GM CFO Dhivya Suryadevara has $34B in liquidity to work with during strike

Dive Brief:

The auto workers strike that started Monday is expected to cost GM tens of millions of dollars a day in lost revenue, but the company has an estimated $34 billion in liquidity available that its CFO, Dhivya Suryadevara, can use to help the company minimize financial damages while it negotiates with the workers' union.
GM could lose at least $50 million a day as production slows, Dan Levy, an analyst at Credit Suisse, said in a research note to clients. "The longer it lasts, the more it will be felt in GM's earnings profile," he said. Citigroup analyst Itay Michaeli put the daily loss higher, at $100 million.
To offset the losses, the company cut the health insurance benefits of the roughly 46,000 workers who went on strike. "GM's decision to yank healthcare coverage away from their dedicated employees, in the dead of night, with no warning, is heartless and unconscionable," said Mary Kay Henry, president of the Service Employees International Union. The benefits are being picked up by the employees' union.

Dive Insight:

Health care benefits are part of the reason for the strike: GM wants employees to pay 15% of the costs of their premiums. That's below the national average of what workers pay as part of their employer plan — about 28% — but significantly higher than the 3% to 4% that GM workers are paying today, Crain's Detroit Business reported.

GM has since walked back its proposal, but it remains unclear what it's offering in its place, Crain's reported.

Offsetting losses

The roughly $34 billion in liquidity Suryadevara can use to keep the company operating during the strike is divided between $17.5 billion in cash and marketable securities from automotive operations and a $16.5 billion revolving credit facility, according to a report in The Wall Street Journal.

To help offset losses from the production shutdown, Suryadevara can focus on reducing variable costs such as marketing and can delay payments to suppliers to ensure GM maintains a strong cash balance, David Whiston, an analyst at Morningstar, said in the Journal report. "You don't have control over receivables, but over payables," he said.

The company already pushes back its fourth-quarter payments to the next year, he said.

Analysts said Suryadevara could zero in on savings opportunities in the $8 billion to $9 billion GM is expected to spend on capital expenditures this year. And if the strike draws out, she can look for savings by being "more aggressive" on 2020 capital expenditures, Bill Selesky, a senior analyst at Argus Research Co., said in the Journal.

Should the strike stretch out for several weeks, Suryadevara might have to revise the company's guidance, analysts said.

In its most recent earnings report, in August, the company said it expects no change to its outlook of $6.50 to $7 in earnings per share and free cash flow from automotive operations of $4.5 billion to $6 billion, the Journal reported.

Whiston said the company has about two weeks before the upper end of the guidance is jeopardized and Suryadevara would need to make a revision in what the company expects to earn. "That's the hard part — to know how long this is going to last," he said.