GM Looks to Pricing Power and Pent-Up Demand to Keep Profits High
General Motors looks to pricing power and pent-up demand for its most pr ofitable vehicles to carry it through the year.
This strategy has worked—so far. The automaker saw a Quarter One net income of $2.9 billion, just 2.7% lower than 2021, despite $2.5 billion in increased costs as global revenue rose 11%.
High demand for GM products has company leaders feeling optimistic that it can maintain high pricing across its lineup. The automaker expects sales to grow throughout 2022 as it aims to increase global production by 25% to 30% over 2021.
Company leaders also emphasized their focus on electric and autonomous vehicles, which account for 80% of GM’s capital spending, also will push profits.
In the near term, however, GM’s internal combustion business will drive profits higher. “We continue to see a pricing opportunity because there is demand for our product,” CEO Mary Barra told reporters this week.
She added, “What we are seeing from a GM perspective gives us confidence that we have the pricing power and customer demand for our products.”
Though parts and microchip supply shortages abound, GM’s assembly plants largely ran regular production schedules in the first quarter as the automaker, CFO Paul Jacobson told investors.
Production volume increased 12% percent over the fourth quarter of 2021, and most vehicles have been selling as soon as they arrive at dealerships.
Inventory levels will remain tight industrywide, Jacobson said. But GM’s production “has been a little bit more robust than what we’ve heard from some of our competitors going forward,” he said.
The automaker will continue to rely on the profit potential of its traditional lineup. GM has launched freshened versions of the Chevy Silverado and GMC Sierra, with starting prices that range from over $35,000 for the base Silverado to over $80,000 for the Sierra in its new top trim, Denali Ultimate.
The automaker plans to add a third shift at Oshawa Assembly in Ontario this summer to build light-duty and heavy-duty pickups and has increased parts sharing and reduced build combinations.
“Our results were similar to the first quarter of last year despite $2.5 billion in higher costs, highlighting the strength of our products and the demand environment,” Jacobson said. “We recognize the consumer is facing inflationary pressures. However, we continue to see ongoing strong customer demand for our vehicles, including our refreshed full-size pickup trucks.”