DETROIT – Clearly frustrated with its languishing share price, General Motors on Wednesday announced a massive stock buyback plan, raised its dividend and told investors it can absorb increased labor costs from a six-week autoworkers strike.
The Detroit company said it lost production of 95,000 vehicles due to the United Auto Workers walkouts, costing the company $1.1 billion. But due to $2 billion worth of annual efficiency gains and cost reductions expected by the end of next year, the company said it can can handle $9.3 billion in labor cost increases from U.S. and Canadian union contracts through April of 2028.
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The deals, GM said, will increase costs per vehicle by $500 next year and $575 by the end of the contracts, but analysts say competition will limit the company's ability to raise prices.
“We are finalizing a 2024 budget that will fully offset the incremental costs of our new labor agreements, and the long-term plan we are executing includes reducing the capital intensity of the business, developing products even more efficiently and further reducing our fixed and variable costs,” CEO Mary Barra said in a prepared statement.
On a conference call with analysts, Barra called GM's stock price “disappointing to everyone” even with record profits and cash flow. The shares, which were trading around $28 before Wednesday, were priced 15% below the 2010 initial public offering price when the company emerged from bankruptcy, she said.
The company said it plans to buy back $10 billion of its shares over the next year, about one quarter of its $44 billion market value, with $6.8 billion coming immediately. A spokesman says GM expects the stock buyback to end up at about 20% of the company’s outstanding shares, based on an expected price increases.
In January, GM will raise its dividend by a third to 12 cents per share, another maneuver aimed at boosting the share price.
The plan worked, at least on Wednesday. At midday, GM stock rose almost 13% to $31.71. But the shares are still down over 20% in the past year.
GM also reinstated its full year earnings forecast that was withdrawn after the UAW began targeting the factories of Detroit automakers with strikes on Sept. 15. Those strikes continued at GM until Oct. 30.
The company now predicts full-year net income of $9.1 billion to $9.7 billion, down from its previous outlook of $9.3 billion to $10.7 billion. But GM expects to generate more cash for the full year. It expects free cash flow of $10.5 billion to $11.5 billion, an increase from a previous forecast of $7 billion to $9 billion.
To get there, GM plans to cut capital spending, including a slowdown in spending on electric vehicles and at Cruise, its troubled autonomous vehicle unit. California regulators revoked the San Francisco-based subsidiary's robotaxi license last month after one of its vehicles dragged a pedestrian to the side of a street after the person was hit by another car.
Barra blamed some of the stock price slide on problems at Cruise. She expects the pace of Cruise’s expansion to slow when driverless taxi operations resume, with spending down hundreds of millions of dollars next year compared with this year.
GM had big plans for Cruise, which it bought eight years ago. The company had predicted $1 billion in annual revenue by 2025 — a big jump from the $106 million last year. During the first nine months of this year Cruise posted pretax losses of $1.9 billion.
GM has replaced Cruise's management after allegations that it wasn't forthcoming with regulators about the pedestrian crash. Barra said she's awaiting the results of independent reviews of Cruise's technology and response to the crash before announcing further action.
Barra also told investors in a letter that she's disappointed in the pace of GM's electric vehicle production, which she attributed to difficulties in assembling batteries.
But she wrote that GM has made organizational improvements, and the company expects higher EV production and improved margins next year.
“While the rate of growth for EVs is slowing in the near term, it is projected to accelerate and grow substantially in the long term as customers have more EV choices, and the public charging network expands,” Barra wrote.
Earlier in the year GM delayed electric pickup truck production at a factory north of Detroit until 2025 as the growth rate in electric vehicle sales slowed.
In June of 2022, electric vehicle sales were growing about 90% year over year, but by the same month this year, the growth rate had slowed to about 50%. Automakers fear sales will slow further with consumers having reservations about EV prices, how far they can travel and whether charging stations will be available.
Barra wrote in a letter to investors that GM has a strong cash balance due to record profits from selling gas-powered vehicles and more efficient internal combustion and electric vehicle operations.
“We have a clear path forward that includes greater operating and investment efficiency,” she wrote.
Barra also tried to allay investor concern over the cost of new labor contracts that she said were higher than the company expected, but not significantly.
GM, as well as rivals Ford and Jeep maker Stellantis, agreed to new contracts with the UAW that raise top assembly plant worker pay by about 33% by the time the deals expire in April of 2028. The new contracts also ended some lower tiers of wages, gave raises to temporary workers and shortened the time it takes for full-time workers to get to the top of the pay scale.
At the end of the contract top-scale assembly workers will make about $42 per hour, plus they'll get annual profit-sharing checks.
UAW President Shawn Fain said during the strike that labor costs are only 4% to 5% of a vehicle's costs, and that the companies were making billions and could afford to pay workers more.