General Motors Corp. CFO Paul Jacobson said Oct. 24 the automotive giant will need to squeeze more costs out of its processes after it has concluded its next United Auto Workers contract. Jacobson also said the delay in building out GM’s electric truck operations in suburban Detroit—a move that was announced last week—will push $1.5 billion in capital spending into future years and be lifted only after the engineers have implemented improvements to improve the overall financials of the company’s EVs.
On a conference call with analysts, Jacobson and GM Chair and CEO Mary Barra repeatedly framed their call to slow EV investments as a part of a longer-term strategy to become nimbler as they seek to find a balance between building a still-unprofitable EV business and maintaining margins in GM’s portfolio of internal-combustion-engine vehicles.
“We are scaling but what we’ve seen here is an opportunity to slow some of that scaling down and take advantage of some of the learnings we’ve seen through the engineering and manufacturing process,” Jacobson said. “What it allows us to do is build a stronger foundation before we scale.”
GM teams are pushing through various cost-cutting programs that Barra and Jacboson say will total $2 billion by the end of next year. But they said more will need to be done, including in the designing and engineering of vehicles, as GM seeks to simplify its operations. Jacobson likened that work to “a mindset that’s more conducive to software,” where product and process changes are pushed through more regularly, and said higher labor costs from the next UAW deal will need to be similarly addressed.
“We’re going to have look at efficiencies across the board,” he said. “We’ve got some work cut out for us but we’re committed to making it work.”
The statements from Barra and Jacobson about continuing to manage spending build on word of additional savings plans announced three months ago as well as similar comments the CFO made this spring, when he said GM needed to stay “in a little bit of a grinding mode” as it and its competitors have lost much of their ability to push through more price increases like those of recent years. Since then, however, GM’s financial dynamics have changed for the worse due to a slackening in consumers’ demand for EVs as well as the UAW strike, which started nearly six weeks ago.
Jacobson said the strike cost GM $200 million in earnings before interest and taxes during the second half of September and another $600 million since. The work stoppage’s impact now has risen to a run rate of $200 million per week—a figure that doesn’t take into account the additional 5,000 workers in Arlington, Texas, who joined the strike Oct. 24. The UAW announced that move minutes after GM’s conference call had wrapped.
In the three months ended Sept. 30, GM posted a net profit of nearly $3.1 billion, which was down 7% from the same period last year, on revenues that grew 5% to $44.1 billion. Adjusted EBIT fell 17% but cash flow from automotive rose nearly 5% to $6.8 billion. Citing the UAW strike, GM’s executives have withdrawn their sales and earnings guidance for the fourth quarter.
Among the other talking points from the conference call:
- Despite their tightening of the reins on growth-oriented spending and some reports that U.S. consumer sentiment is weakening, Jacobson said the GM team isn’t seeing a drop-off in retail demand—“and we’ve been pretty consistent about that.”
- Some parts of GM’s supply chain remain, in the classic corporate parlance, “challenged.” Barra said some important Ultium battery module components are in short supply—that constraint, she added, should be history by the middle of next year—and Jacobson called out some logistical headaches related to deliveries using railroads coming out of Mexico.
Shares of GM (Ticker: GM) were flat around $29.25 in midday trading after the earnings report and conference call. They have lost about 15% of their value over the past six months, shrinking the company’s market capitalization to about $40 billion.
