GM: making good speed on an ever-rougher road

Rising interest rates and elevated prices at the pump have done little to dampen Americans’ enthusiasm for expensive, gas guzzling pick-up trucks and SUVs. At General Motors, sales hit a third-quarter record high of $42bn. The Detroit carmaker swerved around supply chain potholes that have tripped up its rivals. Car buyers meanwhile have continued to stump up for new vehicles.

GM’s surprisingly strong results stand in contrast to those of Ford Motor. The latter warned last month that parts shortages and rising costs would hit third-quarter earnings.

Yet GM shares, which rose nearly 4 per cent on Tuesday, remain down nearly 40 per cent this year. At just five times forward earnings, the valuation of the stock is less than half what it was a year ago.

The market is right to wonder how much gas GM has left in the tank. The $54bn automaker run by Mary Barra has had a good pandemic. Demand outpaced supplies of new cars. Financing was easy to come by thanks to low rates and a jump in used vehicle prices.

For now, GM says there has been no slowdown in demand or pushback against price increases. But tougher economic conditions mean 2022 may be as good as it gets.

GM’s third quarter numbers do not tell us much about future demand. The 56 per cent jump in revenue looks impressive. But much of the gain can be attributed to the automaker working through a backlog of vehicles that it had not been able to deliver in the previous quarter because of parts shortages. The company said it cleared about three-quarters of the June backlog of 90,000 vehicles.

Margins remain under pressure from higher input costs. These fell 1.1 percentage points year on year. However, net income still jumped 36 per cent to $3.3bn.

Tellingly, GM left its profit outlook for the full year unchanged. With dealer inventory rising, supply chains still fragile, and the need to continue spending on EVs and Cruise, that may just be as well.