GM Reports Strong Sales But Says It’s Prepared for a Possible Recession

General Motors reported a sharp drop in profits on Tuesday, but it was caused by the Covid virus closures 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 the high demand, the company is prepared in case the US or global economy falls into Recessionas a growing number of economists fear.
“While demand remains strong, there are certainly growing concerns about the economy,” CEO Mary Barra said in comments to investors. She said the company is preparing for a potential downturn by cutting discretionary spending and Reducing employment.

“We have also modeled several deflationary scenarios and are ready to take deliberate action when necessary,” she said.

Recessions usually lead to a collapse in demand for new cars and hurt the auto industry. The latest survey of members by the National Association for Business Economics released on Monday found that 43% think there will be a recession in the US In the next 12 months more likely than not. That’s up from just 13% who thought so in April.

Chief Financial Officer Paul Jacobson said in response to questions from the media that GM does not yet see any signs of recession, given the strong demand for new cars.

“We don’t see anything that indicates any near-term problems, but we have to be aware of the noise that is there and what others are seeing,” he said. “We’re going to be very agile and very smart and we’re going to respond to that.”

Tesla recently announced plans to Hiring salaried employeesThis is partly due to CEO Elon Musk saying he hasfeeling so badabout the economic outlook. and recently Bloomberg The report said that Ford also plans to cut salaries. Ford said it would not comment on the “speculation”. But Jacobson said GM “is not running any scenarios at the moment where we are considering layoffs.”

Jacobson wouldn’t have an opinion on the chances of a recession over the next year, saying “I don’t like getting into the prospects of forecasting. Our job is to respond, plan and prepare.”

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He said all of the data on its customers, including credit reports from GM Financial, shows a lot of continued strength among American consumers and pent-up demand for autos.

He added: “But we are monitoring the matter and we will make sure to modify the work as we need as well.”

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

“We feel really good,” Jacobson said. “We feel we are on the right track to achieve the year we are in [forecast] in the beginning of the year.”

Decrease in profit despite increased revenue

for the second quarter, GM (GM) It posted adjusted earnings of $1.7 billion, down from $2.9 billion a year earlier, and $60 million less than expected.

But revenue rose $1.6 billion, to $35.8 billion, easily exceeding expectations that called for lower revenue. The number of cars sold worldwide by GM dealers and distributors remained roughly on par with first-quarter sales, but was down 19% to 1.4 million from a year ago.

The limited supply of cars and strong demand, especially in North America, drove prices up. The strong pricing environment added $1.8 billion to the company’s results for the quarter.

Part of the drop in the number of cars sold was due to the lockdown in China, and part of it was due to persistent shortages of computer chips and other needed supplies. The company had 95,000 vehicles built this quarter but couldn’t complete them due to a lack of spare parts. About 75% of these are full-size pickups and SUVs, which are General Motors’ most profitable vehicles. Jacobson said the company expects to complete and sell those vehicles during the second half of the year, and is already making progress so far this month.

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“We went thinking we’d be producing more vehicles this quarter,” he said. “Pretty much all of these vehicles will be back in the second half of the year.”

The Covid lockdown in China has curbed production in Chinese factories and brought sales in the country to a level near stop. China has been GM’s largest market in recent years, although US sales topped Chinese sales last quarter.

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

shares GM (GM) It was slightly lower in pre-market trading after the report.

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