General Motors (GM) has announced the withdrawal of its 2023 profit guidance, a decision directly attributed to the mounting costs resulting from the United Auto Workers (UAW) strikes. These labor disputes have taken a heavy toll, amounting to hundreds of millions of dollars and creating substantial uncertainties for the automaker.
In the third quarter, GM reported a 7.3% decrease in net income, which stood at $3.06 billion, while revenue witnessed a more positive trend with a 5.4% increase to $44.1 billion. Notably, the adjusted earnings per share reached $2.28, exceeding Wall Street expectations and marking an improvement from $2.25 compared to the previous year, primarily due to share buybacks. This financial performance initially seemed to put GM in a favorable position.
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However, the escalating costs associated with the UAW strikes have had a severe impact on GM’s bottom line. These labor disputes have been taking a toll, amounting to a staggering $200 million per week during October. Paul Jacobson, GM’s Chief Financial Officer, highlighted the financial pain incurred by the strikes, costing the company $200 million during the third quarter and $600 million during the fourth quarter. Furthermore, he refrained from discussing the potential repercussions if new walkouts were ordered at GM’s most profitable North American factories.
Beyond the immediate impact of the strikes, GM faces a host of additional challenges, including the prospect of higher labor costs once a new contract is reached, rising warranty expenses, and a somewhat uncertain macro-economic outlook. This confluence of factors led to GM’s difficult decision to abandon its previous targets for full-year financial performance, targets that had been raised in July.
In light of these challenges and the evolving landscape in the electric vehicle (EV) market, GM has chosen to adjust its EV strategy. Rather than striving for specific sales volume targets, the company will now focus on accelerating production to meet customer demand and achieve profit goals. This shift is exemplified by GM’s decision to abandon the goal of building 400,000 EVs between 2022 and mid-2024, a target that GM’s CEO Mary Barra had reaffirmed just a few months earlier.
In her shareholder letter, Barra acknowledged that GM has work to do to reach its low- to mid-single-digit earnings before interest and taxes (EBIT) margin target by 2025. This goal, alongside the target of reaching 1 million EVs in production by the end of 2025, remains paramount for the company. Additionally, GM has decided to delay the retooling of a major factory in Orion Township, Michigan, which was intended for electric pickup truck production. This delay, though it may seem counterintuitive, is expected to result in substantial savings and improved profit margins when electric Silverados and GMC Sierras eventually go into production.
Lastly, GM has joined other automakers in expressing concerns to the Biden administration regarding ambitious emissions and fuel economy rules aimed at pushing EVs to two-thirds of the U.S. vehicle market by 2032. The company remains attentive to potential challenges such as rising interest rates and geopolitical conflicts, but the stability in its North American sales and pricing, along with average transaction prices, has so far provided some reassurance.
Additionally, GM noted that its Cruise robotaxi unit saw losses widen to $732 million in the quarter, a development that the company deemed “in line with expectations” as operations expanded to 15 cities. This underscores the growing investment and competition in autonomous driving technologies.
GM’s decision to revise its profit guidance and adjust its EV strategy reflects the complex challenges and changing dynamics in the automotive industry, emphasizing the need for adaptability and resilience in a rapidly evolving market.
Source: Reuters
