Auto Roundup: GM & GPI's Investor-Friendly Moves Rule the Headlines
Last week’s major highlight was the dividend and stock buyback resumption announcement by the U.S. legacy automaker, General Motors GM. In April 2020, the auto giant had suspended dividend payout to reserve its cash at a time when the pandemic had forced auto factories and dealerships in the United States to remain partially closed. GM’s sales were badly impacted. The announcement to return to dividend payment reflects GM’s resilience and indicates that it is probably past the worst risks of the pandemic-inflicted crisis. It is also a positive signal to investors of GM’s confidence to fund growth.
One of the leading auto retailers Group 1 Automotive GPI also rewarded investors with a dividend hike and buyback boost. Meanwhile, GPI’s peer Sonic Automotive SAH continued with its expansion efforts with the buyout of the Audi Owings Mills dealership. U.S. auto giant Ford F also made it to the top stories as it was hit with a $1.7 billion penalty by the Georgia jury for a fatal truck crash.
General Motors, Ford, Group 1 and Sonic carry a Zacks Rank #3 (Hold) currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Recap of Last Week’s Important News
General Motors announced its decision to restore the quarterly dividend for shareholders. The dividend was authorized on the company’s outstanding common stock at a rate of 9 cents per share. However, this marked a 76% reduction from 38 cents per share when the dividend payment was halted in April 2020. The first payment will be made on Sep 15 to shareholders of record as of Aug 31. GM is also set to resume its buyback program. The company has boosted its share repurchases to $5 billion of common stock, up from the $3.3 billion previously remaining under the program. The company cited the steady progress in the expansion of electric vehicles and domestic battery manufacturing as the reasons that fueled GM’s strength and enabled it to get back to value creation for shareholders.
In separate news, GM announced its decision to recall more than 484,000 large SUVs in the United States to fix a malfunction in the seat belts. The problem pertains to the third-row seat belts that might fail to protect occupants during a crash.The company is aware of eight instances where the seat belt buckle assemblies separated but no injuries were reported. After the glitch was reported, the seat belt supplier altered its manufacturing processes and introduced an additional inspection step to ensure that new parts were kept clean of the issue. Dealerships will look into the seat belt buckle assemblies on recalled vehicles and replace them with new parts, free of charge, if required.
Group 1 announced that its board of directors approved a quarterly cash dividend of 38 cents per share. This represents a 2.7% increase from the first-quarter 2022 payout. The quarterly dividend will be paid out on Sep 15, 2022 to shareholders of record at the close of the business on Sep 1, 2022. The company’s new annualized dividend rate is now $1.52 per share.
Additionally, the auto retailer boosted its share repurchase program by $130 million to $250 million. Year to date, Group 1 has bought back 1,546,856 shares of common stock at an average price of $176.80 for $273.5 million, representing 9% of the firm’s outstanding share count as of Jan 1, 2022. GPI’s return on equity (ROE) of 37.65% compares favorably with the auto sector’s 9.83%, underscoring management's efficiency in rewarding shareholders.Group 1’s ability to reward shareholders with dividends and buybacks is backed by strong cash flow and revenue generation capacity.
Sonic acquired Audi Owings Mills, which represents the company’s eighth Audi franchise and 112th franchised dealership overall. The dealership, located in Maryland, will serve the residents of the greater Baltimore area. Last year, Sonic had acquired the Volkswagen of Fallston dealership in Maryland. The acquisition of Audi Owings Mills extends Sonic’s association with Volkswagen and seeks to offer consumers more choices in the Maryland market.
Sonic is committed to optimizing its franchised dealership business, both through organic growth initiatives and through strategic acquisitions.While the company’s acquisition of dealerships is likely to boost long-term growth, it may strain the near-term financials of the firm. Massive expansion plans and the rollout of the new stores may limit operating margins and cash flow, going forward. As it is, the firm doesn’t boast a strong balance sheet. As of Jun 30, 2022, the company’s long-term debt stood at $1,462 against cash and cash equivalents of $327.1 million.
Ford has been ordered by a jury to pay more than $1.7 billion for a 2014 rollover accident that killed a Georgia couple.The case was lodged against Ford by the family of Melvin and Voncile Hill. The couple was driving a 2002 Ford F-250 Super Duty truck from their farm in Georgia when the right front tire ruptured and the truck rolled over, killing both.The Hill family claimed that Ford had prior knowledge that the roofs of the F-250 pickups were too flimsy to protect riders in the event of a rollover but did not warn consumers of the same until 2016.
The case has been dragging on for years, and jurors delivered their final verdict last week following a 14-day trial in a state court in Georgia. On Thursday, the jury awarded the Hill family $24 million in compensatory damages. The $1.7 billion penalty in additional damages was awarded by the jury on Friday.It is likely that the Hill family pressed for a verdict to warn people riding the millions of trucks Ford sold. Hopefully, the stringent verdict will make more automakers address passenger safety issues.
Price Performance
The following table shows the price movement of some of the major auto players over the last week and six-month period.
Image Source: Zacks Investment Research
What’s Next in the Auto Space?
Industry watchers will keep a tab on July 2022 passenger and commercial vehicle registrations to be released by the European Automobile Manufacturers Association soon. Also, stay tuned for any updates on how automakers will tackle the semiconductor shortage and make changes in their business operations.
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