With the support of big profits from combustion-powered trucks and SUVs, General Motors and Ford have outlined ambitious strategies to invest billions in the development of new electric vehicles while paying investors back.
These plans are at risk, according to analysts, due to the rising expenses of the United Auto Workers strikes and the final large contract settlements.
Morgan Stanley's analyst Adam Jonas warned clients on October 12 that reductions in capital spending, postponed EV targets, increased cost sharing, and other adjustments to the corporate "portfolio" would be coming.
On October 24, GM will release its third-quarter earnings, and on October 26, Ford will follow. A $200 million loss in third-quarter profits due to strike-related expenses has already been hinted at by GM.
Ryan Brinkman, analyst at JP Morgan, calculated in a report on Monday that the strikes have cost GM and Ford over 500 million dollars. According to Brinkman, Ford is currently losing $44 million daily, compared to GM's loss of $21 million.
When UAW President Shawn Fain organized a strike on Oct. 11 from Ford's Kentucky Truck assembly facility, the company's most lucrative business worldwide, it had a significant negative impact. In a video presentation on Friday, Fain stated that Kentucky Truck brings in $25 billion a year, or $48,000 per minute.
Fain responded, "Go get the big checkbook" to the statement made by a top Ford executive that the carmaker had spent all of its available funds on a new union contract.
Based on its latest financial report, Ford paid out $3.8 billion in dividends during the first half of this year. The business informed investors in May that it intended to return 40% to 50% of free cash flow to shareholders annually through dividends and share repurchases.
Fain cites a 1,500% rise in the Detroit Three's share repurchase spending over the previous four years as evidence that the automakers are able to afford substantial UAW salary increases.
The financing for share repurchases was increased by the GM board in August 2022 from $3.3 billion to $5 billion. During the first half of 2023, the business reported paying $250 million in dividends on stocks and spending $869 million on share repurchases.
The anticipated expenditures on EV and battery plants by GM and Ford have already been reduced.
GM cut its projected spending on battery factories and electric vehicles in July, bringing it down to between $11 billion and $12 billion. It has previously stated that it might invest up to $13 billion in the development of EVs and battery plants this year. It also increased its $1 billion cost-cutting goal for the next year.
Farley said that reductions to Ford's upcoming product investments might occur if there's a "bad deal" concerning the UAW when the automaker earlier this month put the brakes on a $3.5 billion battery factory in Marshall, Michigan.
Since July, as the UAW dispute has gotten worse, the stocks of GM and Ford have plummeted precipitously. On Friday, the price of GM stock was close to a 52-week low.
Even so, some investors remain confident that dividends and share repurchases can continue.
According to Tim Piechowski, portfolio manager at ACR Alpine Capital Research, which holds GM shares, neither the suspension of the dividend nor the limitation of share buybacks should cause serious concerns for them in the near future.
The investment in electric vehicles should go forward, he continued, stating that his main issue was whether or not the businesses would need to borrow money in the event of a complete work stoppage.
As protection against a prolonged UAW strike, GM has established a new $6 billion credit line.