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The GM logo prominently adorns the front of the General Motors headquarters in Detroit, Michigan. This captivating image was captured on March 16, 2021, by photographer Rebecca Cook. The landscape of General Motors’ future profitability underwent a significant shift on October 24th, as the company withdrew its 2023 profit outlook. CEO Mary Barra attributed this decision to the escalating costs associated with United Auto Workers strikes. Additionally, Barra stated that the automaker will be adjusting its electric vehicle strategy to prioritize profits over sales targets.
In the third quarter, General Motors experienced a 7.3% decrease in net income, amounting to $3.06 billion. However, the company saw a 5.4% increase in revenue, reaching $44.1 billion. The adjusted earnings per share, as tracked by analysts, stood at $2.28, surpassing expectations from Wall Street and reflecting an improvement from the $2.25 reported the previous year, thanks to the impact of share buybacks.
Despite these positive metrics, GM shares took a downturn of 1.3% as executives discussed the company’s financial results with analysts. This can be attributed to concerns surrounding the toll of the UAW strikes, the future increase in labor costs after a new contract is reached, rising warranty expenses, and an uncertain macro-economic outlook. Consequently, General Motors has been forced to abandon the full-year financial performance targets it had previously raised in July. Analyst Colin Langan from Wells Fargo expressed that the impact of the UAW strikes was not unexpected.
The UAW strikes incurred a cost of $200 million for General Motors during the third quarter, with an additional $600 million in the fourth quarter thus far, as GM CFO Paul Jacobson disclosed in a briefing with reporters. The weekly cost of these strikes amounts to $200 million, although Jacobson refrained from discussing the potential consequences should UAW President Shawn Fain call for new walkouts at GM’s profitable North American factories, such as the Arlington, Texas, plant responsible for manufacturing Cadillac Escalades and Chevrolet Suburbans, or the Flint, Michigan, plant that assembles heavy-duty pickup trucks.
As the growth of electric vehicle sales in North America has shown signs of tapering off, General Motors is reevaluating its EV strategy in the region. The company is scaling back its efforts to challenge Tesla’s dominance in the U.S. EV segment. This shift entails delaying the launch of several EV models, as well as reducing EV product spending to lower costs. By revamping the Chevrolet Bolt EV and utilizing more cost-effective lithium-iron batteries sourced from China, GM is projected to save billions. Consequently, GM has abandoned its previous goal of producing 400,000 EVs between 2022 and mid-2024.
GM’s CFO Jacobson clarified that the company will no longer disclose interim production goals. CEO Barra acknowledged that GM has work to do in order to achieve its low- to mid-single-digit earnings before interest and taxes (EBIT) margin target by 2025. The decision to delay the retooling of a large factory in Orion Township, Michigan, where electric pickup trucks were planned to be built, will result in $1.5 billion in capital investment savings by 2024. GM believes that this delay will allow them to incorporate improvements observed during early-stage production, ultimately leading to enhanced profit margins when electric Silverados and GMC Sierras enter production.
Alongside other industry players, General Motors has been urging the Biden administration to reconsider its ambitious emissions and fuel economy regulations aimed at propelling EVs to capture two-thirds of the U.S. vehicle market by 2032. Despite these external factors, GM’s sales and pricing in North America have remained stable. The average selling prices for GM vehicles in the latest quarter totaled $50,750, slightly decreased compared to the previous quarter.
Nevertheless, the company indicated that its cost-cutting endeavors have only partially offset the higher costs associated with EV launches, increased warranty expenses, and reduced pension income during the quarter. As a result, GM reported that its profits for the quarter experienced a $1.5 billion decline. It’s worth noting that GM does not separate losses stemming from its EV operations, unlike its rival Ford. GM executives have expressed concerns about rising interest rates and the Middle East conflict potentially influencing consumer behavior. However, they did not echo the pessimism expressed by Tesla CEO Elon Musk regarding the impact of rising interest rates on consumer demand.
Lastly, GM reported that losses at its Cruise robotaxi unit had expanded to $732 million in the quarter. The company stated that these losses were in line with expectations as operations expanded to encompass 15 cities.
About the author: Joe White is a distinguished global automotive correspondent for Reuters, actively reporting from his base in Detroit. Joe covers a wide range of topics related to the automotive and transportation industry. He also writes The Auto File, a three-times weekly newsletter that delves into the intricacies of the global auto industry. Joe has been a part of Reuters since January 2015, initially assuming the role of transportation editor, overseeing coverage on planes, trains, and automobiles. Eventually, he was appointed as the global automotive editor. Joe previously served as the global automotive editor for the Wall Street Journal and was responsible for overseeing the automotive industry coverage and leading the Detroit bureau. In 1993, Joe and Paul Ingrassia co-authored the book “Comeback: The Fall and Rise of the American Automobile Industry” and were awarded the Pulitzer Prize for beat reporting.
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