GM’s second-quarter profit came in about 39% lower than the same period last year as ongoing production disruptions due to supply chain problems and industry-wide semiconductor chip shortages continued.
With fears of a nationwide recession, GM assured Wall Street on Tuesday that it is already taking cost-cutting measures, such as rehiring new employees, and is ready to do more if needed.
GM reported second-quarter net income of $1.7 billion, compared to $2.8 billion in the same period last year. GM has seen continued strong demand for large pickups and large SUVs, which carry wide profit margins, and increased sales to fleet customers. As a result, GM’s net revenue for the quarter rose to $35.8 billion, compared to $34.2 billion a year ago.
In a letter to shareholders, CEO Mary Barra said the company’s outlook for the second half of the year is strong based on the belief that new vehicle production will improve and that GM will see a sharp rise in fleet orders. GM continues to expect its full-year adjusted earnings before interest and taxes to be between $13 billion and $15 billion.
But she cautioned that economic concerns were driving GM to take some cost-cutting measures.
“We are already taking proactive steps to manage costs and cash flow, including reducing discretionary spending and limiting hiring to basic needs and jobs that support growth,” Barra said. “We have also modeled several deflationary scenarios and are ready to take deliberate action when necessary.”
As Free Press first reported in May, GM suspended its plans to hire 3,000 wage workers this year, saying it was ahead of schedule. The automaker had already hired 7,000 new salaried workers.
But in subsequent interviews, Chief Financial Officer Paul Jacobson said GM was scrutinizing every hiring it would make going forward to make sure it was necessary, in an effort to conserve cash in the face of rising raw material costs and a potential recession.
Ford Motor Co. is expected to cut. Jobs will largely be in North America in the coming months to help pay for its transition to EV. When asked Tuesday during a call with reporters if GM had similar plans, Jacobson said, “We’re not running any scenarios right now where we’re considering layoffs. But we will monitor the environment closely.”
Barra noted that GM has strong cash flow, an investment grade credit rating, low pension obligations and record rates to protect it from economic turmoil. In fact, GM ended the quarter with $17.9 billion in auto cash. At this time last year, GM had $17.1 billion.
GM also announced Tuesday that it has signed three new supply agreements to help secure the raw materials for the 1 million electric vehicles it plans to produce by the end of 2025 as it transitions to a fully electric lineup by 2035.
“Going forward, we will continue to mitigate risks and reduce costs to help us achieve $90 billion in annual electric vehicle revenue by 2030,” Barra said in the letter.
Ford Motor Co. announced its results on Wednesday, and Stylantis will report its results on Thursday.
GM said its second-quarter profit before interest and tax adjustments was $2.3 billion. This is in line with the earnings update the company released on July 1, but is well below the $4.1 billion in the same period last year as production improved at this time last year, boosting some inventory.
In North America, General Motors reported adjusted earnings before interest and taxes of $2.3 billion, compared to $2.9 billion last year.
GM’s financing arm, General Motors Financial, reported a slight decrease in net loan sales and revenue. This quarter, its net sales and revenue were $3.2 billion, compared to $3.4 billion in the prior year. General Motors Financial reported adjusted earnings before interest of $1.1 billion, compared to $1.6 billion a year earlier.
General Motors China reported a loss in stock income of $87 million, compared to $276 million last year.
GM gained a full percentage point in US market share, ending the quarter with 16.2% of the market compared to 15.3% in the same period last year.
“Don’t be excited about a 1 percentage point improvement in market share,” Michael Krebs, executive analyst at Cox Automotive, told the Free Press. “It just brings GM back to where it has been the last few years.”
Krebs said the second quarter of last year was down for GM at 15.5%, the only time it was below 16% since at least 2017. The big difference this year, she said, was the improvement in Chevrolet sales.
Analysts say it is supply chain problems that have hit the automaker particularly hard.
“Through the second quarter, GM was able to increase profits thanks to higher revenue, driven by higher vehicle prices and lower stimulus spending,” Krebs said. “However, supply chain issues, notably the lack of computer chips, afflicted GM in the quarter because it couldn’t keep those profits high, as Wall Street estimates got it wrong.”
She said the Covid-19 pandemic shutdowns in China hurt GM in the quarter.
And it didn’t help Buick in the States,” Krebs said. “For the second consecutive quarter, its sales fell significantly.”
General Motors is watching the signals
GM doesn’t see an economic slowdown in the near term, but Jacobson told reporters that the automaker is watching the economy closely for any signs of recession.
“I don’t like getting into the prediction game. We monitor a lot of data points around the consumer,” Jacobson said. “All the indicators are still pointing to a lot of strength in customers…but we will monitor it and act if we see continued headwinds.”
In 2018, Jacobson said GM took steps to reorganize to cut costs by $4 billion to $4.5 billion to prepare the company for its transformation into an all-electric car maker by 2035. Those cost cuts included eliminating about 4,000 paid jobs in 2019. .
Since that time, GM has added about 14,000 white-collar jobs, largely in roles to support electric vehicles and to grow GM’s self-driving subsidiary Cruise in San Francisco. Cruise recently became one of the first companies to collect the fare for driverless transportation services. But it is still not profitable. This quarter, Cruz incurred a loss of $543 million, which is greater than the $332 million it incurred a year ago.
GM said it will spend about $2 billion on Cruze this year as Cruze launches a fleet of self-driving taxis in San Francisco. In October 2021, at GM’s Investor Day, Dan Amman, then-CEO of Cruise, said the goal for the car rental business was to reach $50 billion in revenue while ramping up operations over the next eight years.
“In the past 18 months, we’ve stayed focused on (EV) targets despite a lot of distractions,” Jacobson said. We don’t see anything suggesting any problems in the near term. We’re going to be very agile and smart — we’ve slowed down some hiring, spending management, and costs.”
General Motors and LG Energy Solution will begin manufacturing batteries at their joint venture Ultium Cells LLC in Lordstown, Ohio, in about three weeks. This will help GM “significantly increase its production of electric vehicles” to help it reach 1 million vehicles in North America by the end of 2025, Jacobson said.
Paused and waiting
In the United States, GM’s largest market, GM sold 29,000 vehicles in the quarter, compared to 66,000 last year.
Earlier this month, General Motors announced that new-vehicle sales in the quarter were down 15.4% from the same period last year. It sold 582,401 cars, compared to 688,236 in the previous year. GM’s sales to commercial, government and rental fleets rose 29%, boosted by an oversupply of vehicles such as the GMC Savanna Van, which posted a 25% increase to 6,803 vehicles sold.
Krebs said GM reported at the end of June that it built 95,000 cars without certain components, notably computer chips. Vehicles have been parked waiting for parts to arrive for installation, hopefully by the end of the year.
“Strong demand allowed GM to cut incentives by 61% while the average deal price was up,” Krebs said, adding that GM’s overall average deal price rose 5% to $5,0261, according to Cox Automotive’s calculations.
GM has warned Wall Street that supply chain disruptions will delay delivery of those 95,000 vehicles to dealers in the second half of the year.
Jacobson told reporters on Tuesday that the automaker expects to deliver those vehicles to dealers by the end of the year.
“We’re really making tremendous progress in July,” he said.
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