GM grabs $2 billion windfall as used-car prices hit record

Bloomberg

There’s a big upside to record used-car prices: Auto lenders like GM Financial are cashing in.
General Motors Co.’s lending unit booked a $2 billion gain last year reselling the vehicles that came back from expired leases and anything the company repossessed, according to a regulatory filing. That helped GM Financial to nearly double its annual profit to $5 billion, allowing it to pay a $3.5 billion dividend back to the automaker.
Shares in GM were little changed in New York, erasing premarket gains, after the company detailed financial results and said that the semiconductor shortage is beginning to ease up.
The used-car boom won’t last forever, GM said. The company expects prices to come down a bit, which will lower GM Financial’s profit for 2022 to between $3.5 billion to $4 billion, GM Chief Financial Officer Paul Jacobson said on a call with analysts. That’s still a big benefit considering GM expects to make $13 billion to $15 billion in earnings before interest and taxes this year.
General Motors Co is seeing signs of an easing in the semiconductor shortage that curbed vehicle output last year, but cautioned that a shift to producing lower-margin models and rises in materials prices will cap profit this year.
Like most automakers, GM dealt with the unprecedented supply crunch by prioritizing its most profitable vehicles at the expense of higher-volume models with lower margins. The manufacturer was hit among the hardest in the fourth quarter, when a 43% drop in domestic sales forced the company to relinquish its crown as top US automaker for the first time since 1931.
As GM shifts production to higher-volume and less profitable models, the company expects a 25% production increase in the first quarter and gains of as much as 30% for the year, Chief Financial Officer Paul Jacobson told reporters. The lower margins, together with rising input costs, will
restrain profits, he added.
The Detroit-based automaker is “seeing sizable supply chain pressure on commodities,”
Jacobson said.
GM expects 2022 earnings roughly in line with the year just ended. The company forecasts adjusted earnings before interest and taxes of $13 billion to $15 billion in 2022 and adjusted earnings per share of $6.25 to $7.25. That compares $14.3 billion in adjusted earnings last year and $7.07 a share.
“With an improving outlook for semiconductors in the US and China, we expect our 2022 results will remain strong,” Chief Executive Officer Mary Barra said in a letter to shareholders.
Shares of the carmaker rose 2.1% in premarket trading, building on Tuesday’s gains of 2.5% following the earnings announcement. The stock is down 7.8% this year.
Mary Barra, chief executive officer of General Motors Co., speaks during a Bloomberg Television interview in Detroit, Michigan, U.S., on Thursday, Aug. 26, 2021. General Motors Co.’s chief executive officer signaled the automaker will continue its relationship with the battery supplier at the heart of its $1.8 billion vehicle recall while stressing it has “multiple pathways” to secure a leading position in the transition to electric vehicles.
Barra told reporters on a call that GM expects to benefit from pent-up demand on the order of several million vehicles in the U.S. alone, something she said will likely keep retail prices elevated.
GM has no plans to reinstate a dividend that it suspended almost two years ago, Barra said on a call with analysts.
The automaker reported fourth-quarter earnings that beat analysts’ estimates and forecast 2022 sales and profit within the range projected by Wall Street. Sales declined to $33.6 billion, missing the average Wall Street estimate of $34.5 billion.
In North America, the automaker reported full-year profit of $10.3 billion, up from $9.07 billion in 2020. GM earned $2.17 billion in North America in the fourth quarter, down 17%.
The company made headway globally, with international operations earning $275 million in the fourth quarter and $827 million for the year — after losing $528 million in 2020. GM’s China profit doubled to $1.1 billion in 2021.
GM Financial, the lending arm, also put up big numbers. The unit made $5 billion in earnings before taxes for the year, a jump from $2.7 billion in 2020.