GM reports strong sales but says it’s prepared for a possible recession

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GM reported a sharp drop in profit on Tuesday, but that was caused by Covid locks in China, one of its largest markets, and other supply chain issues. The automaker actually posted a windfall in revenue.
But executives said that despite high demand, the company is prepared should the US or global economy fall into a tailspin. recessionas a growing number of economists fear.
“While demand remains strong, there are growing concerns about the economy,” CEO Mary Barra said in comments to investors. She said the company is preparing for a possible recession by cutting discretionary spending and limit hiring.

“We have also modeled many recession scenarios and are prepared to take deliberate action when necessary,” he said.

Recessions often collapse demand for new cars and hurt the auto industry.

The most recent survey of members by the National Association for Business Economics released Monday found that 43% think of a recession in the US. in the next 12 months is more likely than not. That’s up from just 13% who believed that in April. and the Monday, walmart (WMT)the nation’s largest retailer, announced it was cutting prices on some products and cutting its earnings forecast due to softer spending by consumers.

GM sees no signs of a recession yet, given strong demand for new vehicles, Chief Financial Officer Paul Jacobson said in response to media questions.

“We’re not seeing anything that indicates short-term problems, but we need to be aware of the noise out there and what other people are seeing,” he said. “We’re going to be very nimble and nimble and respond to that.”

Recently, Tesla has announced plans to cut salaried staffdue in part to CEO Elon Musk saying he has a “super bad feeling” on the economic outlook. And a recent Bloomberg The report said Ford is also planning salary cuts. Ford said he would not comment on “speculation.” But Jacobson said GM “is not running any scenarios right now where we’re looking at layoffs.”

Jacobson declined to comment on the chances of a recession over the course of the next year, saying, “I don’t like to get into the odds of predicting. Our job is to respond, plan and prepare.”

He said all the data about his customers, including credit reports from GM Financial, show continued strong strength among American consumers and pent-up demand to buy vehicles.

“But we are watching and will make sure to adjust the business as needed,” he added.

Walmart is cutting prices on clothing and other goods, trims profit outlook on lower consumer spending

GM tried to reassure investors, saying it expects to hit its full-year profit target despite economic concerns.

“We feel like we’re in a really good position,” Jacobson said. “We feel we are on track to deliver the year we [forecast] at the beginning of the year.”

Falling profits despite rising revenue

For the second trimester, GM (GM) reported adjusted earnings of $1.7 billion, down from $2.9 billion a year earlier, falling about $60 million short of forecasts.

But revenue rose $1.6 billion to $35.8 billion, easily beating forecasts that called for a drop in revenue. The number of vehicles sold worldwide by GM dealers and distributors remained roughly on par with first-quarter sales but decreased 19% to 1.4 million compared to a year ago.

Limited vehicle supply and strong demand, especially in North America, pushed prices up. The strong pricing environment added $1.8 billion to the company’s results for the quarter.

Part of the drop in vehicles sold was due to the lockdown in China, and part was due to continued shortages of computer chips and other necessary supplies. The company built 95,000 vehicles in the quarter but was unable to complete them due to a lack of parts. About 75% of them are full-size trucks and SUVs, GM’s most profitable vehicles. Jacobson said the company expects to complete those vehicles and sell them during the second half of the year, and was already making progress so far this month.

“We thought we were going to produce a lot more vehicles in the quarter,” he said. “Substantially all of those vehicles will be back in the second half of the year.”

Covid lockdowns in China limited production at Chinese factories and pushed sales in the country to a low close to stopping. China has been GM’s biggest market in recent years, although US sales outpaced China sales in the most recent quarter.

GM lost $87 million in China, its first loss there since early 2020 at the start of the pandemic.

Actions of GM (GM) they were down almost 3% by mid-morning after the report.

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