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General Motors released its third-quarter earnings results Tuesday. Here are the key takeaways:
The quarter in a snapshot
The automaker that owns the Chevrolet, Buick, GMC and Cadillac brands reported a $15 billion gain in revenue to $42 billion compared with the year-ago quarter as parts constraints loosened and new-vehicle inventory improved. GM said its net income rose to $3.3 billion compared with $2.4 billion. But note that in the year-ago quarter, GM saw net income plummet 40% as it struggled with production constraints from a global shortage of chips used in car parts that resulted in thin new car inventory. For the third quarter, GM reported adjusted earnings before interest and taxes (EBIT) at $4.3 billion up from $3 billion a year-ago.
What helped
GM can credit its gains to a 24% boost in U.S. new-vehicle sales in the quarter, which helped lift GM's U.S. market share to 16.2% from 13% in the year-ago quarter, according to Cox Automotive. In China, GM's second most important market, GM and its joint ventures delivered about 630,000 new cars in the quarter, a 1% rise year-over-year as sales steadily recovered from the effects of COVID-19-related restrictions there in the first half of the year. GM China equity income rose to $330 million from $270 million in the year-ago period.
The challenges
GM showed weaker results from GM Financial amid inflation and higher interest rates. GM Financial's EBT-adjusted income dropped by $182 million from the previous year's quarter to $911 million. But GM CFO Paul Jacobson told reporters that while higher interest rates factored into some the decline, it was also expected this time of year. Last year, high used car prices provided a lift in revenue, but this year, lease customers are keeping their vehicles instead of turning them in. "We still see a lot of good out of GM Financial," Jacobson said, adding, "They have positioned their portfolio for challenging times."
Also, GM's autonomous vehicle unit Cruise has yet to deliver a profit. GM, like all automakers, has seen significantly higher commodity costs, surging inflation and ongoing parts shortages that continue to present challenges. But GM continues to stick to its strategy of prioritizing the production of expensive large-SUVs and pickups when given the limited supply of components. This ensures a rich revenue stream.
Wall Street reacts
Wall Street liked GM's results. GM stock closed Tuesday up $1.29 at $37.01. Analyst's initial reaction was positive. "GM continued its pattern of beating analysts’ expectations for earnings," said Michelle Krebs, executive analyst with Cox Automotive. "Inventories, while much improved in the third quarter, remain tight compared to historical norms, allowing GM to command higher prices, particularly on its high-profit SUVs and pickup trucks, while drastically reducing what it spends on incentives."