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GM Again Lifts Its Profit Outlook, Plans More Cost Cuts

Automaker says buyers are willing to pay for pricier models, features

General Motors GM 1.95%increase; green up pointing triangle raised its 2023 profit outlook for the second time this year, citing better-than-expected new-vehicle demand and car shoppers’ willingness to spring for pricey models and features. 

GM finance chief Paul Jacobson said the continued strength in the car market, along with signs of improving economic conditions, gave the automaker the confidence to boost pretax-profit guidance to $12 billion to $14 billion, from a previous target of $11 billion to $13 billion.

At the same time, GM said it is looking to cut an additional $1 billion in fixed costs, atop $2 billion the company already had targeted, and said it also would spend less than planned on capital projects. It is a sign the automaker is mindful of mounting consumer pressures—including higher interest rates and inflation—despite the surprisingly strong year so far. 

Automakers and tech giants are locked in a battle for control of the dashboard console, set to be a storefront for selling over-the-air updates and upgrades to connected vehicles features. Photo illustration: George Downs

How was GM’s quarter? 

Net income rose 52% to $2.6 billion. It was hurt by a $792 million charge related to the 2021 safety recall of the Chevrolet Bolt electric car for fire risks. 

Pretax profit, excluding one-time items: $3.2 billion, up 38% from a year earlier.

Pretax earnings per share: $1.91, higher than analysts’ average forecast of $1.87, according to FactSet.

Revenue rose 25% to $44.7 billion.

What drove the results?

Strong demand for some of GM’s biggest moneymakers—including newer versions of its largest pickup trucks—led to a 39% surge in pretax profit from North America, to $3.2 billion. 

The average price customers paid for a GM vehicle rose in the second quarter by about 3% from the prior quarter to around $52,000, the company said. 

Income from China totaled $78 million, less than the company’s historical results but better than the year-earlier loss. 

Why is this quarter important?

Carmakers continue to defy predictions from Wall Street analysts that their average prices will deteriorate as the industry increases vehicle supply following a prolonged shortage because of supply-chain troubles. GM’s result shows that strong pricing is lasting longer than analysts and auto executives anticipated. 

JP Morgan said the second quarter “could represent the best of both worlds for automakers, with volume and pricing both tracking strong.” \GM said its profit outlook doesn’t factor in any financial impact from a possible strike this fall when its labor contract with the United Auto Workers expires, a prospect that analysts have flagged as a high risk.

What else did GM say? 

Jacobson said GM will continue to squeeze costs, including marketing spending. The company now plans $3 billion in annualized cost reductions by the end of 2024, a process it started early this year. Executives have said they need to lower costs as they try to make a profitable transition to electric vehicles. Many traditional automakers lose money on EVs today, while market leader Tesla has flexed stronger profit margins.

“We know that there are competitors out there that have really, really strong margins on EVs,” Jacobson told reporters. “We need to be aggressive in being competitive on our cost structure.”

GM has been boosting capital spending in the past few years as it prepares to launch a slate of new electric vehicles. But on Tuesday, the company said it would dial back planned spending this year by about $1 billion, to between $11 billion and $12 billion. 

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