General Motors (GM) surprised analysts with much stronger-than-expected third-quarter earnings, positioning the company for potentially record-breaking profits in 2024. This impressive performance comes just a year after enduring a costly six-week strike by the United Auto Workers (UAW) union. Despite the challenges, GM’s financial outlook has never been brighter.
A Profitable Quarter Amid Industry Challenges
GM posted an adjusted profit of $3.4 billion for the third quarter, an increase from $3.2 billion during the same period last year. The third quarter of 2022 was notably impacted by the first two weeks of the UAW strike, which affected production and operations. For the first nine months of 2023, GM’s adjusted earnings have already reached $9.9 billion, setting the stage for a potentially record-breaking year.
Revenue for the third quarter surged by more than 10% to $48.8 billion, significantly outpacing the 5% rise in vehicle sales volume. This revenue growth highlights the company’s ability to command higher prices for its vehicles, with the average transaction price in North America climbing to nearly $50,000. GM’s higher vehicle prices have played a crucial role in boosting profitability, demonstrating the automaker’s resilience in a competitive market.
Overcoming Strike Costs and Labor Negotiations
In 2022, GM estimated that the UAW strike cost the company $1.1 billion. The strike centered on union demands for higher wages, which GM initially resisted, arguing that such increases would hinder its competitiveness against nonunion automakers. However, the company eventually conceded to the UAW’s demands, agreeing to an immediate 11% raise for workers, with additional wage increases totaling at least 14% over the next four years.
The UAW’s strike slogan, “record profits should result in a record contract,” was reflected in the final deal, which included the largest wage increases ever secured by the union at GM. Despite these higher labor costs, GM has managed to raise its earnings outlook for the rest of the year, signaling that its financial health remains robust.
Optimistic Outlook and Stock Performance
Buoyed by its strong Q3 results, GM raised its full-year earnings outlook on Tuesday, suggesting that its profits for 2023 could surpass the record profits of 2022. This optimistic forecast sent GM’s shares up 2% in premarket trading, adding to the stock’s already impressive 37% gain for the year.
GM CFO Paul Jacobson praised the company’s ability to cut costs ahead of the strike, which helped it absorb the financial impact of the new UAW contract. “We’ve been able to look at that as the cost of doing business,” Jacobson said, adding that GM has “no regrets” over the deal reached with the UAW. He also credited the GM team for successfully raising the company’s profit targets, emphasizing their ability to navigate inflationary pressures.
Challenges in China: A Shrinking Market
While GM’s North American operations are thriving, its performance in China paints a different picture. The automaker reported a loss of $137 million in China for the third quarter, a sharp contrast to the $192 million profit it generated there in the same period last year. Vehicle sales in China dropped by 37% to 372,000 units, largely due to increased competition from domestic Chinese automakers and difficult market conditions.
China, once GM’s largest market, now represents just over half of its U.S. sales volume. The sharp decline in sales and profitability in China underscores the growing challenges GM faces in this key market, where local competitors are rapidly gaining ground.
Despite labor disruptions and challenges in international markets, General Motors has demonstrated remarkable resilience and strategic foresight. By cutting costs ahead of the UAW strike and capitalizing on higher vehicle prices, the company is on track for record-breaking profits in 2024. While its operations in China face hurdles, GM’s strong North American performance, paired with its ability to navigate labor and inflationary pressures, positions the automaker for continued success in the coming year.
