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

GM reported a sharp drop in profits on Tuesday, but that was fueled by the Covid lockdown in China, one of its biggest markets, and other supply chain issues. The automaker actually reported an unexpected increase in earnings.
But executives said that despite strong demand, the company is poised for a recession in the US or global economy, something a growing number of economists fear.
“While demand remains strong, there are growing concerns about the economy,” CEO Mary Barra said in a comment to investors. She said the company is bracing for a possible downturn by cutting discretionary spending and limiting hiring.

“We have also simulated many economic downturn scenarios and are prepared to take deliberate action when and if necessary,” she said.

Recessions usually bring down demand for new cars and hurt the auto industry. The latest poll of members of the National Association for Business Economics, released on Monday, showed that 43% believe that a US recession in the next 12 months is more likely than not. This is compared to 13% who believed it back in April.

GM sees no signs of a recession yet, given the strong demand for new cars, chief financial officer Paul Jacobson said in response to media questions.

“We do not see anything that would indicate any problems in the near future, but we must be aware of the noise around and what other people see,” he said. “We’re going to be very flexible and very nimble and responsive to that.”

Tesla recently announced plans to cut hires, in part because CEO Elon Musk said he had a “very bad feeling” about the economic outlook. And recent bloomberg The report says that Ford is also planning to cut staff. Ford said it would not comment on “speculation”. But Jacobson said GM “is not currently considering any layoff scenarios.”

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

He said all the data on his customers, including credit reports from GM Financial, show great continued strength among US consumers and pent-up demand for auto purchases.

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

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

“We feel we are in a very good position,” Jacobson said. “We feel we are on our way to the end of a year in which [forecast] at the beginning of the year.”

Drop in profit despite increase in revenue

For the second quarter grandmaster (grandmaster) reported adjusted earnings of $1.7 billion from $2.9 billion a year earlier, about $60 million less than forecast.

But revenue rose $1.6 billion to $35.8 billion, well above forecasts of a drop in revenue. The number of vehicles sold by GM dealers and distributors worldwide remained about the same as in the first quarter, but down 19% to 1.4 million compared to last year.

The limited supply of cars and strong demand, especially in North America, have pushed prices up. Strong pricing added $1.8 billion to the company’s quarterly results.

The drop in car sales was partly due to the lockdown in China, and partly due to the ongoing shortage of computer chips and other essential supplies. The company had 95,000 vehicles built in a quarter but was unable to complete due to lack of parts. About 75% of these are full-size pickups and SUVs, GM’s top-grossing vehicles. Jacobson said the company expects to complete these vehicles and sell them in the second half of the year, and has already made progress this month.

“We thought we were going to produce a lot more cars this quarter,” he said. “Practically all of these cars will be back in the second half of the year.”

The Covid shutdown in China has limited production in Chinese factories and nearly brought sales to a halt in the country. China has been GM’s biggest market in recent years, although US sales outpaced sales in China in the most recent quarter.

GM has lost $87 million in China, its first loss since early 2020 when the pandemic began.

Stock grandmaster (grandmaster) were slightly lower in premarket after the report.

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