Strong U.S. sales helped General Motors increase its first-quarter net profit 19% over a year ago, leading the company to raise its full-year earnings guidance on expectations that people will keep buying new vehicles.
The Detroit automaker said Tuesday that its average U.S. vehicle price dropped about $500 for the quarter to $50,263 as the supply situation for GM improved, and it expects that to remain flat through the year as consumer demand remains surprisingly strong. It expects profits to increase because sales to dealers should rise 5% to 10% over last year despite high interest rates and inflation.
Chief Financial Officer Paul Jacobson wouldn’t make a prediction about a recession this year, but he forecast robust demand for GM through December.
“Overall, April remains really strong for us,” he said. “So we’re confident we’ll be able to hit this higher guidance.”
GM made $2.37 billion from January through March, up from $1.99 billion in the previous year.
Excluding a $900 million charge to pay severance packages to about 5,000 white-collar workers who took buyouts during the quarter, GM made $2.21 per share, soundly beating analyst estimates of $1.72, according to FactSet.
Revenue for the quarter came in just shy of $40 billion, up 11% from a year ago and beating projections for $38.55 billion.
The company, after the strong start, raised its pretax profit guidance for 2023 to a range of $11 billion to $13 billion. Previously it was $10.5 billion to $12.5 billion.
GM's sales in the U.S., its most profitable market, rose almost 18% during the quarter as buyers splurged on loaded out pickups and SUVs.
“We will have a little bit of a challenge as we lap last year’s pricing increases through this year,” Jacobson said, adding that new models GM is introducing should help with pricing and demand.
He said he doesn’t see any reason for GM to match multiple electric vehicle price cuts announced this year by market leader Tesla.
“We feel good about where we’re priced right now, and consumers seem to be really demanding our products,” he said.
CEO Mary Barra also announced that GM will stop building the electric Chevrolet Bolt hatchback and small SUV by the end of this year. The Bolt, which starts at $26,500, is now GM's top selling EV, but the plant north of Detroit that builds it is being converted to make electric trucks.
The company is rolling out an electric Chevy Equinox EV that will start around $30,000 later this year, and it's working on a lower-cost EV with Honda.
Shares of General Motors Co. closed Tuesday down 4%.
A global shortage of computer chips and other parts forced the auto industry to slow production last year, driving up prices as demand stayed strong. But the parts shortages and production are starting to improve. GM’s inventory at the end of March rose 50% from the same time a year ago to 412,000.
GM said it expects to start turning low-to-mid single-digit profit margins on electric vehicles in 2025. It plans to build 400,000 EVs in North America through mid-2024 and reach the capacity to build 1 million per year in 2025.
The automaker seems to be managing the transition from combustion engines to electric vehicles well, but it will still be difficult to orchestrate, said Edward Jones analyst Jeff Windau. As EV sales start to increase and gas vehicles wind down, it could put GM in a position of not fully using factories for either type of vehicle, and that could hit profits, he said.
Jacobson said GM already is seeing cost savings from the workers who took buyouts, and is ahead of schedule on cutting $2 billion in costs per year by next year. Barra said the company also is working to reduce complexity to limit costs on both its gas and electric models.
GM’s pretax profits in North America rose 14% for the quarter to $3.58 billion. But its income from China fell 64% to $83 million. Jacobson said the company has new gasoline and electric vehicles coming, but he doesn’t expect income to improve until the second half of the year.
Also on Tuesday, GM and South Korea’s Samsung SDI said that they plan to invest more than $3 billion in a new electric vehicle battery cell plant in the United States. The location is unknown, but the companies plan to begin operations there in 2026.
GM and Samsung SDI plan to jointly operate the factory, which is expected to make nickel-rich prismatic and cylindrical cells. The companies said it was expected to create thousands of jobs.