GM achieves record profit – concerns about discount battle

General Motors

The average selling price per vehicle peaked at $51,000.

(Photo: Reuters)

new York At General Motors (GM), the focus on selling particularly lucrative vehicles is paying off. Adjusted operating profit rose by more than a third to $3.8 billion in the fourth quarter of 2022, the largest US automaker announced on Tuesday. Thanks to higher sales prices and increased sales, the Detroit group managed to offset higher logistics and raw material costs.

For the current year, the board of directors around CEO Mary Barra announced an operating result in a range of 10.5 to 12.5 billion dollars, more than analysts had hoped for in view of the expected downturn. The share then gained significantly by noon (local time), the price rose by around seven percent. GM is up around 15 percent on Wall Street since the beginning of the year.

For the full year 2022, the US group made a record operating profit of $ 14.5 billion, which was only slightly higher than the year before. Sales climbed by almost a quarter to around $157 billion. The average selling price per vehicle hit a record high of $51,000, as General Motors, like many other automakers, focused on the production of higher margin vehicles.

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The group is also focusing more on electromobility. Before the figures were announced, the carmaker announced that it would invest $650 million in Lithium Americas. Together they want to develop a lithium mine, which is considered the largest known source of the important battery raw material in the United States.

GM expects its own sales of electric cars to reach $50 billion by the middle of the decade, a good 20 percent of the total sales then expected. According to the information, the pre-tax margins should be in the low to mid single-digit range. GM also confirmed plans to build a fourth battery factory in the United States. However, no details were given about the time of construction.

Tesla is driving prices down, Ford is following suit

Evercore ISI analysts particularly praised the company’s fourth-quarter earnings, which beat expectations, as well as its optimistic outlook for 2023 in a “very pessimistic” market environment. However, the extent of the forthcoming price wars could become a burden, the analysts warn.

GM and local rival Ford are currently under pressure because Tesla Prices of their own electric cars by up to 20 percent has lowered. Ford followed suit at the beginning of the week and cut prices for its Mustang Mach-E SUV by up to $5,900. The number two in the USA also attracts customers with favorable financing conditions.

Ford is thus saying goodbye, at least in part, to the previous focus on the margin. In the past twelve months, Ford had increased the prices for the all-electric bestseller F-150 Lightning several times. The group will present its business figures for 2022 on Thursday.

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In China, manufacturers Xpeng and Seres have also lowered their prices. Analysts expect a price war. Experts are reminded of the times more than ten years ago, when American car companies drove each other into a crisis in a ruinous discount battle. At the time, GM and Chrysler had to be rescued from collapse with the help of the state.

“Manufacturers know from painful experience that no one can actually win in so-called discount battles, with the exception of car buyers,” says Christian Koenig. The car expert runs a consultancy for e-mobility in Atlanta. “With its price cuts, however, Tesla has put the entire industry under pressure. Now the other producers have to decide: volume or margin, price discipline or bidding?” said Koenig.

Most recently, Volkswagen boss Oliver Blume had rejected a price war. “We have a clear pricing strategy and rely on reliability. We trust in the strength of our products and brands,” he told the “Frankfurter Allgemeine Sonntagszeitung”. In addition to VW, Renault also rejected a price reduction for its electric cars.

With material from Reuters.

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