General Motors is now the latest US firm to announce the temporary suspension of expenditures such as share buybacks and quarterly cash dividends. The US automaker announced on Monday that it is moving forward with the move in order to save cash as a way to survive the economic downturn caused by the ongoing coronavirus pandemic.
GM chief financial officer, Dhivya Suryadevara, stated in the company's announcement that it needed to enhance its liquidity to properly navigate the uncertainties facing the global automotive industry. She added that decision was made to ensure the survival of the company and to create more value for all stakeholders for the long-term.
The company did not specify when it plans to lift the suspension on dividend payments. Analysts have pointed out that it is near impossible to predict profits for the rest of the year given the uncertainties involved. It is also not yet clear when production and sales will go back to normal.
On Monday, GM's share prices slightly increased by 2 percent, closing at $22.47 per share. Since the start of the year, GM's share prices have dropped by more than 40 percent.
Apart from controlling its spending, the company revealed that it has extended a $3.6 billion three-year revolving credit facility to shore up its finances. Like other automakers, GM's vehicle sales in the US and around the globe have plummeted since the start of the year as a result of the lockdown and shelter-in-place orders imposed by governments to mitigate the spread of the outbreak.
As the virus continued to ravage the US, automakers such as GM and Ford had been forced to take drastic steps, which included shutting down their manufacturing plants in North America. This has resulted in massive delays in the release of new models and the furlough of thousands of workers. GM's factories in the US and Canada have completely been shutdown since mid-March.
Last month, GM along with Ford and Toyota has taken steps to reopen their manufacturing facilities but progress has been slow. Labor unions have continually asked the automakers to extend their closures, with some claiming that it was still too risky to go back to work.
Around nine companies in the S&P 500 have announced the temporary suspension of dividends this month. The companies are mostly those involved in the most heavily hit sectors such as travel, hospitality, and entertainment. Along with GM and Ford, the companies that have so far suspended dividends include Carnival Cruise, Estee Lauder, Hilton Worldwide, Las Vegas Sands, Kohl's, Barron's, and HCA Healthcare.
