General Motors should not get distracted by the buzzing fly of investor activist Harry Wilson, a board member for hire and onetime Obama bureaucrat looking for a cash grab on behalf of some deep-pocketed bankers.
GM CEO Mary Barra has the automaker pointed in the right direction, by nearly all accounts. Sure there are challenges, such as a rebuilding of the Cadillac luxury brand that has run into some thick weeds. Barra also cannot count on continued relief at the fuel pump, where record-low gasoline prices have demand soaring for GM’s cash-rich large pickups and SUVs, and Europe remains mired in its new-vehicle sales slump with no sign of significant recovery this year.
Let’s face it, too, GM still has an image problem in many circles from the $49.5 billion taxpayer-funded bailout, which Wilson helped oversee, and the ignition-switch defect scandal remains in the headlines and will not be forgotten anytime soon.
Pivotal UAW negotiations also lie on the near horizon, and it’s unclear if the $9,000 profit-sharing checks from 2014 will ease labor’s payback demands for the sacrifices it made during GM’s flirt with liquidation. That’s a lot of irons in the fire.
The automaker, however, is healthier than ever. It boasts a break-even point of less than 11 million unit sales at 18% market share in the U.S., against an industry that last month ran at a seasonally adjusted annual rate of 16.6 million sales.
China continues to be a major weapon in its arsenal, a country where GM again last week posted an impressive year-over-year equity draw despite a slowing new-car market overall. South America appears to be making a turnaround after a brief restructuring in Brazil.
The automaker has the fortress balance sheet the reorganized company set out to establish upon its exit from U.S. bankruptcy in 2009 with $37.2 billion in available cash, and Barra is keeping with a promise to return shareholder value by hiking the dividend 20% to $0.36 per share beginning in the second quarter.
GM Chief Financial Officer Chuck Stevens, speaking after Barra during last week’s fourth-quarter earnings call, where GM’s report blew past analyst expectations, hinted at additional action to return shareholder value later this year.
By the way, GM also is building the best products it has in decades and this year in North America could make a reasonable market-share gain. That would be another mile forward, but hardly the end of the road in the automaker’s improbable comeback.
That’s why Wilson’s bluster should be taken as nothing more. Sure, he’s got some big hedge-fund names behind him and investors outside their circle would stand to profit too if the buyback were to happen.
But it won’t. Wilson asks for an $8 billion share repurchase by 2016, claiming GM is undervalued, cash-rich and overcapitalized. Such an action at this point in the automaker’s turnaround would degrade, rather than enhance, shareholder value. He wants it considered, along with a seat for himself on GM’s board of directors, during the automaker’s annual meeting in the spring.
"We believe that Harry Wilson will be a highly effective advocate for shareholders on the (GM) Board of Directors," Appaloosa Management, a hedge fund backing Wilson, said in a statement Tuesday. "We invite and encourage GM to address these issues productively and refrain from acrimony."
Perhaps Wilson and his Wall Street cronies should take a moment to consider this half-baked scheme from an automotive perspective.
The $8 billion in cash he demands would be enough to fund an entire year of capital spending. That’s also equivalent to eight new-product programs at a time when GM continues to work off a hangover from the bankruptcy, which shelved and delayed the release of important new cars, trucks, CUVs and powertrain and infotainment technologies.
Wilson and his backers reportedly own 34.1 million shares. Based on Monday’s closing price of $36 per share, the group would net themselves $1.24 billion. That’s a tidy payday for a bit of saber-rattling, noise GM would be smart to dial out.