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GM Sets Out to Soothe Shareholders with Spending Cuts, Dividend Boost

America’s largest auto manufacturer is trying to regain Wall Street’s favor with buybacks and spending cuts on less promising projects.

(Photo by Brad Killen via Unsplash)
(Photo by Brad Killen via Unsplash)

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General Motors is getting a head start on its 2024 New Year’s resolution — make the shareholders happy again.

America’s largest auto manufacturer is trying to regain Wall Street’s favor with buybacks, spending cuts on less promising projects, and more. GM hopes its plan outlasts most resolutions, which dissolve long before the calendar turns to February.

Strike Out

One of GM’s biggest obstacles in 2022 hit much of the industry: The recent United Auto Workers strike — which saw 40,000 employees of GM, Stellantis, and Ford walk off the job for a month and a half — cost GM roughly $800 million, which is equivalent to nearly 10% of its profit for all of 2022. To end the strike, GM tentatively agreed to raise its wages by 25% and create joint-venture battery plants under its main contract with the union.

On top of that, GM, like many car companies, has been experiencing “evolving demand,” i.e. poor sales, for electric vehicles. Most car manufacturers have set out to go all-electric by 2035, but adoption rates aren’t cooperating. The average $50,000-plus price tag for an EV just isn’t in the budget for anyone who wasn’t an early adopter.

All of that has contributed to GM’s stock slumping 14% so far this year. But lo, a plan to return “significant capital” to shareholders has, for the moment, won hearts and minds:

  • GM announced Wednesday that it will boost its quarterly dividend by one-third, initiate a $10 billion buyback, and also reinstate its full-year earnings guidance that it had pulled when the strike started. And despite the new union contracts, CEO Mary Barra said, “We are finalizing a 2024 budget that will fully offset the incremental costs of our new labor agreements.” GM’s stock shot up 9% on the news.
  • To achieve those offsets, GM is delaying investments in EV production and taking down the goalposts altogether for near-term output. Additionally, the company intends to cut spending on Cruise, its self-driving unit. GM originally planned to test its autonomous vehicles in San Francisco and three other cities, but is scaling down its focus after a crash last month that injured a pedestrian.

Down Mexico Way: While GM and Ford have solid grips on the domestic market, competition is growing south of the border. Last year, Mexico was the leading importer of Chinese cars, and so far in 2023 it trails only Russia, Bloomberg reported. With some Chinese cars running $10,000 less than US-made equivalents, American automakers might have to readjust their pricing, or throw in a free air freshener.