Despite taking on a huge chunk of an expensive electric vehicle recall, General Motors posted US$2.54 billion in second-quarter net income, a 52 per cent increase over a year ago.
Continued strong vehicle sales and pricing, as well as cost cuts, led to the better-than-expected quarter. The Detroit automaker on Tuesday raised its financial guidance for the full year with one qualification: that it can negotiate union labour contracts without a strike.
Chief Financial Officer Paul Jacobson told reporters that customers paid about US$1,600 more per vehicle last quarter than from January through March — with an average US sale price of US$52,000. Discounts and inventory remained flat as the company sold 19 per cent more vehicles than a year ago in the United States, its most profitable market.
GM is being cautious on prices and not counting on them staying high all year, Jacobson said. “We’re not assuming major increases in pricing or in average transaction prices going forward,” he said.
GM raised its full-year guidance for the second straight quarter, saying it will post net income of between US$9.3 billion and US$10.7 billion. Previously, it predicted US$8.4 billion to US$9.9 billion.
Also pushing up the guidance was another US$1 billion in cost savings that Jacobson said GM had found, on top of US$2 billion the company promised earlier for the full year. The savings came through lower salaried employee expenses due to 5,000 workers taking early retirement buyouts, as well as savings in marketing and reductions in administrative costs and vehicle manufacturing complexity.
The company said it is looking for further cost cuts in areas such as simplifying its manufacturing with fewer option combinations.
The company took a one-time charge of US$792 million as it picked up more of the US$1.9-billion cost of recalling Chevrolet Bolt electric vehicles because they could catch fire due to battery manufacturing defects.
Jacobson said GM took extraordinary steps to care for Bolt owners by letting them trade in cars and offering loaner vehicles until replacement batteries were available from the supplier, LG Energy Solution. The recall announced in 2021 covered about 142,000 vehicles.
CEO Mary Barra confirmed on Tuesday that a new Bolt is in the works, which she said will be affordable and have great range and technology. No time frame was given for the car, but Barra said GM will bring it to market quickly. GM plans to cease production of the current Bolt, which starts at US$26,500, at the end of this year.
The new version will be constructed on GM’s latest electric vehicle underpinnings, which CEO Mary Barra said have a 40 per cent lower cost than the current version of the Bolt. “This is a very capital-efficient, quick way to build on the strong consumer response we have to the Bolt and get an affordable vehicle out into the marketplace,” Barra said.
The company continues to experience strong demand for its EVs, and it can’t build Bolts fast enough, Barra said.
Excluding one-time items, GM said it made US$1.91 per share, beating Wall Street’s estimate of US$1.87. Revenue of US$44.75 billion soundly beat analysts’ estimate of US$42.13 billion, according to data provider FactSet.
Shares of GM fell 3.8 per cent to US$37.87 on Tuesday.
Edward Jones analyst Jeff Windau said investors are cautious on Detroit automakers because of rising interest rates and the possibility of one or more strikes against them by US and Canadian unions.
United Auto Workers President Shawn Fain, who represents about 43,000 GM US factory workers, has told members they are poised to make big gains in this year’s contract talks, but they have to be prepared to go on strike against the profitable auto companies.
Contracts between the Detroit Three automakers and GM, Stellantis and Ford expire at 11:59 p.m. on September 15.
Barra said the company has a long history of negotiating fair contracts. “Our goal this time is no different,” she said.
GM also said it met an internal target of producing 50,000 electric vehicles in North America during the first half of the year. With battery cell production and vehicle assembly increasing, GM now expects to build about 100,000 EVs in the second half of the year.
Barra, whose company has been criticised by environmental groups for a slow roll-out of new EVs, said GM has experienced unexpected delays due to an automation supplier having trouble delivering equipment to assemble battery cells into modules. GM manufacturing engineers are working with the supplier and the situation has started to improve, she said.
GM has set a goal of building only electric passenger vehicles by 2035. The company reiterated its goal of making profitable EVs by 2025.