GM reports 52% surge in Q2 net income, raises 2023 guidance a second time

DETROIT — General Motors' second-quarter net income jumped 52 percent to $2.6 billion, even after an $792 million charge related to 2021's Chevrolet Bolt recall, with strong demand and disciplined pricing leading the company to raise full-year guidance for the second consecutive quarter.

Sounding bullish on the near future, GM also said it is ramping up cost-cutting efforts and now expects to slash $3 billion in fixed costs over the next two years, up from a planned $2 billion reduction.

Second-quarter adjusted earnings before interest and taxes rose 38 percent to $3.2 billion. Global revenue jumped 25 percent to $44.7 billion.

GM now expects to generate adjusted EBIT of between $12 billion and $14 billion this year, up $1 billion from its most recent forecast in April. It raised its 2023 net income forecast to a range of $9.3 billion to $10.7 billion, up from a previous range of $8.4 billion to $9.9 billion. And it upped its automotive free cash flow forecast by $1.5 billion to a range of $7 billion to $9 billion.

"We're building momentum thanks to incredible customer response to our new trucks and SUVs, and strong execution of our business plan by the GM team, our dealers and our suppliers," GM CEO Mary Barra said in a letter to shareholders.

Union issues

GM's updated guidance assumes the company will reach a new contract with the UAW later this year without a work stoppage, which could prove difficult given the union's heated rhetoric. CFO Paul Jacobson, speaking to media, declined to say how a strike this fall might impact the automaker.

The UAW, responding to the second-quarter report, again took issue with GM's profits.

“General Motors has made mind boggling profits over the last decade,” UAW President Shawn Fain said in the statement. “GM’s recently announced quarterly earnings just set a post-bankruptcy record, but autoworkers and our communities have yet to be made whole for the sacrifices we’ve made since the Great Recession.

"GM executives have closed 31 plants over the last 20 years and are now enriching themselves through joint venture battery plants that get billions from the federal government in taxpayer subsidies but pay poverty wages. It’s long past time for GM to pony up, end tiers, pay their employees competitive wages that keep up with the cost of living and provide everyone the ability to retire with dignity.”

The UAW kicked off bargaining with the Detroit 3 earlier this month. Contracts expire Sept. 14.

No more staff cuts planned

Jacobson also said the company's more aggressive cost-cutting efforts would not include any additional planned staff reductions. About 5,000 salaried employees chose to take a buyout early this year as part of the automaker's previous $2 billion reduction target.

Barra, in an earnings call Tuesday, said the cuts would come from all areas of the business, including marketing, engineering, travel and administrative costs. She said the company was implementing a “winning with simplicity” strategy that would reduce order complexity, supplier costs, and vehicle build combinations.

GM is targeting a 50 percent reduction in trim levels by bundling features and options on both EV and ICE vehicles, Barra said.

In North America, GM posted adjusted EBIT of $3.2 billion, up 39 percent over the same period a year ago. Its adjusted margins rose 0.6 of a percentage point to 8.6 percent.

The automaker’s international unit posted an adjusted EBIT of $236 million, up 13 percent from a year ago.

Barra, in the letter, attributed most of GM's success last quarter to strong vehicle demand — especially in the U.S.

"We have earned four consecutive quarters of higher retail market share in the U.S. versus a year ago with continued strong pricing and incentive discipline, we're leading in both commercial and total fleet deliveries calendar year to date, and we're growing profitably in international markets such as Brazil and Korea," she said.Barra also noted the company achieved its first-half goal of producing 50,000 electric vehicles and remains on track to produce "roughly 100,000" in the second half of this year.
 

The company has been slow to ramp production of its current Ultium-based EVs like the Cadillac Lyriq and GMC Hummer. Barra said GM has experienced “unexpected delays” because its “automation equipment supplier has been struggling with delivery issues that are constraining module assembly capacity.”

She said GM has brought in its own employees to help, is adding manual module assembly lines and installing more module capacity at its EV plants.

“We are working on multiple fronts to put this behind us as quickly as possible and things are already improving,” she said, adding the company is not backing away from any targets, including a revised goal to build a cumulative 400,000 EVs from 2022 to the middle of 2024.

GM said the $792 million charge it took in the quarter stemmed from "new commercial agreements" made with LG Electronics related to the recall of all Chevrolet Bolts in 2021 because of a fire risk. The automaker had previously said LG would pay about $1.9 billion for the recall.

"The charge reflects the conscious decision GM made during the Chevrolet Bolt EV and Bolt EUV recall to serve customers in ways that go beyond traditional remedies, and GM is taking new steps that will reduce its costs and improve EV margins over time," the company said in a statement.

Jacobson told journalists that GM has fixed roughly 85,000 Bolts, representing about 80 percent of affected vehicles.

Barra on Tuesday also said the company would build a next-generation Bolt based on Ultium battery technology, although she declined to provide a specific timeline.

Despite the bullish news, shares in GM were down 3.5 percent, closing at $37.92 when the market closed Tuesday.