Mary Barra just announced a reinstatement of a shareholder dividend (not the same amount) and buybacks, while (IMHO) still holding too much debt when a recession is in the air.
I do not understand why GM is doing this, when the still have outstanding debt to the US government…
Does anyone here understand this strategy?
Sincerely,
jan
Maybe this is market manipulation just to goose the stock price?
I do not understand why GM is doing this, when the still have outstanding debt to the US government…
– jan
Are you referring to the bailout back in the financial crisis or is this a new loan?
If the bailout, GM paid the loan back completely. The government ALSO took GM stock as part of the bailout and lost money on that when they sold the stock later, but as you know… that isn’t debt.
Rob
Former RB and BL Home Fool, Supernova Portfolio Contributor & Maintenance Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
GM shareholder base needs dividend, hence the company is doing. Couple of billion saved on dividends are not going to be able to pay down $100 B debt. I think certain debt is part of permanent capital.
Correct me if I am wrong. But I believe that GM has an outstanding loan from the Department of Energy.
Here is the most recent loan… will look for the older one.
https://www.wsj.com/articles/energy-department-to-loan-gm-jo…
Correct me if I am wrong. But I believe that GM has an outstanding loan from the Department of Energy. – DA
I see this loan announced last month: https://www.utilitydive.com/news/us-battery-manufacturing-do…
There may be others. Are you aware of any?
Rob
Former RB and BL Home Fool, Supernova Portfolio Contributor & Maintenance Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
LOL… I should have read your second post before commenting. Sorry. Same loan announced last month.
Rob
Former RB and BL Home Fool, Supernova Portfolio Contributor & Maintenance Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
So much debt… next recession, they will get another hand out.
GM = Government Motors.
Could not find the earlier loan for GM.
Just a philosophical view—perhaps I have misread things.
At a cursory glance, it would appear that the government has decided to offer (and press) particular loans to encourage specific corporate behaviours leading to specific societal outcomes.
If a company accepts such a loan, on the surface of things that doesn’t seem to be a bad thing.
That’s exactly why the incentive was put in place.
If it’s a desirable societal outcome, then kudos all around. It’s a “win-win”, in the jargon.
Conversely, even if the government was wrong in having encouraged and subsidized that specific targeted outcome, is it the fault of the company accepting it?
Jim
Conversely, even if the government was wrong in having encouraged and subsidized that specific targeted outcome, is it the fault of the company accepting it?
I don’t recall anyone scourging Berkshire for accepting subsidies for wind and solar.
Even after Warren has said, especially for solar, that he wouldn’t have pursued them without such subsidies.
The point that I was trying to consider is if GM should accept a loan of government money and then state that they are now can reinstate a dividend (albeit lower) and contemplate buybacks. If WEB had such high level of indebtedness in BRK he would not establish a dividend and announce buybacks, especially if he had just taken a loan from the government.
Having both huge debt both in corporate bonds and new debt using tax payer money… it seems like poor stewardship of those funds to pass that money on to shareholders, rather than use the money to improve the factories or pay down debt.
If your brother-in-law, tells you that he needs a loan to improve his business, and you agree after he lobbies you incessantly, then upon receiving said loan, proceeds to create a dividend and consider buybacks, then surely uour brother-in-law, mislead you when he lobbied for said loan.
The point that I was trying to consider is if GM should accept a loan of government money and then state that they are now can reinstate a dividend (albeit lower) and contemplate buybacks.
But GM was making such statements prior to the loan, which is almost virtually “free” to the company provided it satisfies the intended objectives of the program. Also, GM’s financial situation isn’t nearly as dire as you imply. You might want to read what, e.g., Value Line, M*, or CFRA has to say.
Misterfungi,
Thanks for your good point about GM’s debt.
It seems that GM lobbied hard for this legislation. And is very popular with the WH.
Ford seems yo be more upstanding like BRK. GM (IMHO) is not in the same league as Ford.
Farley is better than Barra IMHO.
But you may all disagree.
Sometimes with cars, it boils down to your favorite Corvette or F150.
No worries…
:^)
The point that I was trying to consider is if GM should accept a loan of government money and then state that they are now can reinstate a dividend
Berkshire which accepted various government subsidies for Wind and Solar is buying back shares, and they accepted government subsidies when they carried over $100 B in their balance sheet.
Do you have any thoughts on that?
Kingran,
Nothing about subsides is easy or perfect.
It is good that Berkshire Energy has installed solar and wind to produce electricity. I believe that without those subsidies WEB said that BRK Energy would not have gone to sustainability.
In the case of GM, (again IMHO) with or without subsidies from the US government, they would have gone fully for battery powered electric vehicles.
I am glad that GM hopes to go all electric.
None of us here thinks that there is any chance that WEB instituted buybacks to pump the shareprice.
IMHO GM’s move for a dividend and buybacks might be a way to pump the shareprice? Surely they will need every penny for new factories etc., if they plan to go fully electric as they cannibalize their internal combustion vehicle business?
GM’s thinking seems fuzzy and wrong (IMHO) on many levels.
But Toyota and VW leadership is messed up too.
Subsidies are tricky.
IMHO.
:^)
GM paid back every penny of government loans with interest in rather quick fashion.
GM presently earns about $6 a share in annual net income, has been profitable for years, and is now sharing 36 cents each a share each year with shareholders.
So, let me understand your thinking: a decade after paying back what it owed the government… and since then paying $tens of millions additionally in taxes TO the government…GM should not belatedly issue a dividend with a payout ratio of maybe 7% to its long suffering OWNERS (the only entity thats been royally screwed in the process). Because it has debt on its balance sheet.
Berkshire has received $millions in government energy tax credits it never intends to pay back. We’re OK with that. But an entity that RETURNS its government help (with interest) can’t share 7 cents of each buck of profit with its owners?
IMHO GM’s move for a dividend and buybacks might be a way to pump the shareprice? Surely they will need every penny for new factories etc
Debt is part of capital structure. No one argues, you should not be paying interest because company needs money, for obvious reason. OTOH, equity has ownership but that doesn’t mean that ownership cannot demand a return.
When government offers a grant or subsidy, it offers to encourage a behavior. Saying, GM would have no matter done that, and therefore they should not be taking subsidy is an incorrect argument.
Frankly, it is just you view GM has committed something wrong, perhaps influenced by your love of Tesla?
I do love Tesla.
I guess it boils down to GM getting bailed out so often.
IIRC: The new dividend is lower than the old one.
Ford and BRK have never used the taxpayer’s purse during recessions.
GM could be getting ready for the next financial storm instead of announcing a dividend.
GM has been loosing market share for ages.
I wish that they were more proactive at building a Fort Knox balance sheet like BRK.
Thank you for helping me clarify my thinking.
:^)