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General Motors (NYSE: GM) has reportedly cut 1,000 jobs as the Detroit automaker continues its cost-cutting spree amid broader restructuring efforts. While these cuts, which were announced yesterday by email to the impacted employees, affect different functions, the bulk of them are at its global technical center in Warren, Michigan.
While GM has confirmed the layoffs the company hasnâ€t specified the number. In his statement, GM spokesperson Kevin Kelly said, “In order to win in this competitive market, we need to optimize for speed and excellence.â€
GM Lays Off Employees To Cut Costs
He added, “This includes operating with efficiency, ensuring we have the right team structure, and focusing on our top priorities as a business. As part of this continuous effort, weâ€ve made a small number of team reductions. We are grateful to those who helped establish a strong foundation that positions GM to lead in the industry moving forward.â€
GM is targeting a fixed cost reduction of $2 billion in 2024. The automotive industry is grappling with some serious headwinds. While profits at both Ford and GM have been strong, they donâ€t mask the weakness in many segments – the China business for instance.
Foreign Automakers Are Struggling in China
China has been a particularly tough market for foreign automakers and they have been losing market share to domestic Chinese companies. GMâ€s China operations also posted a loss in the quarter but the company is not giving up on that market yet.
“We believe that we can turn around the losses, and that’s why we have a series of meetings with our partner to make the hard decisions to get the business to be sustainable and profitable,†said Barra during the earnings call.
That might be easier said than done though as Chinese car buyers have increasingly pivoted to domestic companies at the cost of foreign automakers.
GM Is Losing Money in Its EV Business
Another concern for both GM and Ford has been their EV (electric vehicle) business. The sales of their EVs have been quite soft while the losses are mounting. Ford expects its EV business to lose around $5 billion this year on a pre-tax basis and while GM does not specify the EV losses separately the company is also losing a lot of money in that business.
During the Q3 earnings call, GM said that its US EV market share is approaching 10%, and it is the second-biggest player, after market leader Tesla. The company reiterated its previous forecast of producing and wholesaling 200,000 EVs this year and turning around a variable profit in Q4.
It expects the operating losses in the EV business to narrow by between $2 billion-$4 billion next year.
Both GM and Ford have scaled back their EV expansion plans amid slow sales and the price war. With Donald Trump set to return as the US president, the outlook for the US EV industry looks hazy at best, as, among other things, his transition team is considering eliminating the EV tax credit.
GM Is Posting Healthy Profits
GM reported revenues of $48.76 billion in Q3 2024 which easily surpassed the $44.59 billion that analysts were expecting. The companyâ€s EPS came in at $2.96 which was also ahead of the $2.43 that analysts were modelling.
In her remarks, GM CEO Mary Barra said, “Competition is fierce, and the regulatory environment will keep getting tougher. Thatâ€s why we are focused on optimizing our ICE margins and working to make our EVs profitable on an EBIT basis as quickly as possible.”
Notably, GM has posted better-than-expected profits for nine consecutive quarters while its revenues have topped estimates for eight straight quarters.
General Motors Raised Its Guidance
GM also raised its 2024 guidance for the third time this year. The Detroit giant forecasted full-year adjusted pre-tax earnings of between $14 billion and $15 billion, up from the previous guidance of between $13 billion and $15 billion. The company also raised its adjusted automotive free cash flow forecast to between $12.5 billion and $13.5 billion, which is significantly higher than the previous guidance of between $9.5 billion and $11.5 billion.
The guidance raise is all the more encouraging as multiple automakers including Aston Martin, Volkswagen, and Stellantis have cut their 2024 forecast. More recently, Nissan and Toyota Motors also cut their respective 2024 forecast
However, the US automotive market – which accounts for the bulk of GMâ€s earnings – has been a different game altogether. Both Ford and GM are posting healthy cash flows, thanks to the profits they are making in the legacy ICE (internal combustion engine) business.
Incidentally, while Ford expects 2024 profits to be towards the lower end of its previous guidance, GM went ahead and raised its guidance during the Q3 earnings call which sent its shares higher.
GM Is Using Its Fat Profits to Repurchase Shares
GM is using its fat profits and free cash flows to repurchase shares. The company announced a $10 billion accelerated share buyback plan last year and authorized yet another $6 billion repurchase plan in June. During Q3, the company spent $1 billion on repurchases, extinguishing around 23 million shares.
Since Q3 2023 when it announced the $10 billion buyback, GM has retired 19% of its outstanding shares. The company expects to finish the current buyback program in October and would repurchase another 25 million shares taking the total share repurchased under the two plans to 250 million.
GM plans to bring down its total share outstanding to around 1 billion by early 2025 for which it would have to repurchase around 120 million more shares. The company reiterated its commitment to reach that goal which would entail a spend of around $5 billion at current prices.
Markets have also cheered GMâ€s strong earnings and share repurchases and the stock has outperformed the broader markets as well as Ford this year.
