GM’s Draw-Down Preserves Dividend, Signals Edge Over Ford

Pickup truck frames sit on the assembly line at the GM plant in Flint, Mich., in 2019.
Pickup truck frames sit on the assembly line at the GM plant in Flint, Mich., in 2019. (Jeff Kowalsky/Bloomberg News)

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General Motors Co. joined Ford Motor Co. in tapping its credit lines to stock up on cash, but the bigger automaker is signaling superiority over its Detroit rival by leaving its dividend intact for now.

GM’s $16 billion draw-down is a proactive measure it’s taking to preserve financial flexibility heading into months of uncertainty for auto markets around the globe. The amount the company will take from credit lines will supplement the roughly $16 billion in cash GM expects to have at the end of this month.

“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,” Mary Barra, GM’s CEO, said in a statement.



Ford took some of its own austerity measures last week, suspending its dividend and drawing down $15.4 billion from its credit facilities. GM had been performing better than its crosstown competitor before the global pandemic, and continuing its payout to shareholders suggests the carmaker has greater confidence in its ability to preserve cash through an untold period of suspended production.

The $32 billion in cash GM will have after its draw-down is enough to last as long as 21 weeks without any production, Joe Spak, an analyst with RBC Capital Markets, estimated in a note to clients. After tapping its credit facility, Ford has about $38 billion in cash, based on its balance at the end of last year.

Ford said separately March 24 that it’s reassessing when it will reopen North American plants and is no longer planning to restart them March 30 as previously hoped. GM also is reconsidering plans for cranking its factories back up, though no decision has been made, a spokesman said.

‘World Isn’t Ending’

Not only is GM paying shareholders $560 million a quarter, its lending unit GM Financial still plans to pay the auto company $400 million in the second half of the year.

“By keeping both dividends in place, it says the world isn’t ending,” said Joel Levington, a credit research analyst at Bloomberg Intelligence.

GM shares rose as much as 15% as of 10:40 a.m. in New York trading. The stock had dropped 52% this year through the close March 23.

GM is borrowing about as much cash as it has on hand to weather the shutdown of many of its plants due to the coronavirus. Just as Ford did last week, GM suspended its financial guidance for the year, with both companies uncertain as to when their factories will be back up and running and what shape the economy will be in once the pandemic recedes.

GM had said it expected to make between $5.75 and $6.25 a share this year.

While GM’s dividend is intact for now, the automaker could easily reverse the decision by April 27, when it’s scheduled to declare it for the second quarter, said David Whiston, an analyst with Morningstar Inc.

“They’re going to try to stick with it,” Whiston said by phone. “But their hand could be forced, and they could end up having to cut it anyway.”

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