GM withdraws 2023 guidance as UAW strike costs soar By Reuters

By José Blanco

DETROIT (Reuters) – General Motors (NYSE on Tuesday withdrew its 2023 profit outlook, blaming rising costs from the United Auto Workers strikes, and Chief Executive Mary Barra said the automaker will slow its electric vehicles to put profits before sales goals. .

GM’s third-quarter net income fell 7.3% to $3.06 billion, while revenue rose 5.4% to $44.1 billion. Adjusted earnings per share tracked by analysts were $2.28, above Wall Street expectations and up from $2.25 a year ago due to the effect of share buybacks.

GM shares reversed course and fell 1.3% as executives discussed the results on a call with analysts.

The growing number of casualties from the UAW strikes, the prospect of higher labor costs once a new contract is reached, rising warranty expenses and an uncertain macroeconomic outlook have forced GM to abandon previous financial performance goals. for the entire year that had been raised in July. . Well Fargo analyst Colin Langan said the impact of the strike was not surprising.

The UAW strikes cost the company $200 million during the third quarter and $600 million so far in the fourth quarter, GM Chief Financial Officer Paul Jacobson said in a briefing with reporters.

Strike costs amount to $200 million a week, Jacobson said. He declined to discuss the potential impact if UAW President Shawn Fain ordered new strikes at GM’s most profitable North American factories, such as the Arlington, Texas, plant that builds Cadillac Escalades and Chevrolet Suburbans, or the GM assembly plant. heavy duty trucks from Flint, Michigan. .

As the pace of electric vehicle sales growth has slowed in North America and even industry leader Tesla (NASDAQ:) is expressing caution about the pace of its expansion, GM is reworking its electric vehicle strategy. in the region, backing away from its efforts to challenge Tesla’s leadership in the US electric vehicle segment.

Barra said the automaker is also slowing the launch of several electric vehicle models to reduce their costs and reducing spending on electric vehicle products.

GM will save billions thanks to the decision to redesign and relaunch the Chevrolet Bolt EV, using lower-cost lithium-iron batteries and scrapping an earlier plan to spend $5 billion on several new entry-level electric vehicles, Barra said .

The next generation Bolt will also use lower-cost lithium iron batteries purchased from China, GM said.

GM is abandoning a goal of making 400,000 electric vehicles from 2022 to mid-2024, Jacobson said.

“We’re just not going to talk about interim production targets,” Jacobson said.

Barra said GM has “work to do” to reach its low- to mid-single-digit earnings before interest and taxes (EBIT) margin target by 2025.

GM’s decision to delay retooling a large factory in Orion Township, Michigan, to build electric trucks will save $1.5 billion in capital investments in 2024, Jacobson said.

Delaying the expansion of electric trucks “will actually allow us to incorporate some of the changes and improvements that we’ve seen in the early stages of production” and improve profit margins when the electric Silverados and GMC Sierras go into production, he said.

The company has joined other automakers in urging the Biden administration to back away from ambitious emissions and fuel economy standards aimed at bringing electric vehicles to two-thirds of the U.S. vehicle market by 2032. .

So far, GM’s sales and prices in North America have remained stable. Average sales prices for GM vehicles were $50,750 in the latest quarter, down slightly from the previous quarter.

However, the automaker said its cost-cutting efforts only “partially offset” higher electric vehicle launch costs, increased warranty expenses and lower pension income in the quarter.

Overall, GM said profit for the quarter fell by $1.5 billion due to higher costs and the impact of selling more electric vehicles. Unlike rival Ford (NYSE:), GM does not report losses from its electric vehicle operations.

Jacobson said GM executives are concerned about rising interest rates as well as the conflict in the Middle East and whether that could affect consumer behavior. But he did not echo Tesla CEO Elon Musk’s pessimism about the impact of rising interest rates on consumer demand.

“What I would say is that the consumer has held up remarkably well for us so far, as evidenced by the average transaction prices,” Jacobson said.

GM also said losses at its Cruise robotaxi unit rose to $732 million in the quarter. GM said the losses were “in line with expectations” as operations expanded to 15 cities.