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General Motors has announced plans to return “significant capital” to shareholders as the US automaker tries to navigate difficulties with its electric and self-driving car ambitions and a six-week strike that cost it $1.1 billion overcome.
GM announced a $10 billion stock buyback on Wednesday and said it would increase its quarterly dividend by 3 cents per share – or 33 percent – to 12 cents. That helped the company’s shares rise 9.5 percent in mid-morning trading in New York, after rising as much as 11.8 percent earlier in the day to hit a two-month high.
The “massive buyback was well above expectations,” said Deutsche Bank analyst Emmanuel Rosner.
The announcement came as the company resumed its fiscal 2023 profit forecast after withdrawing it about a month ago after thousands of U.S. auto workers walked off their jobs to demand better wages and working conditions.
The strike resulted in about 95,000 fewer cars and trucks being built and adjusted operating income falling by $1.1 billion, Chief Financial Officer Paul Jacobson said.
GM reached a tentative agreement with the United Auto Workers union at the end of October, as did competitors Ford and Stellantis. The industrial action resulted in the manufacturer agreeing to increase its workforce’s wages by 25 percent and include its joint venture battery factories in its main contract with the union.
The new collective bargaining agreement will cost GM $9.3 billion over the life of the four-year deal, with CEO Mary Barra saying it would increase per-vehicle costs by $575 over that period. This will increase costs in battery factories by $3 per kilowatt hour.
“The cost of new collective bargaining agreements is worrying investors and weighing on our stocks,” Barra said. “The net result was higher than we expected, but not significantly.”
Barra said foreign automakers in the U.S. have also increased wages, “so the same relative gap.” [with competitors] will be restored.”
GM also plans to cut spending on Cruise, its self-driving unit, by “hundreds of millions of dollars,” Jacobson said. Last month, one of the vehicles injured a pedestrian in San Francisco. The California Department of Motor Vehicles has accused the GM subsidiary of “misrepresenting” the details of the accident, and the automaker has hired a law firm to review its response.
The company needs to restore trust with regulators, Barra said. However, when examining the technology used in the program, we found that “we have found areas where we will have synergies between the work of General Motors and Cruise, which will allow us to spend the overall budget more efficiently.”
The company acknowledged that there have been difficulties building battery modules for its electric vehicles this year, and Jacobson noted that “there have been some self-inflicted losses in our implementation.”
GM forecast Wednesday that it would post adjusted earnings between $7.20 and $7.70 per share in fiscal 2023. In comparison, the previous forecast was for $7.15 to $8.15 per share and the analyst estimate was for $7.45.
The company said it now expects auto adjusted free cash flow to be $10.5 billion to $11.5 billion, compared with its previous forecast of $7 billion to $9 billion.