400 million to $2.4 billion, was due to the strong 2014 results and stronger performance expected this year.

GM’s earnings were far above analysts’ expectations, as strong sales in North America helped offset record recall costs there. Its shares rose more than 3 percent in early trade.

Since emerging from a U.S. government-directed bankruptcy in 2009, GM has rebounded along with U.S. auto sales. Booming demand, particularly for high-margin pickups and sport utility vehicles, has helped GM stockpile nearly $40 billion in total liquidity.

Some shareholders had complained that the automaker has more than enough to fund its global ambitions and that executives at the largest U.S. automaker should return to investors up to $10 billion of that.

“GM shouldn’t hoard cash if it cannot deploy it at an attractive rate of return,” Michael Kon, senior analyst with Golub Group, which owns GM shares in its equity fund, said before GM announced plans to boost the dividend.

Kon said he prefers share buybacks to a higher dividend because the stock is so cheap. The shares closed at $33.98 on Tuesday.

GM faced a backlash from shareholders after leaving its quarterly dividend payment unchanged in January at 30 cents a share, while Ford Motor Co (F.N) raised its payout by 20 percent.

On Wednesday, it said it plans to raise the dividend by 20 percent to 36 cents a share once the board approves the move at its second-quarter meeting.

Since the exit from bankruptcy, GM’s top executives have vowed to maintain a “fortress balance sheet” so that the company will never be caught short of cash again. They have also told investors they intend to increase spending on new vehicles and technology in response to tougher emissions and safety standards.

EXCESS LIQUIDITY

Shareholders are putting pressure on a broad array of U.S. companies to give back more cash.

GM’s excess cash could total at least $10 billion, according to Hermes Investment Management senior credit analyst Jon Brager.

“Too high is the wrong word, but they definitely have excess liquidity,” Brager, whose firm has owned GM debt in the past, said before Wednesday’s dividend announcement.

Its reserves pale against those of Apple Inc (AAPL.O), which has $178 billion on hand and has said it will return more than $130 billion to shareholders by the end of this year. But GM’s liquidity compares favorably with other industrial companies. GM also exited bankruptcy with little debt.

Moreover, many U.S. industrial companies with global footprints are making do with comparatively low cash balances, including Boeing Co (BA.N) ($13.1 billion), Caterpillar Inc (CAT.N) ($7.3 billion) and Honeywell International Inc (HON.N) ($7 billion).

In addition to its plans for maintaining its cash levels, GM has said for 2015 it is targeting automotive liquidity, which is linked to the company’s industrial operations and includes credit facilities, of about $30 billion to $35 billion. At the end of last year, those totals were $25.2 billion in cash and $37.2 billion in liquidity.

GM’s smaller U.S. rival, Ford, had almost $22 billion in cash and $32.4 billion in total liquidity at the end of 2014, while Fiat Chrysler Automobiles (FCAU.N) (FCHA.MI) stood at $27.6 billion in cash and $31.8 billion in liquidity.

A FEW UNCERTAINTIES

However, GM has a lot of claims on its cash, including a more aggressive 2015 budget. Last month, the Detroit company said it would boost capital spending this year by 20 percent to $9 billion to pay for vehicle launches and investments in new technology.

GM also has stuck by its target to reach profit margins of 9 to 10 percent by early next decade, compared with a consolidated margin of 6 percent in the fourth quarter.

GM also faces the uncertainty of a possible payment to settle an investigation by the U.S. Department of Justice into the company’s delay in recalling vehicles with the defective ignition switches.

That investigation is ongoing, but investors who expect GM to push for its conclusion in 2015 need only look to last year for a template, when Toyota Motor Corp (7203.T) paid $1.2 billion to settle U.S. criminal charges that it concealed safety problems in its vehicles.

GM also faces a risk of civil legal proceedings related to the faulty switch, investors said. GM has asked the U.S. Bankruptcy Court in Manhattan to bar lawsuits based on safety issues in cars made before the company’s 2009 bankruptcy.

(This version of the story corrects the name of Hermes Investment Management in paragraph 14.)

Additional reporting by Bernie Woodall in Detroit; Editing by Matthew Lewis and Alden Bentley

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