General Motors on Tuesday reported a pretax profit decline of 6% to $3.8 billion in the first quarter.
But the automaker touted its gains in U.S. electric vehicle sales, sales of new vehicles internationally — excluding China where GM continues to lose sales — and strong pricing as positive future indicators that prompted it to raise its 2023 earnings outlook.
GM took a $994 million charge in the quarter to pay for two things: its salaried employee buyout program — which it said will help the company avoid forced layoffs — and its program to buy out Buick dealers who do not want to sell EVs. The charge was expected, analysts say. GM’s decline in its pretax profits and net income comes from the costly rollout of electric vehicles and some production hiccups because of parts shortages.
“The massive EV expansion and supply chain, which remains on the mend, put pressure on the bottom line during the quarter,” Dan Ives, managing director and senior equity analyst at Wedbush Securities, told the Free Press.
GM’s overall gains this quarter came from improved inventory of popular selling pickups and SUVs as parts constrictions eased. GM sold 603,208 new vehicles in the quarter, a 17.6% increase from the year-ago period.
The good and the bad
GM continues to ramp up production of electric vehicles, which has been slow and costly. GM also took a special charge of $875 million in the quarter related to its voluntary separation program in which 5,000 salaried workers and executives globally agreed to leave the company. The charge for the Buick program was $99 million.
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GM’s earnings follow an early morning announcement that it is partnering with South Korea-based Samsung SDI to build its fourth battery cell plant in the United States. Barra hinted there will be more to come.
“In the weeks and months ahead, we will be sharing exciting news about our growing portfolio of Chevrolet, Buick, GMC, Cadillac and BrightDrop EVs,” Barra wrote in her letter to shareholders Tuesday. “This includes demonstrating that ‘work’ and ‘range’ are not mutually exclusive terms for the Chevrolet Silverado EV and GMC Sierra EV. You can also expect more job-creating investments by GM and our suppliers, especially in North America, as we scale EV production and build our domestic supply base.”
Barra talks prices
GM CEO Mary Barra said GM is not flooding the market with inventory, thereby keeping prices high. It delivered 20,000 EVs in the U.S., making it the second-largest EV manufacturing behind Tesla.
“We increased our EV market share by 8 percentage points,” Barra said. “As we look at the performance of the business and the opportunities ahead of us, we’re able to raise our full-year 2023 earnings guidance to a range of $11 billion-$13 billion.”
That’s about a $500 million increase from previous guidance.
GM will also offer more affordable new cars such as the Chevrolet Trax subcompact SUV due out this spring starting at $20,400. She said GM remains on track to build 400,000 EVs through the first half of next year.
GM’s 1st quarter in a nutshell
GM reported global revenue rose 11% to $39.9 billion compared with $35.9 billion last year. The results beat Wall Street expectations.
GM reported net income dropped 18% to $2.4 billion compared with $2.9 billion a year ago. Its earnings before interest and taxes (EBIT) fell 6% to $3.8 billion compared with $4.04 billion a year ago.
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In China, GM’s second most important market, GM and its joint ventures recorded a 64.5% decline for the quarter in equity income to $83 million. The effects of COVID-19-related restrictions on sales is partly to blame, but GM’s market share declines in China started years ago and has proliferated with rising economic and political tensions between China and the United States as well as complicated consumer sentiment regarding EVs and growing competition from government-backed domestic carmakers.
GM’s plan to cut costs
GM plans to cut $2 billion from its costs by the end of next year, but 30% to 50% of that cost savings has already happened this year between the buyout program last month and several hundred performance-based salaried job cuts GM made in February.
But GM is also heading into contract talks, to begin this summer, with the UAW, which represents some 48,000 hourly workers. That contract expires this fall. It is expected the union will want higher wages and there has been talk of a possible strike.
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Analysts take on GM’s results
Analysts applauded GM for beating Wall Street expectations, but show some skepticism on the year ahead.
“GM spent less on incentives and its average prices rose,” said Michelle Krebs, executive analyst for Cox Automotive. “By upping its guidance for the year, GM obviously expects this strength to continue. We’ll see. We’re seeing inventories rise, price growth slowing and cuts in incentives slowing across the industry.”
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Krebs said GM’s average transaction priced edged to $51,431, up from $50,681 in the year-ago quarter, but price growth is slowing.
Wedbush Securities’ Ives said, “The guidance for the year is a positive as GM raised its forecast and the Street will applaud this dynamic in a choppy macro. Barra & Co. are seeing EV strength around initial orders while walking a tightrope with a strong bottom line as cost cutting is front and center for this EV transformation.”
Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.