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GM to Cut Dividend, Slash Executive Salaries and Give York a Seat?


Well, well...Automotive News is reporting that General Motors’ board on Monday will consider plans to cut the automaker's dividend by as much as 50 percent, cut the salaries of top executives and give a board seat to Jerry York. GM did offer York a board seat in the past, but supposedly York didn't like the strings that came attached to the offer.

If these rumors turn out to be true, it looks like GM is starting to drink the Kerkorian Kool-Aid that Jerry York served up at his Detroit Auto Show speech. I'm a big fan of the dividend cut. Personally, I've never been a big believer in doubly taxed dividends anyway. Why not invest the money in the company through research and development and grow its value? I'll take my profit when I sell the stock.

GM needs to keep the pipeline full of new, compelling, and market relevant products and at the same time conserve cash wherever possible. Belt tightening measures like those above are a good way go about this. As a bonus GM can send a message to employees and suppliers that everyone is bearing a part of the burden--executives and investors included. However, what impact this might have an GM's share price is a bit of a guessing game. Wall Street knows that GM is in trouble so these moves shouldn't start a run for the exits, but messing with a dividend can cause "irrational discouragement" among investors.