GM Reports Strong Q2 Earnings and Raises Profit Outlook

General Motors (GM) experienced a surge in second-quarter earnings, with a 59% increase compared to the previous year. The automaker also raised its full-year profit outlook. Adjusted earnings for the quarter reached $2.7 billion, or $1.91 per share, up from $1.7 billion reported in the same period last year. This exceeded analysts’ expectations of $1.85 per share.

Furthermore, GM now expects to earn between $9.3 billion and $10.7 billion for the full year, significantly higher than its previous outlook of $8.4 billion to $9.9 billion. However, these optimistic forecasts may be compromised if the United Auto Workers (UAW) union initiates a strike. With the current labor pact set to expire on September 14, talks have already begun on a contentious note.

UAW President Sean Fain has made it clear that the union is prepared to strike if GM fails to meet its demands. In the previous round of negotiations in 2019, a six-week strike cost GM approximately $2.9 billion. The strong earnings and profit outlook may present a challenge for GM at the negotiating table, as it could embolden the union to take a tougher stance on its demands. The UAW aims to eliminate a lower-cost wage and benefit tier for some hourly employees, as well as reintroduce cost-of-living adjustments to protect workers from inflation pressures.

While GM faces the possibility of a strike, the automaker is benefiting from favorable market conditions. Demand for vehicles remains strong, and prices are at or near record levels. GM experienced a 12% rise in global vehicle sales to 1.6 million vehicles, resulting in a revenue increase of 25% to $44.7 billion. These figures surpassed expectations by $2.1 billion.

Mary Barra, CEO of GM, attributes the company’s financial success to customer demand for their vehicles. Barra expressed gratitude to members of both the UAW and Canadian union Unifor during an investor call, recognizing the connection between their hard work and GM’s achievements. She pledged to negotiate new deals with both unions and emphasized the importance of fair contracts.

While GM’s earnings were robust, a $792 million charge was incurred due to the recall of its Chevy Bolt electric vehicles. The recall involved replacing the vehicles’ EV battery, as there was a fire risk associated with the electric car. GM’s battery supplier, LG, had already agreed to pay $1.9 billion to cover most of the recall’s cost. However, the recent charge reflects a change in the agreement with LG.

Despite the recall, GM appears determined to serve its customers beyond traditional remedies. It replaced the expensive EV batteries in the recalled Bolts, taking steps aimed at reducing costs and improving EV margins over time.

GM achieved its target of 50,000 electric vehicle sales in North America during the first half of the year. It is on track to produce 100,000 EVs for the market in the second half. However, this number pales in comparison to its overall deliveries, as GM sold a total of 1.5 million vehicles in North America during the same period.

In premarket trading, GM’s shares rose in response to its strong earnings and profit outlook. The company’s success reflects the positive market conditions for automakers.