This week, GM announced 3rd quarter results and both sales and earnings topped analysts’ expectations, which was enough to encourage investors and send stock prices up by about 10 percent by mid-day Wednesday.
But there are a lot of variables in play here, making GM’s story sort of a mixed bag of good and bad news. For one, as we expected of 2018, people are actually buying fewer cars both in the U.S. and in China. But what bolstered GM anyway has been the move for many consumers toward more expensive vehicles, such as SUVs and pickups loaded with features.
For GM, that meant that revenue was up by $2.2 billion, as the median price of a new vehicle in the U.S. soared past $36,000. Small cars, on the other hand, have declined to the point where they represent only one-fifth of GM’s sales.
GM’s CEO said the 3Q performance was evidence that the company was “determined to manage risks,” which means that the automaker is going to continue to hedge against some of its primary headwinds, not least of which is an anticipated $1 billion in extra costs from metal tariffs. Added to this was a $440 million charge that hit GM due to costs associated with legal claims from a recall of faulty ignition switches.
So how will they manage these risks? As stock prices were bubbling up, GM workers were privy to the unwelcome news that the company would be lowering headcount by offering buyouts to 18,000 salaried workers – then exploring layoffs if they didn’t find enough takers.
We recently reported on a similar strategy for Ford, where the cost-cutting automaker was looking to trim from its pool of 70,000 salaried employees, intending to dump a speculated 20,000 positions by 2019’s second quarter. The difference between Ford and GM was that Ford’s Q3 was punctuated by a 37 percent dip in profits.
So, while both companies continue to position themselves to absorb a softer market and high materials costs, it’s possible not everyone will emerge a winner. For the full results, it’s wait and see.
