General Motors (GM) has reported a pretax earnings impact of $1.1 billion this year, attributing the financial setback to the six-week strike by autoworkers. Despite this, the Detroit automaker expresses confidence in absorbing the costs associated with a new labor contract and is taking the unconventional step of increasing its dividend.
The reinstatement of GM’s full-year earnings forecast follows the United Auto Workers’ strikes that targeted Detroit automakers’ factories from September 15 to October 30. The company now projects a net income of $9.1 billion to $9.7 billion for the year, slightly lower than the previous estimate of $9.3 billion to $10.7 billion. However, GM anticipates an increase in free cash flow, forecasting $10.5 billion to $11.5 billion compared to the earlier prediction of $7 billion to $9 billion.
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To achieve these financial goals, GM plans to curtail capital spending, with a particular focus on reducing investment in electric vehicles and its autonomous vehicle unit, Cruise. This decision comes in the wake of challenges faced by Cruise, including the revocation of its robotaxi license by California regulators following an incident involving a pedestrian.
Mary Barra, GM’s CEO, mentions in a letter to investors that the expansion of Cruise’s driverless taxi operations will proceed more cautiously, resulting in significantly lower spending in 2024 compared to 2023. GM had ambitious plans for Cruise, anticipating annual revenue of $1 billion by 2025, a substantial increase from the $106 million reported last year.
Despite the challenges, GM is taking shareholder-friendly measures. The company plans to raise its dividend by 33% to 12 cents per share, starting in January. Additionally, GM intends to buy back $10 billion of its shares. These actions have contributed to an 8.6% increase in GM’s shares before the market opened, although the stock remains down approximately 27% over the past year.
The new contracts negotiated with the UAW and Canadian autoworkers are expected to cost GM $9.3 billion over the next four years and eight months. While these agreements will increase costs per vehicle by $500 in 2024, analysts suggest that competitive pressures may limit the automaker’s ability to raise prices.
In addressing concerns about the pace of electric vehicle (EV) production, Barra acknowledges difficulties in assembling batteries but asserts that improvements have been made, anticipating higher EV production and improved profit margins in the coming year. Despite a temporary slowdown in the growth of EV sales, Barra remains optimistic about the long-term prospects, citing an expected acceleration in EV adoption as customers have more choices and the public charging network expands.
While GM acknowledges challenges, Barra emphasizes the company’s strong cash balance, attributed to record profits from both gas-powered and electric vehicles. She outlines a clear path forward focused on greater operating and investment efficiency.
Source: Associated Press
