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Subject: Wall St. Hails GM Effort to Conserve Cash; Dividend Cut Seen as Step To Boost
Date: Tue, 3 Nov 92 04:45:22 EST
Message-ID: <18.1992Nov3.044522@AmeriCast.com>

Wall St. Hails GM Effort to Conserve Cash; Dividend Cut Seen as
Step To Boost Competitiveness<By Kathleen Day<Washington Post
Staff Writer=

General Motors Corp. shareholders may rue the carmaker's decision
yesterday to cut its dividend in half, but Wall Street cheered.

 Analysts said the move - designed to conserve much-needed cash -
is one of several  required to make GM leaner and more competi-
tive over the long term. GM's stock rose $1.12 1/2  a share yes-
terday to close at $31.87 1/2  in New York Stock Exchange trad-
ing.  The dividend cut,  to 20 cents from 40 cents a share of
common stock, is one more signal that GM is "dead serious about
rebuilding a profitable, competitive car business in North Ameri-
ca," said Philip K. Fricke, first vice president and senior auto
analyst at Prudential Securities Inc. in New York.  Cutting the
dividend is part of a bigger plan to reduce costs that includes
previous announcements that GM will lay off 74,000 workers and
close 21 plants by 1995, Fricke and other analysts said. It is
part of a major shift in GM's direction, coming in the wake of a
top-level management shake-up cemented yesterday with the an-
nouncement that John G. Smale will become chairman.  The big
challenge that Smale faces is to build a better car at lower cost
so the company can compete on quality and price with foreign
rivals, notably Japan, Wall Street analysts said.

 The cost-cutting moves are intended to do that, by bringing ef-
ficiency to the carmaker over the long term, but they also aim to
preserve cash immediately, analysts  said. GM's North American
car and truck operations have suffered a cash crunch in the last
18 months.

 GM had resisted cutting dividends in order to attract investors
to buy its stock. In an aggressive policy to raise cash, GM has
issued $4.77 billion in stock since the beginning of the year.

 Yesterday's announced dividend cut, only the second in two
years, reflects the depth of GM's financial woes. It slows the
cash  hemorrhaging of $9 million a day that GM - the largest in-
dustrial company in the world - has been experiencing and  that
contributed to last year's loss of $4.5 billion - the biggest
loss by any company in history.  The question is whether Smale,
who when he was at Procter & Gamble Co. made Crest America's
best-selling toothpaste, can bring the same success to the
automaker's products and - just as important - win shareholder
confidence in the interim.

  GM had long-term debt of $7 billion and cash reserves of $6.2
billion as of Sept. 30, figures that analysts say are not  out-
landish for a company of GM's size. But because most of the debt
is held by the company's North American operations, those numbers
spell trouble in the eyes of outsiders weighing GM's
creditworthiness.

 Even though Wall Street seemed to agree that the dividend cut
was good for the company in the long term, the move may hurt GM's
credit rating in the short term. Standard & Poor's Ratings Group,
a private debt-rating agency, yesterday placed GM debt on its
Creditwatch list, which means that S&P is reviewing GM's credit
rating for a possible downgrade.

  Although the dividend cut helps GM conserve cash, it makes it
that much more expensive to sell additional stock and, to that
extent, will make it more expensive to repay the money the com-
pany owes, S&P said in a statement explaining its action.

"The just announced management shake-up points to the inadequacy
of previous plans for improving the competitiveness of GM's core
North American automotive operations and raises the specter that
costly and potentially disruptive additional restructuring meas-
ures will be necessary," S&P said.

 Nevertheless, analysts point out that the changes that have
rocked the company's boardroom since April and led to the cut
also have boosted the company's stock price in recent weeks,
offsetting to some degree the reduction in dividends.<02:16 11-
03C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

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