Will GM need to hoard cash to battle Apple, Google?

Just how much cash does a global automaker need to stay competitive? It's the main question in a tug-of-war between General Motors and four hedge funds that want $8 billion returned to shareholders.

With the industry's landscape changing daily there's a strong case for preserving cash to battle super-rich, high-tech companies delving into the auto space. Google's autonomous car, competition for in-vehicle connectivity and now talk of an Apple car are just a few salvos that present threats, and maybe opportunities.

Regardless of how seriously you take Apple, Tesla or Google as viable long-term manufacturers, the question of whether to hoard cash can't be ignored, said David Cole, co-founder of the AutoHarvest Foundation, a non-profit that helps companies pursue manufacturing innovations.

"This may be one of those examples that people need to pay attention to because its ramifications go far beyond GM," he said. "We have to preserve manufacturing to sustain life as we know it."

How much cash is enough?

Most people's eyes glaze over when they read that GM had $25.2 billion or Ford had $21.7 billion as of Dec. 31, 2014.

Here's some perspective: Developing a new car or truck from computer design to the end of an assembly line ranges between $500 million and $1.7 billion, depending on how many variations and powertrain choices are offered.

Chevrolet alone is launching five new models this year. GM has already committed $12 billion to double Cadillac's lineup from six to 12 models by 2020.

Apple, which has stirred up a tempest of speculation over what may be an electric car by 2020, sits on $178 billion of cash, more than seven times GM's reserve. Apple's market capitalization — $759 billion — is greater than the combined value of GM, Ford, Toyota, FiatChrysler, Honda and General Electric.

The hedge funds — Appaloosa Management, Hayman Capital, Taconic Capital and HG Vora Capital Management — are led by Harry Wilson, a former Obama auto task force advisor. They want GM to buy back $8 billion of its shares and give Wilson a seat on GM's board of directors.

Both Wilson and GM declined to comment for this story, but GM CEO Mary Barra has said the industry will see more change in the next five years than it experienced in the last 50.

Autonomous vehicles, intelligent highways, as well as electric and hydrogen fuel cell powertrains are coming and they require large capital outlays. Tech companies such as Apple, Google and other as-yet-unknown players will be part of the mix.

"We don't know whether it will be electric cars from Apple or Tesla or self-driving cars from Google," said Erik Gordon, professor at the University of Michigan's Ross School of Business. "We don't know yet which technology will enable any of these companies to meet government fuel economy standards. But it will require huge capital investment by GM or Ford to get through it."

Shareholders own the company after all, and they want the highest possible return. They point to GM's guidance that it likely will generate another $2 billion to $3 billion of cash this year. A higher stock price also means more resources.

Other stakeholders, including management, the UAW and dealers want to keep the pipeline of future vehicles well stocked. They understand the complexity and cost of engineering and making cars and trucks.

Other uncertainties could shrink GM's cash.

U.S. Bankruptcy Judge Robert Gerber has yet to rule on whether GM is shielded from product liability lawsuits related to vehicles produced before it exited bankruptcy in July 2009. The company's global pension funds were underfunded by $24 billion at the end of 2014.

Since Wilson declared his intentions Feb. 10 GM shares have risen about 4%, and briefly touched a 52-week high of $38.18 on Feb. 12.

In a Securities and Exchange Commission filing, Wilson disclosed that he will be paid between 2% and 4% of the appreciation of his client's 34 million GM shares. That translates to between $680,000 and $1.36 million for every $1 increase in GM's price.

U-M's Gordon says he usually supports activists investors trying to spur executives of underperforming companies. This time could be different.

"The real answer to these hedge funds is to say 'look, it's a good idea to give more cash to investors,'" Gordon said. "but this is the wrong industry at the wrong time."

Contact Greg Gardner: (313) 222-8762 or ggardner@freepress.com. Follow him on Twitter @GregGardner12.

How much cash do these companies have ?

■ Apple $178 billion

■ Google $64.4 billion

■ Toyota $21.1 billion

■ Ford $21.7 billion

■ FiatChrysler $25.7 billion

■ Amazon $17.4 billion