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General Motors and Ford have set out ambitious plans to allocate billions towards the development of new electric vehicles while simultaneously returning profits to their investors, all of which was to be sustained by the robust earnings generated by their combustion truck and SUV offerings.
Morgan Stanley analyst Adam Jonas has informed clients in an October 12 note that this could lead to an imminent reduction in capital expenditure, postponed EV objectives, greater cost-sharing, and potential changes to the corporate “portfolio.”
General Motors is scheduled to announce its third-quarter results on October 24, with Ford following suit on October 26. GM has already disclosed that it anticipates a $200 million dent in third-quarter profits due to costs associated with the strikes.
JP Morgan analyst Ryan Brinkman estimated that the strikes have already cost GM and Ford upwards of $500 million. As per Brinkman’s estimates, Ford is currently bleeding $44 million each day, while GM is losing $21 million daily.
Ford was significantly impacted on October 11 when UAW President Shawn Fain initiated a walkout at Ford’s Kentucky Truck assembly plant, which stands as its most lucrative single operation globally. The Kentucky Truck facility brings in an impressive $25 billion in annual revenue, translating to a staggering $48,000 per minute, as Fain highlighted in a video address on Friday.
When a senior Ford executive suggested that the automaker had reached its spending limits under a new union contract, Fain responded by urging them to “get the big checkbook, the one Ford uses when it wants to spend millions on company executives or Wall Street giveaways.”
According to the most recent financial report, Ford distributed $3.8 billion in dividends during the first half of the current year. In May, the company announced its intention to allocate 40% to 50% of its free cash flow to investors annually through dividends and share buybacks.
Fain cites a 1,500% increase in share buybacks spending by the Detroit Three over the past four years as evidence that the automakers can indeed afford substantial UAW wage hikes.
In August 2022, GM’s board decided to augment funding for share buybacks, elevating it from $3.3 billion to $5 billion. The company reported spending $869 million on share buybacks in the first six months of 2023 and disbursing $250 million in stock dividends during that period.
Both GM and Ford have already reduced their initial investments in EV and battery plant projects. In July, GM curtailed its planned spending for electric vehicles and battery plants this year to a range of $11 billion to $12 billion. Previously, they had proposed a potential expenditure of up to $13 billion this year on EV and battery plant development. In addition, they raised their cost-cutting target for the following year by $1 billion.
Earlier this month, Ford scaled back a planned $3.5 billion battery plant in Marshall, Michigan, and their CEO, Farley, cautioned of further cuts to future product investments if an unfavorable agreement is reached with the UAW.
GM and Ford’s stock prices have seen significant declines since July due to the ongoing standoff with the UAW. GM shares were trading close to their 52-week low as of last Friday.
Nevertheless, some investors remain optimistic about the possibility of continuing dividends and share buybacks. Tim Piechowski, a portfolio manager at ACR Alpine Capital Research, which holds GM shares, mentioned that he doesn’t anticipate any major concerns regarding the suspension of dividends or restrictions on share buybacks in the short term. He believes that investments in electric vehicles will persist, with the primary concern being whether the companies will have to draw from their cash reserves in the event of a complete work stoppage.
GM has taken precautions by establishing a $6 billion credit line to act as insurance against a protracted UAW strike.
