2023-10-16 11:02:38
General Motors and Ford have drawn up ambitious plans to spend billions developing new electric vehicles while returning capital to investors, all financed by the big profits made on combustion-powered trucks and SUVs.
Analysts say the rising costs of United Auto Workers strikes and the resulting rich contract deals are putting those plans in jeopardy.
A reduction in capital expenditure, a delay in electric vehicle targets, greater cost sharing and other changes in the company’s “portfolio” might be on the horizon, Adam said Jonas, analyst at Morgan Stanley, in a note dated October 12.
GM will report its third quarter results on October 24, followed by Ford on October 26. GM has already announced that costs related to the strike would weigh $200 million on third-quarter profits.
The strikes cost GM and Ford more than $500 million, JP Morgan analyst Ryan Brinkman estimated in a note published Monday. Ford currently loses $44 million a day, while GM loses $21 million a day, Mr. Brinkman estimated.
Ford was hit hard Oct. 11 when UAW President Shawn Fain ordered a walkout at the Kentucky truck assembly plant, Ford’s most profitable business globally. Kentucky Truck generates $25 billion in revenue per year, or $48,000 per minute, as Mr. Fain said in a video address Friday.
After a senior Ford executive said the automaker had reached the limit of what it might spend on a new union contract, Mr. Fain responded: “Go get the big checkbook: “Go get the big checkbook . The one Ford uses when he wants to spend millions on company executives or Wall Street gifts.”
According to its latest financial report, Ford spent $3.8 billion on dividends in the first half of this year. In May, the company told investors it planned to distribute 40% to 50% of its free cash flow each year through dividends and share repurchases.
Mr. Fain points to the 1,500 percent increase in money spent on stock buybacks by the Detroit Three over the past four years to demonstrate that automakers can afford substantial pay increases from the company. ‘UAW.
In August 2022, GM’s board increased funding for stock repurchases to $5 billion, up from $3.3 billion. The company said it spent $869 million on stock repurchases in the first six months of 2023 and paid $250 million in stock dividends during that period.
GM and Ford have already reduced planned investments in electric vehicle and battery factories.
In July, GM reduced its planned spending this year on electric vehicles and battery factories to between $11 billion and $12 billion. Previously, the company said it might spend up to $13 billion this year on the development of EVs and battery factories. The company also raised its cost-cutting target by $1 billion through next year.
Earlier this month, Ford put the brakes on plans for a $3.5 billion battery factory in Marshall, Michigan. Mr. Farley warned that further cuts to Ford’s future product investments might come in the event of a “bad deal” with the UAW.
Shares of GM and Ford have fallen sharply since July due to the intensifying standoff with the UAW. GM shares hit a 52-week low on Friday.
However, some investors are optimistic that dividends and share buybacks can continue.
“At least in the short term, I don’t think there’s much concern regarding suspending dividends or limiting share buybacks,” said Tim Piechowski, a portfolio manager at ACR Alpine Capital Research, which owns GM shares.
Investment in electric vehicles is expected to continue, he added, noting that his biggest concern was whether companies would have to dip into their cash flow in the event of a total work stoppage.
GM has established a new $6 billion credit line as insurance once morest a broader UAW strike.
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