Two General Motors stock classes would better serve investors, Greenlight Capital's David Einhorn told CNBC on Tuesday.
Einhorn, making comments after the hedge fund urged GM to split its common stock into two classes, said the automaker's stock is confronting a very unusual dynamic.
"It trades below its multiple in the S&P 500. The PE is less than 6. The payout, the dividend yield, which is more than 4 percent ... puts it among the highest. And further, they're only paying out about a quarter of their earnings," Einhorn said on "Halftime Report."
Greenlight Capital, which owns 0.88 percent of GM shares, a stake worth $457 million, said GM's switching to two stock classes would help the U.S. automaker improve its financial flexibility and boost the stock's value.
"I would compare it to an ice cream stand that just serves chocolate and vanilla swirl ice cream," Einhorn said. "If you gave investors more choice, some people like chocolate. Some like vanilla. Some like swirl."
GM rejected Greenlight's proposal Tuesday, saying the plan relates to eliminating the dividend on existing GM common stock and distributing an unprecedented new dividend-focused security.
"As Greenlight has already acknowledged, the proposed dual-class common stock structure would have no positive effect on GM's underlying business or cash flows, and therefore would not create additional intrinsic value," GM said in a statement.
"The proposed dividend security would not help GM sell more cars, drive higher profitability, or generate greater cash flow — nor would it address the fundamental sector factors affecting GM's stock price."
GM shareholder Bob Olstein, chairman of Olstein Capital Management, understands Einhorn's frustrations but thinks the stock can go higher without any financial engineering.
"The stock is going to go north because of the free cash flow yield. We have a lot of confidence in [CEO] Mary Barra," he told "Closing Bell" on Tuesday.
In fact, he wouldn't be surprised if GM went private or someone buys the company. The automaker has already taken 7 percent of the company private in the last two years, Olstein said, and he thinks it may take another 7 percent private. His All Cap Value Fund owns 300,000 shares of GM.
"Maybe Mr. Einhorn should take it private and collect his free cash flow of 11-12 percent a year. That's a pretty good return," he said.
Brian Johnson, a senior autos analyst at Barclays, said on "Power Lunch" on Tuesday that Einhorn's proposed stock rearrangement only brought attention to the fact that GM and Ford are priced too low.
"I think it really highlights… [that] GM and Ford as well are undervalued on their dividend payment potential," Johnson told CNBC.
— CNBC's Mack Hogan and Reuters contributed to this report.