GM plans $2 billion in cost cuts after record 2022 earnings

General Motors on Tuesday said it will make $2 billion in cost cuts over the next two years, partly by reducing the size of its work force, though it’s not planning any layoffs.

It announced the plan after posting fourth-quarter net income of $2 billion — a 15 percent increase, and a record pretax profit for the year as vehicle sales and supply constraints improved.

The automaker also said in a statement Tuesday it expects to generate similar or slightly lower earnings in 2023. To achieve that, it intends to cut costs in its automotive business by $2 billion through 2024, with 30 to 50 percent of that expected this year, CFO Paul Jacobson told reporters.

In the fourth quarter, GM said revenue surged 28 percent to $43.1 billion. Adjusted earnings before interest and taxes in the quarter rose 34 percent to $3.8 billion.

GM said its full-year EBIT of $14.5 billion, up 1.3 percent, was a company record. Its net income for all of 2022 slipped 0.8 percent to $9.9 billion as revenue rose 23 percent to $156.7 billion.

GM's fourth-quarter adjusted profit in North America soared 69 percent to $3.7 billion.

Shares in GM rose 8.3 percent to close at $39.32 on Tuesday.

“It takes experience, skill and teamwork to adjust to external factors like higher interest rates, commodity price increases and supply chain disruptions, and deliver our commitments year in and year out,” CEO Mary Barra said on a call with analysts.

“GM led the U.S. industry in total sales and delivered the largest year-over-year increase in market share of any OEM, alongside record [average transaction prices],” she added. “This reflects the strength of our product portfolio, including our clear leadership in full-size pickups and full-size SUVs, great quality and improved availability.”

Even as it reported record earnings for 2022, the automaker intends to take steps to cut costs as it watches the broader macroeconomic environment and as it continues to ramp up its electric vehicle transition.

GM plans to reduce complexity in its products and trim corporate expenses, with plans to slightly lower head count through attrition, Jacobson said. He declined to say how much the company would shrink its workforce.

“I want to be clear: We're not planning layoffs,” Jacobson said. “We're looking at hiring the only most strategically important roles, and we will use attrition to help manage our overall head count.”

GM projects full-year net income ranging from $8.7 billion to $10.1 billion and adjusted EBIT of $10.5 billion to $12.5 billion.

Jacobson told reporters that this year’s earnings will be impacted by an expected decline in GM Financial’s earnings as a result of declining used-car prices, rising interest rates and a smaller lease portfolio, as well as a pension accounting impact.

“We think the underlying business is going to be pretty consistent in ’23 with what we saw last year, and I think that's a slightly more bullish statement than where most of the market is,” Jacobson said. “We're going to continue to watch it. But clearly, as we talked about with the $2 billion cost program we’ve announced today, we want to make sure that we're cautious and prepared for going forward.”

Logistical challenges remain

Logistics challenges and supply chain constraints are improving, but some issues remain, Jacobson told analysts. GM’s North American fourth-quarter results reflected higher volume and pricing, as well as higher commodity and logistics costs, he said.

The company ended 2022 with about a 50-day supply of dealership inventory, including in-transit vehicles, Jacobson said.

The number of vehicles on dealership lots is “improving gradually, but still approximately one-third the level we were at in mid-2019, supporting a favorable supply-and-demand environment,” he said.

GM aims to have a 50- to 60-day supply at the end of 2023, which would be 20 to 30 days below mid-2019 levels, assuming logistics challenges continue to ease, Jacobson said.

Incentives in North America likely will increase from the historically low levels seen in 2022, he said, but “we expect this headwind to be partially offset by realizing the full-year benefit of MSRP increases on many model-year ’23 vehicles — particularly full-size SUVs and trucks — as well as pricing we expect to achieve on our new launches.”

UAW profit sharing

GM said its profit-sharing payout to unionized U.S. employees is $500 million, a record. The company’s UAW-represented hourly workers each will receive bonuses of $12,750 based on its $12.99 billion profit in North America for the year, the union said in a statement.

"Our members are essential to the success of General Motors.  UAW members bring skill, experience, and dedication to the job every day and are well deserving of today’s news," Mike Booth, the head of the UAW's GM department, said in the statement.

"While we celebrate today, we know that there are challenges ahead.  We will continue to fight for fairness and equity for all UAW-GM members."