Mary Barra, CEO of General Motors Co., says, the new labor agreements will incur approximately $10 billion in costs for the auto manufacturer throughout the contract lifespan. (Photo: Jeff Kowalsky/Bloomberg)
General Motors (GM) has adjusted its course on electric vehicles (EVs) and self-driving cars, citing new labor agreements in the U.S. and Canada that will incur a substantial cost of nearly USD 9.3 billion. Despite this financial setback, the automaker is set to repurchase up to $10 billion USD worth of its own shares, accompanied by a 33 percent hike in its dividend.
The buyback represents nearly 25 percent of GM's common stock at Tuesday's closing price, and with shares experiencing a 14 percent dip earlier this year, the move aims to instill confidence, propelling shares up by 10 percent to $31.92 on Wednesday.
The Detroit-based automaker has faced challenges, including a strike by the United Auto Workers (UAW) and issues within its Cruise self-driving vehicle unit, alongside hurdles in the rollout of its new electric vehicles. The newly incurred $9.3 billion USD in costs, extending until 2028, arises from agreements with both the UAW and Canadian Union Unifor, equating to around $575 per vehicle over the agreement's duration.
Acknowledging the challenges, GM CEO Mary Barra expressed optimism post-UAW and emphasized the company's commitment to returning capital to shareholders amidst the revised guidance, which now estimates 2023 net income for stockholders between $9.1 billion and $9.7 billion.
Barra, however, addressed the disappointing stock performance, noting the 15 percent drop from the 2010 IPO level. GM shares currently trade at 4.4 times forward profit estimates, trailing behind competitors like Ford and Toyota, but still ahead of Volkswagen and Stellantis.
To counter financial headwinds, GM has been implementing cost-cutting measures, planning to reduce fixed costs by $2 billion by 2024, with an additional $1 billion in cuts announced in July. Job buyouts for about 5,000 salaried workers took place in April.
The self-driving unit, Cruise, faced setbacks after a crash in California led to testing suspension, prompting cost-cutting measures and losses exceeding $700 million in Q3 alone. GM plans a more cautious approach to Cruise's expansion in 2024, anticipating substantial spending reductions.
Despite production challenges in EVs this year, GM aims for enhanced production and improved profit margins in the EV business by 2024. CFO Paul Jacobson outlined a downward trend in spending on Cruise for 2024, with CEO Barra emphasizing the need to rebuild trust with regulators.
While GM navigates higher battery cell costs and a new UAW contract, the company is optimistic about dividends, projecting a 3-cent increase to 12 cents per share starting in 2024. The company asserts that these measures align with its commitment to balancing costs, labor agreements, and long-term strategies.
