GM Beats Q3 2023 Estimates But Sees Income Decline Due To UAW Strike, Retracts Forecasts

General Motors (NYSE: GM) exceeded Wall Street’s expectations for the third quarter, despite grappling with ongoing labor strikes initiated by the United Auto Workers (UAW) union. These labor disputes have inflicted a weekly loss of approximately $200 million in vehicle production upon the automaker.

Since commencing on September 15, these strikes have caused General Motors to incur around $800 million in pre-tax earnings losses attributable to disrupted vehicle production, including $200 million during the third quarter, according to CFO Paul Jacobson.

Due to the persistent turbulence resulting from these strikes, General Motors is retracting its previously stated earnings forecast for the year, which had anticipated adjusted earnings between $12 billion and $14 billion, and net income attributable to stockholders in the range of $9.3 billion to $10.7 billion. Prior to the UAW strikes, Jacobson had expressed optimism about the company achieving results “toward the upper half” of its earnings projection.

The automaker ended the quarter with $44.13 billion in revenue, up from last year’s $41.89 billion and beating the street estimate $43.25 billion. However, the firm incurred higher operating expenses, leading to end with an operating income of $3.01 billion versus last year’s $3.39 billion.

The quarter ended with $3.06 billion in net income, down from last year’s $3.31 billion. On an adjusted basis, EBIT came in at $3.56 billion, also a decline from last year’s $4.29 billion. This translates to $2.28 earnings per diluted share, beating the estimated $1.84 per share.

General Motors’ North American adjusted earnings for the third quarter declined by 9.5% from the prior year to $3.53 billion. On the other hand, its international operations saw an increase in earnings of approximately 7%, totaling $357 million, while equity income from operations in China decreased year-over-year by about 42%, reaching $192 million.

Jacobson disclosed that GM is revising its short-term targets for electric vehicles (EVs) due to slower-than-expected demand. The automaker had previously set goals to sell 400,000 EVs in North America from 2022 through mid-2024 and produce 100,000 EVs in North America during the second half of this year. Nevertheless, GM will retain its objectives of achieving low-digit profit margins on EVs and reaching North American annual production capacity for these vehicles of 1 million units by 2025.

“We’re really focusing on making sure that we’re driving toward demand targets,” Jacobson emphasized. “We’re balancing production to demand.”

Last week, GM announced a one-year delay in the production of electric trucks at a second Michigan plant, now slated for late 2025. This delay is expected to save GM approximately $1.5 billion in capital next year, as per Jacobson.

In addition to increasing production of existing EV models, General Motors is also expanding battery cell production at a joint-venture plant with LG Energy Solution in Ohio. Jacobson noted that the automaker is making progress in addressing earlier issues in battery cell production that had hindered EV output.

General Motors has been contending with persistent strikes initiated by the UAW after the union and Detroit automakers failed to reach tentative labor agreements by a September 14 deadline, covering 146,000 union workers.

The UAW has been escalating work stoppages at GM, Ford Motor, and Stellantis as negotiations continue. As of Monday over 40,000 UAW members at the automakers, roughly 28% of those covered by expired contracts, were on strike.

Among the Detroit automakers, GM has the lowest number of workers currently on strike, approximately 9,200. An additional 2,350 GM employees have been laid off at other operations due to the strikes, according to the company.

The UAW, which extended strikes to pickup truck plants at Ford and Stellantis, hasn’t expanded strikes at GM since September 29.

Jacobson declined to provide an estimate of how much the impact of the strikes would escalate if they were to spread to other plants, including GM’s highly profitable Arlington Assembly, which the union had previously identified as a potential target.

“We’re trying to prepare the best we can for whatever decisions they might make, but we remain optimistic and hopeful that we’ll make progress and get this resolved going forward,” he stated.

During the last round of contract negotiations four years ago, a nationwide 40-day UAW strike against GM had cost the company approximately $3.6 billion in earnings for that year.

Information for this briefing was found via CNBC and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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