GM Faces a Brutal Year

One theory about car company earnings in 2023 is that tight inventory will keep new car prices high. Large manufacturers may keep inventory tight to make this financial trend constant. The plan has a weakness. A recession will drag down car sales, as recessions always do, which in turn is likely to trigger earnings losses. Among the companies most vulnerable to this is General Motors Inc. (NYSE: GM), America’s largest car company.

GM did have a good year in 2022. It sold 2,274,088 vehicles in America. Chevy and GMC did well. However, the Cadillac division continues to be an also-ran in the luxury market and has been for years. It will never come close to matching market leaders BMW, Mercedes and Lexus. (See which are the least appealing car brands to Americans.)

As GM looks forward, the primary weakness it faces is its very modest near-term plans for electric vehicles (EVs). Its announcements show that it is far from challenging Tesla. The launch of the Ford F-150 Lightning will keep GM in the rear seat in the EV pickup market, which may be the most important segment for GM, Ford and Ram. Teslarati recently pointed out, “As General Motors has quickly fallen behind traditional and up-and-coming rivals alike regarding EV sales, specifically Tesla, Hyundai/Kia, and Ford, it has moved towards more electric models and production.”

Although GM reported sharp growth in the third quarter, the numbers were expected. They were measured against one of the worst periods in auto history. Nothing about its forecast for the full year 2022 buoyed investors. Its stock has languished for a year, retreating 50%. Rival Toyota’s shares declined 31% in that time.

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A recession is one of two major threats to GM. The other is high interest rates. Car loan rates have spiked, which will not change as the Federal Reserve continues to raise rates.

Americans have shown a growing habit of keeping their cars for long periods. The average age of a car on the road is over 12 years. If the economy is tough, people will hold onto those cars for at least another year, if not longer.

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