General Motors posted an 18.5 percent drop in profits in the first quarter, mainly due to the cost of job cuts and slowing sales of new vehicles in China.
The decline comes as higher interest rates drive up the cost of new vehicles for consumers and concerns persist about a potential U.S. recession.
GM said its net income for the first three months of the year fell to $2.4 billion from $2.9 billion in the same period in 2022. First-quarter revenue rose 11 percent to $40 billion , thanks to the highest prices and effective discounts.
“The first quarter was ahead of our own expectations, primarily based on pricing and a consistent incentive plan, as well as demand remains strong for our vehicles,” said GM CFO Paul Jacobson, on a conference call.
Globally, GM sold 1.4 million vehicles in the first quarter, down 3% from the same period a year ago. Its sales in the United States rose 18 percent, but its sales in China fell 25 percent.
The automaker’s first-quarter earnings were cut by $900 million that GM had set aside to cover the cost of severance and other measures stemming from its elimination of 5,000 salaried jobs. In all, GM is trying to cut about $2 billion a year in costs.
The effect of these cost-cutting efforts, said Mr. Jacobson, “flows to the bottom line faster than we anticipate.”
GM slightly lowered its outlook for 2023. The company said it now expects 2023 net income to be between $8.4 billion and $9.9 billion. In January, it gave a range of $8.7 billion to $10.1 billion.
The trajectory of the auto industry remains uncertain. In the United States, new vehicle sales rose about 7 percent in the first quarter to 3.6 million vehicles. But the pace of sales slowed markedly in March. Much of the increase had come from purchases by rental car companies and other commercial fleets, rather than by individual customers.
Rising interest rates and near-record prices have made it difficult for many American consumers to buy new cars and trucks. In March, car buyers paid an average of $48,008 for new vehicles, nearly $1,800 more than in March 2022, according to market researcher Kelley Blue Book. The average monthly payment for new cars last month was $784, compared to $683 a year ago.
Although GM’s U.S. sales rose in the first quarter, signs of reduced consumer demand in the broader market have begun to emerge. Last week, AutoNation, America’s largest auto retailer, said its new vehicle sales fell 2 percent in the first quarter.
“There are a lot of mixed economic signals in the market and within auto retail, which warrant, I think, a more cautious approach than in recent years,” AutoNation CEO Mike Manley said on a conference call telephone
GM expects an increase in electric vehicle sales later this year. In the first quarter, the company sold more than 20,000 electric vehicles in the United States. Jacobson said GM expected electric vehicle sales in the first half of the year to exceed 50,000, and roughly double that in the second half.
“We feel good that demand is robust for the electric vehicles we are producing,” he said.
