GM Has More Cash Than It Now Needs — The Wall Street Journal

GM Has More Cash Than It Now Needs — The Wall Street Journal
By Sharon Terlep

June 8, 2011
Three years after it was ushered into a government-financed bankruptcy restructuring, General Motors Co. finds itself in a position unheard of in recent years: it has far more cash than it needs for operations.
The auto maker has $30.5 billion in cash and securities and less than $5 billion in automotive debt, a result of the U.S. government’s bailout. It’s a dramatic turnaround from 2008, when it nearly ran out of cash and was forced to seek aid.
Chairman and Chief Executive Daniel Akerson is working on a plan to put the cash to use, he told shareholders gathered in Detroit for GM’s first annual meeting since becoming a publicly-traded company again.
“We can actually make money now and we have $36.5 billion in cash and $5 billion in debt to work with,” Mr. Akerson said. His cash figure includes about $6 billion from credit facilities. “No one is doing a victory lap, we are in the midst of a transformation. We have a lot of work to do.”
Mr. Akerson said he worries that high unemployment amid growing economic worries could slow the U.S. recovery. His comments came the same day that Ford Motor Co. told investors it plans to reduce its debt by $2.6 billion by the end of the second quarter.
High on Mr. Akerson’s list: paying down the company’s pension shortfall in the U.S. GM has cut its U.S. pension shortfall nearly in half since 2009, down to less than $9 billion from more than $17 billion, Mr. Akerson said on Tuesday.
A move to shrink that debt—if well-received on Wall Street—could help GM get closer to its goal of cutting ties with the U.S. government. GM is eager for the U.S. government to sell its remaining 26.5% stake. But GM’s sinking share price, down 12% to $28.97 since its November initial public offering, could make the U.S. Treasury reconsider a goal of selling additional shares in August or September.
GM has whittled down the pension shortfall, contributing $2 billion in stock this year on top of $4 billion last year. Meantime, favorable stock-market conditions have helped reduce the gap.
The auto maker also is weighing other options for its cash. Further reducing debt, pumping money into the company’s fledgling finance arm, and spending on new products and facilities are among the options.
GM has said it aims to have virtually no debt within the next couple of years. The auto maker also would like to expand its auto financing business. GM last year acquired sub-prime lender AmeriCredit with $10 billion in assets, and would like to build its in-house business into an operation with as much as $15 billion in assets, according to a person familiar with the plan.
Another tactic would be to buy back shares from existing stockholders, a move that could increase the value of outstanding shares. It would be an indirect way to increase the value of the U.S. Treasury’s stake in hopes it could speed a sale. That would be a fallback to GM’s preferred path of buying back shares directly from the U.S., which Treasury officials shot down earlier this year, according to people familiar with the situation. The administration would likely take heat if it were to return its stake to GM for less that it could get by for the share price to rise over time.
Tuesday’s meeting was a stark contrast to the previous one, in 2008, as the auto maker was sliding into bankruptcy. GM then was pulling cash from its pension fund to finance operations. That meeting marked the first admission by former CEO Rick Wagoner that GM’s strategy to pursue big trucks and SUVs over small cars needed to change. He announced plans to close four GM truck plants, consider selling the now-defunct Hummer SUV brand and to build the Chevrolet Cruze compact car, now one of GM’s hottest sellers.
Mr. Akerson, flanked on stage by two soon-to-launch compact cars, received a much warmer reception from a group of about 60 stockholders.
“I’m glad to see someone smart doing this job,” one investor said.

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