General Motors reported a big boost in its net income for the second quarter of 2023 to more than $2.5 billion despite agreeing to pay almost $800 million connected to the Chevrolet Bolt EV and Bolt EUV recall and dealing with delays in producing some of its new electric vehicles.
The $792 million charge was related to extra steps the company said it took to resolve the issue for consumers. It also involved “new agreements” with LG Electronics and LG Energy Solution. The cost of the recall program, related to a potential fire risk in the LG-supplied batteries, was pegged at $1.9 billion in 2021, but with GM now absorbing part of that cost, according to Chief Financial Officer Paul Jacobson.
GM CEO Mary Barra, in a letter to shareholders, explained the company’s reasoning.
“The charge reflects the conscious decision we made during the Chevrolet Bolt EV and Bolt EUV recall to serve our customers in ways that go beyond traditional remedies, and we are taking new steps that will reduce GM’s costs and improve our EV margins over time,” Barra said in her letter.
Jacobson said some of the extra steps involved trade-ins and providing loaner vehicles, and he noted that more than 80% of the affected vehicles have now been “reworked.”
Despite the charge, GM painted a fairly rosy picture for both the quarter and the rest of the year.
GM, which timed its earnings for release Tuesday morning, reported revenue of $45 billion, up 25%, from $36 billion; net income of $2.5 billion, up 53%, from $1.6 billion; adjusted earnings before interest and taxes of $3.2 billion, up 38%, from $2.3 billion; and adjusted diluted earnings per share of $1.91, up 68%, from $1.14, compared with the same period in 2022. The company said it had $5.5 billion in adjusted automotive free cash flow for the quarter, an increase of $4.1 billion from the same quarter in 2022.
Jacobson said the company would also be able to reduce its fixed costs more than anticipated, adding an additional billion dollars in cost savings on top of the $2 billion it had announced previously for the year. Those savings were expected to come from numerous areas, including lower salaried employment and marketing spending, reduced vehicle complexity and reductions in administrative and travel costs.
He said the newly identified cost savings would not involve additional employee reductions beyond the buyouts announced earlier this year other than normal attrition.
“We’re focused on profitability. Our recent results demonstrate that we’re not sacrificing margin for volume. We will continue this strategy to help drive a fundamentally stronger company beyond 2023,” Jacobson said in a call with journalists.
The earnings results led the company to boost its full-year 2023 guidance for the second time this year.
“The impact on our bottom line and our outlook is clear, so we are raising our full-year EBIT-adjusted guidance by $1 billion and our adjusted automotive free cash flow guidance by $1.5 billion. We now expect earnings per share to be between $7.15-$8.15 per share,” according to Barra’s letter, referencing the abbreviation for earnings before interest and taxes.
That guidance, however, assumes no work stoppage even as the automaker along with Ford and Stellantis, owner of Jeep, Ram, Chrysler, Dodge and Fiat, will be negotiating with both the UAW and Unifor, which represents Canadian autoworkers, in the third quarter. Barra’s letter said the company has “a long history of negotiating fair contracts with both unions that reward our employees and support the long-term success of our business.”
The United Auto Workers union has been publicly assertive in its demands related to its contract talks this year, and a number of experts have predicted that the union could strike at least one of the automakers.
Union leaders didn’t hesitate to tie the strong earnings news to their expectations at the bargaining table.
UAW President Shawn Fain said GM had reaped “mind boggling profits” over the last 10 years even as autoworkers and their communities have yet to be made whole from sacrifices made since the Great Recession.
“GM executives have closed 31 plants over the last 20 years and are now enriching themselves through joint venture battery plants that get billions from the federal government in taxpayer subsidies but pay poverty wages. It’s long past time for GM to pony up, end tiers, pay their employees competitive wages that keep up with the cost of living and provide everyone the ability to retire with dignity,” Fain said in a statement.
UAW Vice President Mike Booth, who heads the union’s GM Department, said the “enormous profit” announced Tuesday wouldn’t happen without the great work of the company’s union-represented autoworkers.
“For a decade now, UAW members have been GM’s profit engine. It’s time for a contract that fully rewards our members for the hard work we do,” Booth said in a statement.
GM’s results track with what analysts have been predicting, according to a Cox Automotive analysis report.
“Wall Street analysts have been upping their forecast for GM’s results throughout the second quarter and say they will not be surprised if GM exceeds their expectations, as has been the case for several quarters,” the report said, highlighting a 19% rise in vehicle sales and an average transaction price per vehicle at $52,451, which is a second quarter record.
The analysis said GM’s market share hit 16.75%, the company’s highest market share since the second quarter of 2019.
The company, in its release, also touted its EV production numbers, even as Barra said the company has been dealing with delays.
Barra’s letter said the automaker met its target to produce 50,000 EVs in North America in the first half of the year, and that “with both cell and vehicle production increasing, we continue to target production of roughly 100,000 EVs in the second half of this year and we’ll grow from there.”
However, some customers have reported frustration with long waits to get vehicles, such as the Cadillac Lyriq, which is built on the Ultium platform.
“We have experienced unexpected delays in the ramp because our automation equipment supplier has been struggling with delivery issues that are constraining module assembly capacity. We are working on multiple fronts to put this behind us as quickly as possible, and things are already improving,” Barra said, noting that GM teams have been deployed to work with the supplier to boost delivery times and that more module capacity would be added at plants in Detroit, Tennessee, Mexico and Canada.
The company is also planning to increase second-half production of GMC Hummer EVs by thousands of units, Barra said.
More than 2,000 customer-reserved Hummers and Lyriqs were in transit to dealers at the end of June, she said.
Jamie L. LaReau contributed to this report. Contact Eric D. Lawrence: elawrence@freepress.com. Become a subscriber.