General Motors (GM) announced plans on Tuesday to repurchase $10 billion of its shares and boost its dividend by 33% in 2024, after the company reached new labor agreements with unions following recent strikes. The share buybacks and increased payouts to shareholders indicate that GM feels confident about its financial future despite short-term costs from the strikes.
Labor Deals Cost GM $9.3 Billion But Profit Outlook Remains Strong
GM said on Tuesday that new labor agreements with the United Auto Workers (UAW) union and Canada’s Unifor union will cost the automaker around $9.3 billion over the life of the contracts. A contentious 40-day UAW strike earlier this fall is estimated to have cut GM’s pretax earnings in 2022 by $1.1 billion.
However, the company indicated it can absorb the additional labor expenses while remaining profitable going forward. GM reaffirmed its 2023 earnings guidance of $8.7 billion to $10.1 billion – a range it withdrew in October when the UAW walked out.
The company now expects adjusted automotive free cash flow in 2023 of $10 billion to $12 billion, compared to its previous forecast of $7 billion to $9 billion. GM said its strong cash flow outlook supported plans to return capital to shareholders.
| Key Figures From GM’s Updated 2023 Guidance | |
|---|---|
| Pretax Earnings | $14.5 billion to $16.5 billion |
| EBIT-Adjusted Margin | 8% to 10% |
| Net Income | $8.7 billion to $10.1 billion |
| Adjusted Free Cash Flow | $10 billion to $12 billion |
GM shares jumped as much as 8% in pre-market and early trading Wednesday on the positive guidance. The stock was up over 5% around midday.
“GM’s consistently strong earnings and cash flow outlook give us confidence to invest aggressively in growth while also returning capital to shareholders,” said GM CEO Mary Barra.
$10 Billion Share Repurchases Funded Partly by Lower Cruise Investment
A key source of cash enabling GM’s huge new share buybacks is a planned slowdown in investment into its Cruise self-driving car subsidiary.
GM President Mark Reuss said the company will be "thoughtful and prudent" in terms of capital deployment to Cruise over the next couple years, allowing for the return of cash to shareholders instead.
GM now expects to invest $2.5 billion into Cruise from 2023-2024, down from prior plans for $5 billion over the two years. Cruise remains on track to launch a robotaxi service without safety drivers next year, Reuss said.
The company announced an accelerated share repurchase program of $10 billion to be completed by the end of 2023. GM already spent $4.3 billion through October of this year buying back shares, as part of a previously announced total buyback program of $15 billion.
Factoring in repurchases to date, GM’s total buybacks from early 2021 through 2023 would reach about $30 billion. GM has reduced its common stock shares outstanding by about 20% since 2021.
| Key Figures for GM’s Share Buybacks | |
|---|---|
| Accelerated 2023 Program | $10 billion |
| Total 2021-2023 Repurchases | ~$30 billion |
| Common Shares Reduced Since 2021 | ~20% |
33% Dividend Increase in 2024 Makes GM a ‘Cash Flow Growth Story’
Alongside the huge new share buyback plans, GM also said it will increase its quarterly dividend by 33% starting Q1 2024. The company reinstated a dividend in mid-2021 after suspending payouts for several years.
GM’s core business is now “a cash flow growth story looking ahead,” CFO Paul Jacobson said on a conference call with reporters.
The company has resolved various issues like the labor unrest and semiconductor shortages that previously created uncertainty, Jacobson noted. Meanwhile customer demand remains robust, especially for GM’s new electric vehicles and large SUVs/trucks.
GM’s strong cash generation even after its recent challenges makes the dividend hike feasible, according to Jacobson:
"You put all that together, it gives us a lot of confidence that we can continue to return incremental cash to shareholders while still investing in growth."
Labor Uncertainty Now Cleared; EV Push Continues
Reaching new four-year contracts with the UAW and Unifor in late October removed significant uncertainty for GM heading into 2023. The UAW deal included over $9 billion in new investments across GM’s U.S. manufacturing plants.
Ending the strikes allows GM’s operations to return to normal efficiency levels. Despite lower Q3 production and shipments from the UAW walkout, GM’s 2022 results showed continued positive momentum.
The company earned a record pretax profit of $14.5 billion through three quarters this year. GM grew North American margins to nearly 13% over that span, while boosting total revenue 21% year-over-year to $122 billion.
"Our teams continued to leverage strong vehicle pricing and perform well despite continuing inventory challenges during the quarter," Jacobson said last month.
Longer term, GM aims to lead the auto industry’s shift to EVs. It plans EV options across all vehicle segments by 2025 and exclusively zero-emission models by 2035.
GM said Wednesday it’s accelerating the rollout of new battery cell technology to power many of those future EVs. The company now expects cell costs below $100/kWh by mid-decade – a key threshold enabling EV profitability and mass adoption.
“GM’s growth story is just beginning,” CEO Barra said Tuesday. “We have ambitious EV and software-driven growth plans.”
In summary, GM feels renewed optimism about its profit outlook based on strong recent financials, higher projected cash flow, and clearing union uncertainty. The cash will fund simultaneously investing in future growth – especially electric vehicles – while returning significant capital to shareholders through dividends and the monster $10 billion share buyback.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
