GM Doubles Down on Cost Savings, Trims $1B From Capex Plan
General Motors Corp. Chair and CEO Mary Barra and her team plan to cut another $1 billion to costs from the automaker’s operations in the next 18 months while also trimming the high end of their capital spending plans by $1 billion.
Barra announced the moves along with GM’s second-quarter results, which showed net income of nearly $2.6 billion versus $1.7 billion in the same period of last year as sales rose 25% to more than $44.7 billion. The company grew its U.S. market share by 70 basis points versus mid-2022 during the quarter and its average transaction price was more than $52,200, a year-over-year bump of 3.7%.
Speaking to analysts on a conference call, Barra and CFO Paul Jacobson pointed out that those numbers were being generated as GM has been cutting rom its operations $2 billion in fixed costs—about half from workers who voluntarily left the company. They are now looking to take out another $1 billion—a move Jacobson foreshadowed speaking to an investor conference in April—and are focused foremost on simplifying the designs of GM vehicles (both internal-combustion and electric) and by focusing capital investments on a smaller number of profitable full-size truck and SUV models as well as EVs and the company’s fast-growing Cruise autonomous vehicle division.
“We are finding there are a lot of ways to take costs out of manufacturing […] especially on the vendor tooling side,” Barra said on the call, adding that President Mark Reuss has been overseeing the work to extract costs and simplify operations.
On the capex side, Barra said the reduction in the range of forecasted spending isn’t an indication that demand might be lagging in some parts of the market. Instead, she said, “this was us making sure we have the absolute best portfolio entries.”
That will include the next generation of the small Chevrolet Bolt electric vehicle, a model Barra’s team earlier this year said it would discontinue by year’s end. Bringing it back, executives say, is about taking advantage of the capital that has already been invested while integrating the latest battery and technology improvements. A timeline has not yet been announced.
GM’s cash flow from automotive operation more than doubled in the second quarter to $7.1 billion and its leaders now expect that earning before interest and taxes for all of 2023 will be between $12 billion and $14 billion, up from their previous forecast of $11 billion to $13 billion. It's the second time in 2023 they have hiked their full-year profit forecast.
Not everything about GM’s Q2 report was roses and sunshine, though: The ramping up of production of Ultium battery modules has hit a snag because automation equipment supplier ATS Corp. has fallen behind on the delivery of manufacturing assembly modules. Barra and her lieutenants are sticking to their production targets for 2023 and mid-2024, however; Barra said on the conference call that GM executives were surprised by the development but have deployed some of their teams to pitch in, which has shown positive results in the past handful of weeks. The issue, she added, is expected to be resolved by late this year.
Shares of GM (Ticker: GM) were down about 2.5% to $38.28 in mid-morning trading July 25. Year to date, they have risen 13%, growing the company’s market capitalization to more than $53 billion.
