GM reports Q4 pretax profits down 54%, but forecasts a stronger 2024
Jamie L. LaReau, Detroit Free Press
Updated 7 min read
General Motors on Tuesday reported its fourth-quarter pretax profit plummeted 54% to $1.8 billion. For the full-year in 2023, pretax profits dropped more than 14% to $12.4 billion compared with $14.5 billion in 2022.
GM's revenue for the quarter was about flat at $42.9 billion, but for the full year, it soared 10% to $171.8 billion.
Continued demand for GM's high-profit full-size pickups and SUVs drove the gains. But the six-week Stand Up Strike by the United Auto Workers union in the fourth quarter cost GM $900 million before taxes in the quarter and $1.1 billion for the year. GM lost 95,000 units of production. GM reached a new contract with the union on Oct. 30 and as the Detroit Free Press reported at that time, GM estimated the strike would cost it about $200 million a week in lost production.
GM salaried employees have until noon March 24 to decide if 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.
CFO Paul Jacobson told the news media besides the strike dinging earnings, GM took an $800 million charge last year to redo some contracts with battery supplier LG Energy and it had to take a $1.7 billion charge on its electric vehicle inventory related to negative profit margins expected on those vehicles.
But Jacobson said GM is in a good position to have a strong financial year in 2024. In a letter to shareholders, CEO Mary Barra outlined GM's priorities and commitments for this year, which include getting EVs to profitability and to "refocus and relaunch" GM's troubled self-driving car subsidiary Cruise.
"In our EV business, we expect our U.S. portfolio will become variable profit positive in the second half of the year based on our current expectations for EV demand and production growth, strong interest in our vehicles, lower commodity prices and other factors," Barra wrote. "At Cruise, we are committed to earning back the trust of regulators and the public through our commitments and our actions. Last week we released the results of the third-party reviews and we’ve already begun to implement significant changes because of these reviews."
What's expected for 2024
Wall Street will be watching how GM navigates the crisis around Cruise. Last week, the U.S. Department of Justice and the Securities and Exchange Commission opened investigations into Cruise following an accident in October when a Cruise robotaxi hit and dragged a pedestrian. This year, GM will reduce its spending on Cruise by about $1 billion, Jacobson said.
GM also enters the year where the launches of its new electric vehicles are crucial. Due to market this year are: Chevrolet Equinox EV SUV, retail Silverado EV and the GMC Sierra EV Denali pickups and the Cadillac Escalade IQ SUV.
Driver’s side view of 2024 Chevrolet Equinox EV 1LT in Galaxy Gray Metallic driving down a road. Preproduction model shown. Actual production model may vary. 2024 Chevrolet Equinox EV available Fall 2023.
Last year, the slow rollout of GM's EVs due to problems with battery module production left Barra "disappointed" in GM's new EV launches. In December, Barra kept open the possibility of adding hybrid models to GM's lineup, noting GM sells hybrids now in China. "We have the technology," Barra said last month. "We’ll continue to look at where the market is."
Jacobson said GM is planning for a slight reduction in vehicle prices this year and to increase its incentive spending. Still, 2024 should yield pretax profits of $12 billion to $14 billion.
GM, which owns the Chevrolet, Buick, GMC and Cadillac brands, reported a slight dip in global revenue to $42.9 billion compared with $43.1 billion in the year-ago quarter. The results missed Wall Street expectations. The Zacks Consensus Estimate for the quarter’s revenue was estimated at $43.34 billion.
GM reported quarterly net income rose 5% to $2.1 billion compared with $1.9 billion in the year-ago period. In China, GM's second most important market, GM and its joint ventures recorded a net revenue decline for the quarter to $9.6 billion compared with $10.4 billion a year earlier as car buyers favored domestic brands there.
Jacobson warned that GM expects revenues from China to be relatively flat this year compared with 2023 and that "we’ll experience a loss in China in the first part of the year. We’re going to have a tough first quarter there.”
In the quarter, GM’s market share dropped to 15.88%, down 1.25 percentage points, according to Cox Automotive calculations. GM increased incentives by 78% to an average of $2,462 per vehicle, according to Cox calculations. That's still well below pre-pandemic levels of $4,600 to $5,400 per vehicle. GM saw a 1% gain in average transaction price to $53,310 in the quarter, Cox said.
The full year in a snapshot
GM kept the U.S. sales crown for 2023 by selling 2.6 million new vehicles in the United States, a 14% increase from the year-ago period. GM topped its closest rival, Toyota Motor North America, which sold 2.3 million new cars.
For the year, GM's global revenue soared by about 10% to $171.8 billion compared with $156.7 billion for 2022. GM's annual net income increased about 2% to $10.1 billion compared with $9.9 billion in the year-ago period.
Cruise lost $2.7 billion in 2023 compared with a loss of $1.9 billion in 2022. Jacobson said GM still believes in Cruise technology, but is looking into how it will relaunch the business in light of the crisis. He said the majority of cuts made at Cruise have been around administrative jobs, to keep the engineers intact to continue to work on the technology.
“The team continues to do really, really good work on repositioning as we go through a strategic planning process (for Cruise) as we go forward from here," Jacobson said.
GM's lending arm, GM Financial, reported full-year revenue of $14.8 billion compared with $12.8 billion for 2022.
What the analysts say
Dan Ives, managing director at WedBush Securities told the Detroit Free Press that 2024, “is a very important year” to get EV launches right, get Ultium Cells battery production scaled and “essentially they were on a treadmill for three or four months because of the UAW.”
He characterized GM's results as "solid," writing in a research note, "this was a key quarter and outlook for the Street to gauge GM’s resilience as it appears the profit margins and growth targets are still very much on track despite this murky backdrop."
"In terms of U.S. sales, GM endured the strike with minimal damage," Michelle Krebs, executive analyst at Cox Automotive, wrote in an industry report. "Sales for the fourth quarter held steady, with the negative impact mostly from those models built at plants that the UAW struck. GM’s U.S. market share dipped, incentives rose, and average transaction price eked out an increase."
She said analysts will continue to closely watch GM’s performance in China, where sales were down 1% in the fourth quarter, and for "any fallout from problems with GM’s autonomous vehicle unit, Cruise."
Jeff Windau, senior equity analyst with Edward Jones, said of GM's results in a research note: “GM's sales in North America were relatively flat compared with last year, and operating profits were pressured due to lost sales of vehicles due to the strike. The company was able to overcome some of the headwinds with solid pricing, as higher-priced trucks and SUVs remain popular with customers.”
Windau said in the near term there are concerns of slowing consumer demand with high interest rates.
“Price reductions may be necessary, especially in international markets, due to rising competition in China, which could pressure profitability,” Windau wrote. “This is balanced with the progress GM is making in the development of new technology, with plans to introduce new products and increase software sales over the next several years.”
