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General Motors sidesteps economic headwinds; Q3 profit jumps nearly 37%

October 26, 2022
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Increase was fuelled largely by a 24% sales increase in the US, by far GM’s most profitable market

General Motors' third-quarter net profit rose 36.7% as vehicle sales began to rebound from persistent parts supply chain troubles.

The Detroit automaker on Tuesday reported earnings of $3.3 billion from July through September, compared with $2.42 billion a year earlier.

The increase was fuelled largely by a 24% sales increase in the US, by far GM’s most profitable market. The company said it is seeing improved supplies of computer chips, allowing it to build more vehicles and increase inventory on dealer lots.

It's also selling more expensive pickup trucks and large SUVs. That boosted revenue for the quarter by 56% to a record $41.89 billion, though that's still short of the $42.1 billion that Wall Street had expected, according to a survey by FactSet. More than 80% of GM's revenue came from North America.

Excluding one-time items, GM made $2.25 per share, beating estimates of $1.88.

GM reiterated its full-year net income guidance of $9.6 billion and $11.2 billion. GM still expects pretax income of $13 billion to $15 billion.

Chief Financial Officer Paul Jacobson said the company isn’t seeing any sign that demand for new vehicles is slowing despite higher interest rates and inflation. “Pricing remains strong, demand remains strong for our products,” he told reporters early Tuesday.

Shares rose over 3% before the opening bell.

GM finished and shipped about 75% of the 90,000 vehicles it built without one part or another in the second quarter, and Jacobson said the company is seeing better supplies of computer chips and other parts. Dealer inventory as of Sept. 30 rose to 359 million, up from 248 million in the second quarter.

“Overall chips are getting better than certainly where they were a year ago,” he said.

The company has not seen any signs of a recession, but it's continuing to watch the economy, Jacobson said. It has no plans to cut any workers, but is being selective in hiring, he said.

Yet rising interest rates and high gasoline prices, coupled with persistent inflation, could hurt GM from now into 2023. Edward Jones analyst Jeff Windau wrote in a note to investors that although sales have improved, they have yet to reach pre-pandemic levels.

“We believe sales will continue to rebound, but we expect near-term volatility,” Windau wrote.

The entire auto industry has been hit hard by shortages of computer chips and other parts since the start of the coronavirus pandemic. The industry shuttered plants early in the pandemic, but they came back faster than expected, and by then, the semiconductor industry had switched to making chips for computers, games and other consumer electronics.

The auto industry has been trying to get more chips ever since. Windau wrote that the virus is still affecting the supply chain and could cause further issues.

GM's joint venture in China is recovering from pandemic lockdowns, with about $330 million in equity income versus $270 million last quarter.

The company's Cruise autonomous vehicle unit lost nearly $500 million as it expands a self-driving ride-hailing service from San Francisco into Austin, Texas, and Phoenix. There also was an accounting change for employee stock compensation. The company said it expects Cruise to generate $1 billion in revenue in 2025.

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