GM sees $9.3 bln hit from labor deals, outlines $10 bln stock buyback

General Motors said on Wednesday its new labor deals after a lengthy U.S. strike will cost it $9.3 billion even as it outlined $10 billion in share buybacks, a 33% dividend increase and "substantially lower" spending at its robotaxi unit Cruise.

General Motors said on Wednesday its new labor deals after a lengthy U.S. strike will cost it $9.3 billion even as it outlined $10 billion in share buybacks, a 33% dividend increase and "substantially lower" spending at its robotaxi unit Cruise. The buyback is the equivalent at Tuesday's closing price to nearly a quarter of GM's common stock. Its shares were down about 14% this year before rising about 9% in premarket trading on Wednesday.

The Detroit automaker also lowered 2023 profit expectations after the U.S. strike by the United Auto Workers (UAW). GM has struggled to boost its stock price as it dealt this year with the UAW strike, and with problems at its Cruise self-driving vehicle unit and rollout of its new electric vehicles.

The $9.3 billion in additional costs through 2028 is for agreements with the UAW as well as Canadian union Unifor, and translates to about $575 per vehicle over the life of the deals. GM's new guidance reduced expected net income attributable to stockholders for 2023 to a range of $9.1 billion to $9.7 billion, compared to the previous outlook of $9.3 billion to $10.7 billion.

That includes an estimated $1.1 billion EBIT-adjusted impact from the UAW strike, which lasted just over six weeks, primarily from lost production. The total impact in 2023 is $1.3 billion including the higher wages and benefits in the deal. "Now that we have a ratified contract and a clear path forward that includes greater operating investment efficiencies, we can resume returning capital to shareholders per our plan," GM CEO Mary Barra said on an investor conference call, during which officials set out the largest U.S. automaker's updated targets.

SHARES 'DISAPPOINTING' However, she also acknowledged how GM's stock price was "disappointing to everyone," pointing to how shares at about $28 were 15% below GM's 2010 initial public offering price.

GM said earlier this year it would cut fixed costs by $2 billion by the end of 2024 and then followed up in July with plans for another $1 billion in cost reductions. In April, GM said about 5,000 salaried workers had taken buyouts and agreed to leave the company. GM said it would cut costs at Cruise, which has suspended all U.S. testing after a crash in California last month prompted that state's regulators to bar the company from testing driverless vehicles. Cruise, which is cutting jobs, lost more than $700 million in the third quarter and more than $8 billion since 2016.

"We expect the pace of Cruise’s 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 down "hundreds of millions of dollars."

Barra added that GM needed to "rebuild trust" with state and federal regulators, and others Cruise works with. Cruise is facing federal safety investigations and has not won approval from U.S. regulators to use its next-generation self driving car, which does not have human controls, on public roads.

Barra also said she was "disappointed" with the company's 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 aiming for single-digit pretax margins on EVs by 2025, including the impact of the Inflation Reduction Act benefits. However, GM also said the new labor deals will add $3 per kilowatt-hour to battery cell costs.

BUDGET PLANNING 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 agreements and the long-term plan we are executing."

GM's accelerated share repurchase program will advance $10 billion to executing banks, and the company will immediately receive and retire $6.8 billion worth of GM common stock. "Our cash balance, which is well above our target, is a function of our recent record profits and our prudent management of resources through the pandemic, supply chain disruptions and labor negotiations," Barra said.

GM had approximately 1.37 billion shares of common stock outstanding prior to the buyback program, the company said. The program is expected to end in late 2024 and will be executed by Bank of America, Goldman Sachs, Barclays and Citibank. GM will still have another $1.4 billion of capacity remaining under its share repurchase authorization for additional stock buybacks.

It also expects to increase its common stock dividend by 3 cents per quarter to 12 cents a share beginning in 2024.