General Motors reported Tuesday its third-quarter revenue rose, but net income was offset by higher costs from the United Auto Workers strike, warranty work and other expenses including investment in its self-driving subsidiary Cruise.
"In the U.S., our strong sales, healthy ATPs (average transaction prices) and essentially flat incentives helped us outperform the industry and gain market share," GM CFO Paul Jacobson told reporters during a conference call.
In the quarter, the average transaction price for a GM vehicle in the United States was $50,750, down slightly from the second quarter, Jacobson said. GM's U.S. market share was 16.5% compared with 15.8% in the year-ago period.
GM salaried employees have until noon March 24 to decide whether they want to accept a buyout offer of up to 12 months pay for long-term employees. File photo: The Renaissance Center, the headquarters for General Motors, in downtown Detroit on Tuesday, June 6, 2017.
But given uncertainty in the economy and car market, GM plans to continue to look for areas to trim costs and to moderate its future electric vehicle production to match demand, which is not as robust as GM had forecast.
"We are reducing our fixed costs by $2 billion net of depreciation and amortization as we exit 2024," CEO Mary Barra told shareholders in a letter early Tuesday. "We are also moderating the acceleration of EV production in North America to protect our pricing, adjust to slower near-term growth in demand, and implement engineering efficiency and other improvements that will make our vehicles less expensive to produce, and more profitable."
Last week, GM announced it would delay production of its Chevrolet Silverado EV and GMC Sierra EV pickups at Orion Assembly plant by a full year due to slower than forecast consumer demand for EVs.
"Let me be clear though, our commitment to an all-EV future is as strong as ever and we continue to plan EV capacity of 1 million units in North America as we exit 2025," Jacobson said.
Here are the key takeaways from GM's earnings announcement:
The UAW strike
When asked whether the strong revenues might provoke the UAW to push for an even richer contract offer than the most recent one made last Friday. Jacobson said GM has been consistent in its willingness to reward its employees, but has said it also needs to remain competitive for the long term.
"When we look at the landscape out there, particularly around EVs (electric vehicles), we need to make sure that's an agreement that we sign that allows us to compete in the market," Jacobson said. "I can appreciate that earnings are strong right now, but there's a lot of uncertainty out there in the future with EV adoption, with the economy and we can't get ourselves in a situation of signing a deal that we can't afford to pay or that doesn't allow us to compete in the global marketplace."
Jacobson said so far in the fourth quarter, "we estimate the lost production has had an incremental $600 million in EBIT (earnings before interest and taxes) impact. Moving forward we estimate the impact of the strike to be approximately $200 million per week based on the facilities impacted as of (Sunday)."
Thomas Walker, of Local 174, raises his UAW on strike sign as another car passes by honking in support of him and other strikers at General Motors Customer Care and Aftersales distribution center on Tyler Road in Ypsilanti on Friday, Oct. 6, 2023. Walker has been a forklift operator for the past four years at this center. General Motors and the UAW are still talking and trying to come to an agreement to end the strike.
The strike is about to enter its sixth week, but Jacobson declined to speculate on its duration. He said because of that uncertainty, GM made the decision to withdraw its 2023 full-year guidance. After GM gets a ratified contract, it will provide an investor update to quantify the final impact of the strike as well as costs moving forward. He said GM has rescheduled its Investor Day to sometime in March.
The automaker that owns the Chevrolet, Buick, GMC and Cadillac brands reported a $2.2 billion gain in revenue to $44 billion compared with the year-ago quarter on strong sales of high-priced pickups and new SUVs. But net income slid to $3.1 billion compared with $3.3 billion in the year-ago period. For the third quarter, GM reported adjusted earnings before interest and taxes (EBIT) tumbled 17% to $3.6 billion compared with $4.3 billion a year-ago.
“There are a couple of things that hit us on margins, nothing that was a surprise,' Jacobson said. "The strike impact was certainly part of that; we also had higher warranty costs, which is a continuation of some expense trends we’ve seen.”
He said the number of warranties are down, but the cost of repairs is up due to inflation.
What helped GM this quarter
GM can credit its gains to a 21.4% sales gain in the quarter in U.S. auto sales with nearly 2 million vehicles sold so far this year, an overall gain for 2023 of 19.3%. The driver of GM's sales are its pickups and new SUVs, along with increased sales of fleet vehicles.
GM had a challenging quarter in China, its second most important market behind the United States. GM and its joint ventures in China delivered about 542,000 new cars in the quarter, down 630,000 from a year ago. GM China equity income dropped 42% to $192 million compared with $330 million in the year-ago period. Jacobson said GM China's team continues to work on cost reductions and increase imports.
The challenges
GM showed weaker results from GM Financial amid inflation and higher interest rates. GM Financial's EBT-adjusted income dropped by nearly 19% to $741 million from the previous year's quarter of $911 million, but Jacobson said it is still its "fourth highest third-quarter ever." GM also spent $123 million in the quarter to buy out Buick dealers who did not want to invest in the infrastructure to sell all electric vehicles by 2030.
Also, GM's autonomous vehicle unit Cruise has yet to deliver a profit and is costing GM money. In the quarter, GM reported investing $732 million on Cruise compared with a year ago when GM spent $497 million. Jacobson said the additional investment is to help Cruise expand operations so it can hit its $1 billion revenue target in 2025.
The upshot
GM aims to cut $2 billion in costs by 2024 and Jacobson said it will have hit about half of that at the end of this year.
"At this point, we don’t anticipate any broad-based headcount reduction, but are looking to streamline the business where we can," Jacobson said. "We continue to see strong demand for our vehicles."
What the analysts say
"The UAW strike has caused chaos in Detroit and for GM with now the company pulling its guidance for the year," said Dan Ives, managing director at Wedbush Securities. "The EV strategy is a smart and risky bet for GM but Barra & Co. need 2024 to be a key year and the strike is putting this dynamic at risk. It's a white knuckle period in Detroit due to this UAW debacle."
Jessica Caldwell, Edmunds’ head of insights, said GM's "surface-level numbers" are strong across the board with sales, market share and average transaction prices all pointing up year-over-year.
"Under the surface, however, a much different story is playing out as the UAW strike lingers into Q4," Caldwell said. "As sweater weather approaches, shoppers inherently seek out larger, 4WD vehicles, model types that generate strong profit margins and market share for GM and its Detroit Three counterparts. A continuation of the strike and resulting decreases in plant production would be harbingers of sales declines during an important stretch of the calendar ahead.”
The Detroit Three
Ford Motor Co. reports its third-quarter results Thursday and Stellantis reports its third-quarter shipments and revenue Oct. 31.
