GM to raise dividend and buy back $10 billion worth of plunging stock

(Bloomberg) — General Motors Co. will raise its dividend 33% and buy back $10 billion of stock in its largest-ever buyback program, raising concerns among investors this year as the company’s technology investments falter. Interest in stocks plummeted. .

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The automaker also restored its 2023 profit guidance to just below levels before a six-week strike by the United Auto Workers union slashed profits. GM said net profit will now be between $9.1 billion and $9.7 billion, compared with the previous range of $9.3 billion to $10.7 billion. During the strike, the company withdrew its guidance.

The Detroit-based manufacturer is investing in new investor incentives even as high interest rates threaten auto sales and impose a capital burden on its electric vehicle business, which has yet to deliver significant results. GM is trying to prove to shareholders that it can generate huge amounts of cash while still investing in technology, hoping to boost its stock price below where it was in early 2014 when Chief Executive Mary Barra took over.

By returning more cash to shareholders — including buying back about a quarter of the company’s market value — GM is effectively telling investors that this will be more of a value investment than a growth investment. While revenue is growing this year, GM is seeing growth in its traditional gasoline-powered vehicle business. Sales of electric cars are minimal and the robotaxi business is in trouble.

“Our performance, particularly our cash generation, has been very strong,” Barra said in a letter to shareholders on Wednesday. GM is “confident in our ability to continue to generate significant free cash flow as we transition to electric vehicles.”

GM said the new labor contract would cost about $575 per vehicle. Barra pledged to “fully offset” increased labor and other expenses through efficiency gains and deep cuts in fixed and variable costs in next year’s budget.

The automaker’s shares surged 9.5% to $31.64 as of 9:03 a.m. in New York. The stock has fallen 14% this year through Tuesday, while the S&P 500 has gained 19%.

Dividend increase

GM will increase its quarterly dividend to 3 cents to 12 cents per share starting in 2024.

Under the early stock repurchase program, GM will pay $10 billion to a group of executing banks and immediately receive and repurchase $6.8 billion worth of common stock. The company had approximately 1.37 billion common shares outstanding before the repurchase.

The total number of shares repurchased will be based on the final settlement and the daily volume-weighted average price of GM common stock during the program period, which will end in the fourth quarter of 2024.The buyback program will be executed by banks America Corp., Goldman Sachs Group Inc., Barclays PLC and Citigroup Inc.

GM will use $1.4 billion of remaining production capacity for additional repurchases under its stock repurchase authorization.

The size of the new buyback program is likely to anger the United Auto Workers union, whose president Sean Fein has criticized GM for buying back stock over the past decade while offering smaller pay raises to hourly workers.

The company’s new guidance is lower than its pre-strike guidance, predicting earnings of $6.52 to $7.02 per share, including the estimated impact of buybacks, compared with its previous forecast of $6.54 to $7.54 per share.

Excluding the cost of the buyback program, GM guided for adjusted earnings per share in the range of $7.20 to $7.70 per share, below the highest estimate of $8.15.

GM said the new UAW contract – which provides workers with a minimum 25% pay increase, as well as cost-of-living subsidies and other improved benefits – will increase spending by $9.3 billion over four years and eight months, including new Increased labor spending will peak at $2.5 billion in 2027.

To help offset the impact, the company said it will reduce fixed costs by $2 billion next year, achieve new efficiencies in the design, engineering, manufacturing, marketing and distribution of its models and replace some older models with more profitable versions of those models. SUV.

GM’s stock has struggled, in part because investors see labor costs rising as a result of the strike. But GM and other traditional automakers also face existential issues. The internal combustion engine vehicle business is seen in a long-term slowdown, and none of these established automakers has managed to sell enough electric vehicles to keep up with Tesla Inc.

Under Barra, GM posted record profits, but problems at its battery-pack factories have kept electric vehicle production in the low thousands, compared with Tesla’s annual sales of nearly 1.8 million vehicles. GM’s Ultium battery pack was supposed to allow the company to produce multiple types of electric vehicles on the same platform and beat its rivals to market with a heavily armed vehicle.

Barra said GM should finalize production in 2024. Electric vehicles are a key part of the automaker’s strategy to double sales to $280 billion by 2030.

“While I am disappointed with the production of Ultium-based electric vehicles in 2023 due to difficulties in battery module assembly, we have made substantial improvements to our processes and the organization responsible for this work,” Barra said in the letter. In 2024, we expect Ultium electric vehicle production to increase significantly and electric vehicle profit margins to increase significantly.”

cruise ship cuts

GM also cut spending at its San Francisco-based autonomous vehicle unit, Cruise LLC. Last month, the robo-taxi company suspended operations after one of its vehicles dragged a pedestrian 20 feet. The department’s chief executive, Kyle Vogt, resigned suddenly earlier. This month.

Read more: Cruise CEO Vogt resigns over GM’s troubled self-driving car unit

Before GM grounded its fleet and rolled back its growth strategy, Cruise was costing the company $700 million a quarter. GM Chief Financial Officer Paul Jacobson said on a conference call Wednesday that Cruise would spend hundreds of millions less.

Cruise is paring its operations down to one city from its previous three cities, cutting jobs and focusing on ensuring the safety of its technology.

(Update strategy details starting from fourth paragraph)

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