General Motors (GM) announced on Wednesday its plans to buyback USD 10 billion in shares and increase dividends by 33%, despite the challenges faced by its autonomous vehicle unit, Cruise. The move comes as GM adjusts its financial strategy following the recent auto workers’ strike and decreased profit expectations.
Profit outlook and shareholder returns
The updated guidance from GM indicates a reduction in expected net income attributable to stockholders for 2023, now ranging between USD 9.1 billion and USD 9.7 billion. This adjustment, down from the previous outlook of USD 9.3 billion to USD 10.7 billion, accounts for an estimated USD 1.1 billion EBIT-adjusted impact from the United Auto Workers union strike, lasting just over six weeks.
GM’s CEO Mary Barra affirmed the company’s commitment to returning significant capital to shareholders; with an accelerated share repurchase program set at USD 10 billion. This program involves executing banks receiving an advance of USD 10 billion, with GM immediately retiring USD 6.8 billion worth of common stock. The company’s cash balance, well above its target, reflects prudent resource management during challenges like the pandemic, supply chain disruptions, and labor negotiations.
Cost-cutting measures and Cruise adjustments
Earlier initiatives to cut fixed costs by USD 2 billion by 2024 and additional plans for USD 1 billion in costs, announced in July, underscore GM’s focus on financial efficiency. In April, the company reported that around 5,000 salaried workers had taken buyouts.
However, GM faces challenges at its autonomous vehicle subsidiary, Cruise, which temporarily halted all U.S. testing after a recent crash in California led to regulatory restrictions. Barra mentioned a more deliberate expansion pace for Cruise when operations resume, resulting in significantly lower spending in 2024 compared to 2023.
New contract impact and future plans
The recently ratified contract with the United Auto Workers implies higher costs for GM. The company is finalizing its budget for the next year, intending to fully offset the incremental costs associated with the new labor agreements and its long-term strategic plan.
GM’s accelerated share repurchase program, executed by major banks, is anticipated to conclude by late 2024. Despite the repurchase, GM will retain USD 1.4 billion in capacity under its authorization for additional stock buybacks. Moreover, the company expects to raise its common stock dividend by 3 cents per quarter, reaching 12 cents a share starting in 2024.