UAW strike could upend GM, Ford financial strategies

Forward Industries

16/10/2023 12:02

By Joseph White
       DETROIT, Oct 16 (Reuters) - General Motors  GM.N  and
Ford  F.N  have laid out ambitious plans to spend billions
developing new electric vehicles while returning capital to
investors, all funded by robust profits from combustion trucks
and SUVs.
    The mounting costs of the United Auto Workers strikes, and
the eventual rich contract settlements, are putting those plans
at risk, analysts said.   
    "Reduction in capital spending, delayed EV targets, greater
sharing of costs, and other changes to the corporate 'portfolio'
could be on the horizon," Morgan Stanley analyst Adam Jonas told
clients in an Oct. 12 note. 
    GM will report third-quarter results Oct. 24, with Ford
following on Oct. 26. GM has already telegraphed a $200 million
hit to third quarter profits from strike-related costs. 
    The strikes have costing GM and Ford more than $500 million,
JP Morgan analyst Ryan Brinkman estimated in a note Monday. Ford
is now losing $44 million a day, while GM is losing $21 million
a day, Brinkman estimated.
    Ford was hit hard Oct. 11 when UAW President Shawn Fain
ordered a walkout from Ford's Kentucky Truck assembly plant, its
most profitable single operation globally. Kentucky Truck
generates $25 billion in revenue per year - or $48,000 per
minute, as Fain put it in a video address Friday.
    After a senior Ford executive said the automaker had reached
the limit of what it could spend on a new union contract, Fain
replied: "Go get the big checkbook. The one Ford uses when it
wants to spend millions on company executives or Wall Street
giveaways."
    Ford spent $3.8 billion on dividends through the first half
of this year, according to its most recent financial report. The
company told investors in May it planned to distribute 40% to
50% of free cash flow to investors each year via dividends and
share buybacks.
    Fain points to a 1,500% increase in the money spent on share
buybacks by the Detroit Three over the past four years to argue
the automakers can afford substantial UAW wage increases.
    In August 2022, GM's board increased funding for share
buybacks to $5 billion from $3.3 billion previously. The company
reported spending $869 million to buy back shares during the
first six months of 2023, and paid out $250 million in stock
dividends during that time. 
    GM and Ford have both already scaled back planned
investments in EV and battery plants. 
    In July, GM trimmed its planned spending this year on
electric vehicles and battery plants to between $11 billion and
$12 billion. Previously, the company had said it could spend up
to $13 billion this year on EV and battery plant development.
The company also raised its cost-cutting target through next
year by $1 billion.
    Ford earlier this month hit the brakes on a planned $3.5
billion battery plant in Marshall, Mich. Farley warned more cuts
to Ford's future product investments could come if there is a
"bad deal" with the UAW.
    GM and Ford shares have fallen sharply since July as the
standoff with the UAW has intensified. GM shares traded near a
52-week low on Friday. 
    Still, some investors are optimistic that dividends and
share buybacks can continue.
    "At least in the short term, I don't think we have
significant concern around the dividend being suspended or share
buybacks being limited," said Tim Piechowski, portfolio manager
with ACR Alpine Capital Research, which owns GM shares. 
    Investments in electric vehicles should continue, he added,
saying that his bigger concern was if the companies had to draw
down cash if there is a full work stoppage.
    GM has set up a new, $6 billion credit line as insurance
against an expanded UAW strike.

    
    

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Ford, GM under pressure since auto strike started    https://tmsnrt.rs/46rlWdt
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 (Reporting By Joe White; editing by David Evans)
 ((Joe.White@thomsonreuters.com;))