Editor's note: This blog was updated to clarify details on GM Financial and on Cadillac spending.
DETROIT -- Marauders are storming General Motors’ “fortress balance sheet.” Or at least, they’re knocking loudly on the door.
Since GM’s 2009 bankruptcy, executives have used that fortress analogy to describe a fiscal philosophy marked by a comfortable cash cushion and very little debt to protect GM during the next, inevitable downturn.
But investors have come to see that cushion -- $37 billion in cash, marketable securities and available credit at last count -- as a little too comfy. To placate them, GM last week authorized a 20 percent bump in its common-stock dividend, at a cost of $400 million a year, and hinted at more.
That wasn’t nearly enough for Harry Wilson. The 43-year-old former member of the government’s auto task force surprised GM last night by nominating himself as a candidate for director and requesting that GM commit to $8 billion in share buybacks by June 2016.
GM’s directors may not be eager to put that big a dent into the cash pile. There are, after all, other mouths to feed:
- An ongoing investigation into GM’s handling of its defective ignition switch -- now linked to 52 deaths -- could result in a fine of $1 billion to $2 billion, analysts figure.
- GM is in the midst of a multiyear effort to build its GM Financial captive finance arm, as a key to better customer retention and market share. GM Financial's operations are self-funded, but the effort could require cash if parent GM decides to make more acquisitions (GM has made two, totaling $5.5 billion in cash since 2010).
- GM’s pension shortfall widened last year to $10.9 billion, from $7.3 billion a year earlier (although GM does not need to make any pension-fund payments for several years).
- Across its brands, GM is pumping more money, not less, into vehicle development, even after an 18-month stretch in which it revamped nearly its entire truck lineup. Its capital spending will increase about 20 percent this year, to $9 billion.
- Part of its capital spending will be investment in the Cadillac brand’s growth -- especially in China, which could become the world's largest luxury market in the next few years. Cadillac plans to spend some $12 billion to build out its vehicle lineup and grow the brand over the next five years, some of it likely in the form of capital outlays -- plants and equipment.
Given all of that, can GM plunk down $8 billion for stock buybacks and still maintain an adequate-enough cash stash?
Probably, analysts say.
Even factoring in the above cash needs, fully obliging Wilson’s request would leave GM with a cash cushion in the $20 billion range, the low end of its $20 billion to $25 billion target, analysts say.
Still, that would represent a wrenching change in course from GM’s cautious, “fortress balance sheet” approach since bankruptcy.
Barclays Capital analyst Brian Johnson figures GM could meet Wilson halfway.
“We believe there is a fair likelihood that GM enacts some sort of share buyback (perhaps $4 billion),” he wrote in a client note today, “to show investors that it is enhancing shareholder value.”