GM’s very strong quarter was overshadowed by potential industry headwinds

DETROIT (Reuters) – U.S. customers who bought a new General Motors vehicle last quarter paid an average of just under $49,900, a price that helped push the company’s net income 15 percent above a year earlier.

General Motors Chief Financial Officer Paul Jacobson said he does not see his company cutting prices much, despite industry analysts’ expectations that new-vehicle inventories in the United States will grow and that discounts will be offered.

The Detroit automaker earned $2.92 billion in the April-June period and posted revenue of $47.97 billion. Excluding one-time items, the company earned $3.06 a share, 35 cents above Wall Street estimates, according to data provider FactSet. Revenue was also better than expected.

While average sales price was down slightly from a year ago, GM sold 903,000 vehicles to dealers in North America during the quarter, up 70,000 from the same period in 2023. However, the company said sales at its international unit fell 7,000 to 140,000 vehicles.

However, GM shares began to fall shortly after the opening bell, as did shares of most other automakers, due to a number of potential risks to the industry, including slowing sales in China.

GM is restructuring its operations in China, which has weighed on its overall performance. Second-quarter revenue from GM’s China joint venture was $4.7 billion, up from $4.1 billion in the first quarter but well below the $9.6 billion in fourth-quarter 2023 sales, and deliveries have been down this year.

GM Chief Executive Mary Barra said during a conference call Tuesday that the company is taking steps to reduce inventory in China, as well as looking at how to better align production with demand. She added that the company expects the rest of the year to be tough and is working aggressively with its joint venture partner to fix that.

“Clearly, the steps we took, while significant, were not enough. We expected to return to profitability in China in the second quarter. However, we reported a loss, and we expect the rest of the year to remain challenging as headwinds are not easy,” Barra said. “We are working closely with our joint venture partner to restructure the business to make it profitable and sustainable.”

Shares of General Motors, which had risen sharply before the opening bell, were down about 7% by midday.

Edward Jones analyst Jeff Windau said the company’s latest quarter may have exacerbated existing concerns about the auto industry.

“Slowing sales in China and increased competition from domestic rivals could be a drag on earnings,” Wendao said in an email. “EV development is also believed to help support future growth. So slowing production could push back sales growth targets.”

Earlier this year, GM had forecast that prices would fall 2% to 2.5% this year, but so far that forecast has not materialized, said Jacobson, GM’s chief financial officer. Instead, the company now expects a 1% to 1.5% decline in the second half of the year.

GM’s prices fell slightly, Jacobson said, because a larger share of its sales came from lower-priced vehicles such as the Chevrolet Trax compact SUV, which starts at $21,495 including freight. The company saw strong sales of its higher-priced pickup trucks and larger SUVs, he added.

While other companies have raised discounts, GM has been able to maintain relative stability while gaining U.S. market share, Jacobson said.

Sales and pricing were among the reasons GM cut its full-year net income guidance slightly, from a range of $10.1 billion to $11.5 billion, to a new range of $10 billion to $11.4 billion.

GM also said it expects to build and sell between 200,000 and 250,000 electric vehicles this year. However, the company sold only 22,000 vehicles in the United States, its largest market, in the first half.

Jacobson said the company will add $400 million to its marketing spending in the first half of July through December, in part to boost awareness of its electric vehicles. However, he said annual marketing spending will still be lower than it was in 2023.

General Motors spent $500 million in the second quarter on its struggling businesses. Self-driving vehicle unitdown $100 million from a year ago. The company said it would indefinitely postpone construction of Origin, a six-passenger robotic taxi that Cruise had planned.

The self-driving vehicle unit will rely on next-generation Chevrolet Bolt electric vehicles as it attempts to resume passenger transport without human safety drivers.

Cruise lost its license to autonomously transport passengers in California last year after one of its robot taxis pulled an unruly pedestrian — who had just been hit by a human-driven car — across a dark San Francisco street before stopping.

GM had hoped Cruise would generate $1 billion in annual revenue by 2025, But it has been reduced. Huge investment in service.

“GM’s shift to a new platform and the regulatory concerns it raises questions about the timeline for deployment and potential consumer interest,” said Edward Jones’ Windau. “We believe that regulatory concerns are problematic for autonomous driving and could drag out the market for this type of vehicle longer than expected.”

_____________________________________

Associated Press Business Writer Michelle Chapman contributed to this report.