GM CEO sees greater 'bandwidth' for paying dividends in 2014

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WASHINGTON (Bloomberg) -- General Motors Co., with improved cash flow and fewer outstanding preferred shares, is in a better position to consider paying a dividend next year, CEO Dan Akerson said.

“We’re producing a fair amount of cash now, too, and we’ve improved our balance sheet by buying back yield-based securities, so I think it does give us more bandwidth to consider it,” Akerson told reporters today after a presentation at the National Press Club in Washington D.C.

With a low valuation and analysts projecting free cash flow will rise next year, Harry J. Wilson, a member of the U.S. auto task force that helped rebuild the automaker in a 2009 bankruptcy, has said activist investors may push for more dividend payouts or stock buybacks.

Akerson spoke shortly after the company said it plans to spend $1.3 billion to upgrade five U.S factories on top of the $1.5 billion already announced this year. GM rose 3.5 percent to a record closing price of $41.44 in New York. The shares are up 44 percent this year, outpacing a 25 percent jump for the Standard & Poor’s 500 Index.

The new plan follows last week’s announcement that the U.S. Treasury had sold its final shares of GM, freeing the company from U.S. government ownership. Akerson also said he will retire next month, naming Mary Barra, the company’s top product-development officer, to succeed him.

Continuing reorganization

Akerson has overseen several efforts to continue reorganizing the company following its 2009 bankruptcy. GM in September announced an effort to buy almost half of the UAW retiree health-care trust’s preferred shares, which paid a 9 percent annual interest, and replacing it with a bond offering.

GM brought out 18 new or revamped models in the U.S. this year and plans 14 more next year as the automaker improves its lineup from one of the industry’s oldest into one the newest. The investments disclosed today will create or retain about 1,000 jobs, making vehicles or components, the company said. 

The investments will help support the production of a new V-6 engine and new 10-speed transmission, in Romulus, Mich., GM said in the statement. The investment plans include $600 million for an assembly plant in Flint, Mich., where GM builds heavy-duty versions of the Chevrolet and GMC full-size pickups, which are being redesigned for next year. The investment includes a new paint shop, the automaker said in an e-mailed statement.

GM earlier this year announced plans to invest $16 billion at U.S. factories and facilities and $11 billion in China through 2016. The spending plans are part of Akerson’s push to boost North American operating margins to match those of Ford Motor Co. and almost double China sales by mid-decade.

GM’s improvements come as U.S. auto industry sales are on pace for their best year since 2007.

Ford hiring

Ford said last week that it plans to create 11,000 jobs in the U.S. and Asia in 2014. More than half of the 5,000 U.S. hires will be salaried technical professionals to support the company’s plan to introduce 16 new vehicles in North America next year.

Today’s announcement brings GM’s total stated investments in U.S. facilities since 2009 to more than $10 billion, creating or retaining 26,500 jobs.

GM will continue to invest at its current rate, Akerson said in Washington. The end of U.S. ownership in the automaker helps put the company’s 2009 bankruptcy restructuring in the past, Akerson said.

“The end of the 'Government Motors' era has cleared the runway for the team to soar,” Akerson said today at the National Press Club in Washington D.C., according to prepared remarks.

J. Kyle Bass, Hayman Capital Management LP founder, has said GM should increase in value by more than 40 percent in 12 to 18 months, basing his projections for the stock gain on the automaker issuing a dividend equal to half of its 2014 free cash flow, which he estimates as $4.1 billion. That’s more than what some analysts predict the automaker will spend.

Joseph Amaturo, an analyst at New York-based Buckingham Research Group Inc., said in a Nov. 21 note to clients that GM may start offering an annual payout of 80 cents a share next year that would cost about $1.2 billion.

'Fortress protection'

Brian Johnson, an auto analyst for Barclays Plc, has said that GM has sufficient cash and liquidity to pay an annual dividend of 40 cents a share and repurchase stock in addition to buying back remaining common shares owned by the Canadian government and a union health-care trust.

The automaker hasn’t paid a dividend since 2008 and executives have said the company wants to maintain a “fortress balance sheet” that can withstand a sharp economic downturn, as well as return cash to shareholders.

Asked by reporters whether GM should pay the government to make up for the Treasury’s loss, estimated at $10.5 billion, Akerson said the automaker had met its obligations and helped the broader economy. Paying more than that would lead to shareholder lawsuits that would be hard to defend against, he said.

“We paid back all that we owed,” Akerson said. “I have the benefit of not having to explain the bankruptcy: I wasn’t there when it happened. It was structured, that was the deal that was structured.”

According to the Center for Automotive Research in Ann Arbor, Mich., the government bailout of the auto industry preserved 2.6 million jobs in the U.S. economy in 2009.

The center calculates that a collapse would have eliminated $284 billion in personal income in 2009 and 2010 and cost the federal government $105 billion in unemployment benefits and reduced Social Security contributions.

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