General Motors (GM) made several major announcements on Wednesday aimed at reassuring investors after a tumultuous year impacted by inflationary pressures, electric vehicle manufacturing delays, and protracted United Auto Workers union (UAW) labor negotiations.
The initiatives unveiled by CEO Mary Barra include a $10 billion stock buyback program, an increase to the firm’s 2024 dividend, less volatile forecasts for 2023, and updated earnings guidance factoring in strike-related hits.
The move was seen as almost an insult to its unionized workforce as it was announced just weeks after it complained that it couldn’t possibly raise its workers’ wages. Its final deal with the UAW saw a $1.5 billion increase to its labor costs compared with 2019 contracts, a fraction of the amount it plans on spending on its stock buyback.
The Detroit automaker’s share price is surging by nearly 10% following the news. Barra affirmed that these projections of strong cash generation capabilities alongside strategic cost discipline should help offset macro headwinds. Actions also signal GM’s increasing focus on returning money to shareholders until its widely delayed EV-related ambitions finally start to gain traction.
Tempering 2023 Outlook Amid UAW Strike Impact
While expressing disappointment over recent EV setbacks, Barra reinstated full-year earnings projections to account for lost production during the 6-week UAW strike. She estimates that these disruptions trimmed approximately $1.1 billion of GM’s adjusted EBIT in 2023.
The revised forecast for the firm’s adjusted EBIT was lowered to a range between $11.7 billion and $12.7 billion, down from a previous project of $12 to $14 billion. Meanwhile, the firm’s adjusted EPS guidance, accounting for the impact of the stock buyback, now sits at $7.20-7.70, down from an earlier estimate of $7.15 to $8.15.
The updated guidance incorporates the effects of the strike on the automaker’s bottom line but underscores confidence in GM’s underlying financial strength.
Barra also emphasized that the company is implementing several cost savings measures to offset the impact of increased worker compensation expenses following the new UAW agreements. She mentioned that these new budgets should contribute to almost fully neutralizing the added labor costs, primarily by boosting efficiency and reducing fixed costs.
The four-year deals with US and Canadian unions are projected to add $9.3 billion in costs, or approximately $575 per vehicle produced. The higher wages and benefits will peak at an estimated $2.5 billion in annual expenses by 2027. While substantial, Barra insisted that these incremental outlays would be offset without resorting to job cuts.
Capital spending for 2023 also received a slight haircut to $11-11.5 billion, versus the previous forecast of $11 to $12 billion. To achieve this, GM will be deferring certain investments.
GM Retires Over 15% of its Outstanding Shares Effective Immediately
With cash reserves exceeding $30 billion as of the end of September 2023, the management announced the launch of a $10 billion accelerated share repurchase scheme (ARS). The program will immediately retire $6.8 billion worth of stock, representing more than 15% of the firm’s total outstanding shares.
GM’s CFO Paul Jacobson suggested that the timing for the buyback aligned opportunistically with the firm’s currently depressed equity valuation. The initiative underscores the confidence that the leadership has in being capable of improving the firm’s cash flow generation capacity in the future.
Additionally, GM declared plans for a 33% dividend hike next year to an annualized $0.48 per share. The combined emphasis on returning capital to shareholders signals that, until the company makes meaningful progress on the EV front, adequate cost controls and savvy capital allocation will take priority.
GM Scraps its Investments on Cruise Following Multiple Regulatory and Business Setbacks
Referencing the headwinds faced this year by GM’s autonomous vehicle subsidiary Cruise, Barra revealed her intentions to drastically scale back spending in 2023. Investments into the robotaxi firm will drop by hundreds of millions following the recent regulatory suspension of operations.
“Our priority now is to focus the team on safety, transparency and accountability”, Barra highlighted. She added that the firm will wait until it receives results from two independent reviewers to “chart the course forward” for the EV unit.
Back in October, an accident involving one of the firm’s driverless cabs led to the resignation of Cruise’s CEO Kyle Vogt. In addition, authorities in California ordered the firm to stop operating its vehicles in the state.
Cruise was forced to recall nearly 1,000 units and suspended all of its road operations after receiving backlash and criticism from law enforcement officials and first responders in the area.
For GM’s electric vehicle portfolio, Barra conceded that near-term production has proved disappointing. However, she expects that the company will be able to come up with solutions for battery manufacturing bottlenecks to enable rapid growth by 2024. The CEO maintained that profitability estimates for GM’s EV lineup remain and will be materialized in the long run.
This week’s announcements showcase GM’s financial resilience in navigating current macro uncertainty. While the wait continues for its electric transition to gain momentum, generous shareholder paybacks aim to entice investors to keep supporting the company. For GM’s leadership, the strategic vision stays locked on future opportunities even amidst present obstacles.