General Motors on Tuesday reported an 18.5 percent drop in first-quarter profits, mainly due to the cost of cutting jobs and slowing new vehicle sales in China. The company also announced that it will build a fourth battery factory in the United States.
The decline comes as higher interest rates increase the cost of new vehicles for consumers and concerns about a possible recession in the United States persist.
GM said its net profit fell to $2.4 billion in the first three months of the year, from $2.9 billion in the same period in 2022. First-quarter sales rose 11 percent to $40 billion, driven by higher prices and effective discounts.
“The first quarter was above our own expectations, primarily due to pricing and a consistent stimulus plan, and also because demand for our vehicles remains strong,” GM’s chief financial officer, Paul Jacobson, said in a conference call.
Worldwide, GM sold 1.4 million vehicles in the first quarter, 3 percent less than in the same period a year ago. Sales in the US were up 18 percent, but sales in China were down 25 percent.
The automaker’s first-quarter profits were slashed by $900 million, which GM had set aside to cover the cost of layoffs and other measures resulting from the cut of 5,000 salaried jobs. Overall, GM is trying to save about $2 billion a year in cost savings.
The effect of those cost-cutting efforts, said Mr. Jacobson, “is flowing to earnings faster than we expected”.
Due to the cost of cutting jobs, GM slightly lowered its 2023 net income outlook. The company said it now expects net income for 2023 to range from $8.4 billion to $9.9 billion. In January, it gave a range of $8.7 billion to $10.1 billion.
The trajectory of the auto industry remains uncertain. In the United States, first-quarter new vehicle sales increased about 7 percent to 3.6 million vehicles. But the pace of sales slowed noticeably in March. Much of the increase was due to purchases by rental car companies and other commercial fleets, rather than by individuals.
Rising interest rates and near-record prices have made it difficult for many American consumers to afford new cars and trucks. In March, car buyers paid an average of $48,008 for new vehicles, nearly $1,800 more than March 2022, according to Kelley Blue Book, a market researcher. The average monthly payment for new cars was $784 last month, compared to $683 a year ago.
While GM’s sales in the US rose in the first quarter, signs of declining consumer demand in the broader market are beginning to appear. Last week, AutoNation, the largest auto retailer in the United States, said new vehicle sales fell 2 percent in the first quarter.
“There are a lot of mixed economic signals in the market and within the auto retail industry, which I think warrant a more cautious approach than in recent years,” AutoNation CEO Mike Manley said on a conference call.
A major growth area for the automotive industry is electric cars. GM said Tuesday it would build a battery factory with a South Korean partner, Samsung SDI. The two companies will jointly invest $3 billion in the plant, but did not disclose a location. GM is working with another Korean company, LG Energy Solutions, on a battery plant in Ohio that has begun production and two others under construction in Tennessee and Michigan.
GM hopes for an increase in electric vehicle sales later this year. In the first quarter, the company sold more than 20,000 electric cars in the United States. Mr. Jacobson said GM expected EV production to top 50,000 in the first half of the year, and about double in the second half.
“We feel good about the strong demand for the electric vehicles we produce,” he said.
One of the reasons GM’s sales in China have fallen so much is that consumers are increasingly favoring electric cars. That has created a big opening for Chinese manufacturers and hurt Western automakers who have been slow to roll out electric vehicles.
In the United States, GM has begun making a new generation of electric vehicles using modular battery packs made at its Ohio plant. The Cadillac Lyriq, an electric SUV, and the GMC Hummer are in production, although GM sold fewer than 1,000 of those models in the United States in the first three months of the year.
Later this year, GM plans to introduce three models that will use the same modular battery packs. An electric Chevrolet Silverado pickup is expected to arrive around the middle of the year, followed by the Chevrolet Blazer and Equinox SUVs
GM’s top-selling EV is the Chevrolet Bolt compact, which accounted for almost all EVs GM sold in the US in the first quarter. The Bolt has been on the market since 2017 and uses an older battery design. GM general manager Mary T. Barra said Tuesday that the company would stop making the model by the end of this year.
In 2021, GM recalled all Bolts made up to that point to replace their batteries after a manufacturing defect was found to have caused fires on a small number of them. After halting production to address the issue, the company resumed Bolt sales in 2022.
Shares of GM fell about 2 percent Tuesday morning after the earnings report.
