© Reuters. FILE PHOTO: A Cruise autonomous vehicle, owned by General Motors, is seen outside the company’s headquarters in San Francisco, California, U.S., September 26, 2018. REUTERS/Heather Somerville/File Photo
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By David Shepardson
(Reuters) -General Motors said on Wednesday its new labor agreements after a long U.S. strike will cost it $9.3 billion, even as it outlined $10 billion in share buybacks, a 33% dividend increase and a “substantially lower” spending on its Cruise robotaxi unit.
The buyback is equivalent to nearly a quarter of GM’s common stock at Tuesday’s closing price. Its shares fell about 14% this year before rising 9.8% to $31.71 on Wednesday. The stock is still below the $33.66 price it closed at just before the start of the UAW strike on September 15.
Shares of Ford (NYSE and Chrysler parent Stellantis (NYSE ), which were also affected by the UAW strike, rose 4.3% and 4.8%, respectively.
GM lowered profit expectations for 2023 following the United Auto Workers (UAW) strike in the United States.
The Detroit automaker has struggled to boost its stock price as it dealt with the strike and problems at its Cruise autonomous vehicle unit and the launch of its new electric vehicles.
“Finally, some good news for GM and this was solid outlook and comments from Barra & Co after the UAW debacle,” Wedbush Securities analyst Daniel Ives said in an email. “Now it’s about getting the train back on the tracks and this is a great start.”
The $9.3 billion in additional costs through 2028 correspond to agreements with the UAW and the Canadian union Unifor, and translate to about $575 per vehicle over the life of the agreements.
GM’s new guidance lowered expected net income attributable to shareholders for 2023 to a range of $9.1 billion to $9.7 billion, compared with the previous outlook of $9.3 billion to $10.7 billion.
That includes an estimated $1.1 billion of adjusted EBIT impact from the UAW strike, which lasted just over six weeks, primarily due to lost production. The total impact in 2023 is $1.3 billion, including the deal’s higher salaries and benefits.
“Now that we have a ratified contract and a clear path forward that includes greater operational investment efficiencies, we can resume returning capital to shareholders under our plan,” GM CEO Mary Barra said in a conference call with investors, during which officials set the U.S. automaker’s biggest updated goals.
‘DISAPPOINTING’ ACTIONS
However, he also acknowledged that GM’s stock price was “disappointing for everyone,” pointing out how the stock at about $28 was 15% below GM’s 2010 initial public offering price.
GM stock currently trades at 4.4 times forward earnings estimates, below 6.3 for Ford, 8.8 for toyota (NYSE:) and 66.1 for the electric vehicle market leader, Tesla (NASDAQ:). However, the share price multiples of Volkswagen (ETR:) and Stellantis are even lower, at 3.5 each.
GM said earlier this year it would cut fixed costs by $2 billion by the end of 2024 and then in July laid out plans for another $1 billion in cost reductions. In April, GM said about 5,000 salaried workers had agreed to the acquisitions.
GM said it would cut costs at Cruise, which suspended all testing in the United States after an accident in California last month led regulators in that state to ban the company from testing self-driving vehicles. Cruise, which is cutting jobs, lost more than $700 million in the third quarter and more than $8 billion since 2016.
“We expect Cruise’s pace of expansion to be more deliberate when operations resume, resulting in substantially lower spending in 2024 than in 2023,” Barra said.
GM Chief Financial Officer Paul Jacobson said spending on Cruise in 2024 will be reduced by “hundreds of millions of dollars.”
Barra added that GM needed to “rebuild trust” with state and federal regulators, and with others Cruise works with.
Barra said she was “disappointed” with EV production this year due to difficulties with battery module assembly, but GM expects “significantly higher” production and “significantly improved” profit margins in that business in 2024. Jacobson said GM was targeting a single-digit level. pre-tax margins on electric vehicles by 2025, including benefits from the Inflation Reduction Act.
However, GM also said the new labor agreements will add $3 per kilowatt-hour to battery cell costs.
GM now faces higher costs under a new contract with the UAW. The company said it was finalizing its budget for next year “that will fully offset the incremental costs of our new labor arrangements and the long-term plan we are executing.”
University of Michigan professor Erik Gordon said GM’s actions contradicted the company’s arguments during the strike that it could not afford a lucrative deal for its American workers.
GM expects to increase its quarterly common stock dividend between 3 cents and 12 cents per share beginning in 2024.
