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In the interest of transparency…
My first car at the age of 18 was from General Motors, a white 1987 Chevy Monte Carlo SS. Looked hot as hell, but was a structural jalopy. I then followed that with another GM purchase, a white 1991 Pontiac Trans Am. That was also hot as hell, and incrementally more reliable.
Some 23 years later, I find myself an owner of two GM cars: a white 2019 Corvette (a 40th birthday gift to myself, because why not, I have no kids and generally no life) and a white 1991 Pontiac Trans Am (got it a few years ago to feel like I was in high school again).
Despite this long ownership history, I entered my two days of meetings with GM last week with eyes wide open and no opinion on anything, ready to report on the auto giant wherever the story led.
I came away with this view on the company just as the first Tesla Cybertrucks were rolling off the production line Thursday afternoon: GM is laser-focused on making its numbers better, from profits to capital returns (dividends and buybacks) for shareholders.
After a bruising battle with the United Auto Workers (UAW) union this fall, the company is getting back to basics at the same time it tries to shift its stuck-in-neutral stock price into a higher gear.
That mindset could serve GM’s stock well in 2024, provided demand doesn’t fall off a cliff ahead of a presidential election.
My first chat was with GM CEO Mary Barra inside the company’s New York City office, where one is greeted with a painting of co-founder William Durant. I talked with Barra about the company’s new $10 billion buyback and 33% increase in dividend, among other things.
“It’s demonstrating our confidence in our strategy and ability to grow, generate cash flow as well as strong margins,” Barra told me on the maneuvers on Yahoo Finance Live.
Barra reiterated a plan for GM to hit a low-single-digit profit margin on EV operations by the end of 2025, and be mostly producing electric vehicles by 2035.
“I personally am not happy where the share price is,” Barra added.
GM’s stock has been down about 20% in the past year, compared to a 12% gain for the S&P 500 (^GSPC), though its share price shot up 13% after last week’s announcements.
Investors have fretted on several aspects of the GM investment thesis this year. Concerns range from slowing demand for EVs and higher interest rates plaguing the overall outlook for auto purchases to rising costs under the new deal with the UAW.
Under the new UAW contract, wages are poised to increase by 25%.
And this brings me to the second meeting, this time over lunch with GM CFO Paul Jacobson in New York City. What stood out to me was this…
First, Jacobson said GM will have cut its marketing budget by $800 million by the end of this year. That’s a huge number (and huge savings) for a legacy automaker, and one not taken lightly inside of an industry that has long loved to spend money on TV.
My sense is the company is prepared to find additional cost savings in 2024 to more than offset the new UAW deal. Are model cuts and plant closures on the table? Unclear, but I don’t think it could be ruled out. What is on the table are “substantial” cuts to investments in autonomous driving platform Cruise after its recent headline-grabbing incidents.
And second, I think GM is prepared to talk more realistically to investors about its EV ambitions. Doing so will be helpful in resetting expectations and getting the company into a beat and raise zone with Wall Street.
Lastly, it was good tact at the meeting by Jacobson to toss some praise the way of the UAW and how they handled the negotiations. Will GM change how it interacts with the UAW between now and the next UAW deal expiry in 2028? I believe so, and that is a positive thing for both parties involved.
With GM shares trading on a minuscule forward price-to-earnings ratio of 4.7 times per Yahoo Finance data, there is a decent case to own the stock amid a company more focused on rewarding investors.
But what do I know — I was buying jalopies at the age of 18.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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Source: finance.yahoo.com