GM CFO: Earnings ‘set another record’ in Q4
General Motors Chief Financial Officer Paul Jacobson joins Yahoo Finance Live to discuss company earnings, price cuts, job layoffs, inflation, competing in the EV space, and the outlook for General Motors.
RACHELLE AKUFFO: All right, well, General Motors reported quarterly results this morning. The company posted better-than-expected earnings, operating profit, and revenue despite the challenging environment. Well, investors are now focusing on the company's upbeat guidance and aggressive cost reduction plans. Yahoo Finance's Brian Sozzi spoke with GM's Chief Financial Officer Paul Jacobson about the quarter earlier. Take a listen.
PAUL JACOBSON: You know, I just want to give a shout-out to the team at General Motors. Last year was a remarkable year when you think about the amount of pressure that we face. You know, we started the year with about $2 billion of inflationary and cost headwinds. We ended the year with over $5 billion.
And all we did was set another record. So the team at GM is really doing amazing things. And as we see it, the demand for our vehicles remains strong. When you look at the quality of our launches, the pricing, we had a great December that capped off a great 2022. And '23 is getting off to a good start as well.
BRIAN SOZZI: Why do you think-- I think the beat, the earnings beat, is really getting the attention here by investors. What are some of the drivers behind that?
PAUL JACOBSON: Well, what I really want to share with investors is a message of consistency. When we first gave out our guidance at the beginning of last year, there were a lot of skeptics and people that we didn't believe-- didn't believe us. And you know, I feel really good about the team's execution.
And as we've seen, we've seen strength across the company, whether it's in pricing for our launches, quality, but also volumes. We said that we thought volumes would be up 25% to 30%. They ended the year up 25%, so really strong showing by the manufacturing, engineering, supply chain teams. Our partners in chips really did a fantastic job. So I would say it's a story of execution, and that execution, we think, is going to continue into 2023.
BRIAN SOZZI: You mentioned strong December, Paul, a good start to 2023. Does that surprise you, just given where the economy is and all this recession talk we continue to talk about here in the markets?
PAUL JACOBSON: You know, I think it's a fair question, Brian. And we're watching all of the headlines. And we obviously see what you all do too. And-- and there's a lot of cause for concern in the market, generally. But what we've seen for our customers, for demand for our new products, for the credit portfolio of GM Financial is continued strength.
There's some normalization in the GM Financial portfolio, and their earnings are going to be down off their record highs for the last two years but-- but still a fantastic year when you look at it historically for GM Financial. But the consumer for us remains strong. We're being cautious. Today, we're also rolled out a $2 billion cost reduction program over the next two years. That is what I would say is just try to be prudent.
I want to be clear, we're not considering any layoffs as part of that. We're going to manage headcount through attrition and targeted hiring for our priorities, but making sure that we're monitoring costs so that if we do find ourselves in a situation where pricing weakens or we see softness in the consumer, we can react more quickly. But certainly, we're not seeing any of that in the data, at least through the first month of January.
BRIAN SOZZI: $2 billion in cost cutting, Paul, that's a very big number. Where will those savings come from if you're not doing any layoffs?
PAUL JACOBSON: Well, I'd say we're going to continue to drive for reduced complexity in our products. We're going to look at all areas of corporate overhead and discretionary spending. We've been investing heavily in a lot of growth initiatives. We've got to follow that up by making sure that we're capturing efficiency and making sure that we're moving on and stop doing some of those things that aren't as value added anymore.
So we're going to challenge the entire company to go get it. We think we'll get about a third to half of that in 2023. But this is something that I would say is just prudent cost management for us to allow us to continue to focus on investing in those priorities that are important going forward.
BRIAN SOZZI: And the outlook, Paul, for the full-year adjusted operating profits and earnings also surprising the market positively here. Is a mild recession baked into that outlook?
PAUL JACOBSON: We're not baking any recessions. And we've said from going back to Investor Day that we were planning on a 15 million unit market in the US. You know, it's a little bit softer than where we've seen demand for the last couple of years but nothing that I would say is significant. Production's trending higher. Our inventories have built up a little bit through the year but still far from normal levels.
We're going to continue to drive lower inventories. We're going to balance production to demand and make sure that we've got vehicles for consumers when they want it. Right now, we're still seeing vehicles on dealer lots at about a third of the level that they were in 2019. So we're focused on trying to balance that out at a lower level that is healthy for both the business and for the consumer.
BRIAN SOZZI: Do you think we're in a good old-fashioned '80s style price war when it comes to EVs? Two of your competitors are out there chopping prices. What do you think on that? And are you going to respond?
PAUL JACOBSON: So we've seen incredible demand for our EVs, and we're launching even more this year. And we've seen consumers really run towards them at the price levels that they are. So we feel quite confident with our strategy. Look, competition in this business is no surprise. We've been dealing with it for more than 100 years.
And one of the things that I think we've said over time, this isn't an easy business to get into but one that we're ready for. And when you look at the synergies and the efficiencies we get with the Ultium platform, the broad array of vehicles across all affordability ranges, across all consumer segments, we think we're positioned to win in the EV space, both now and for the long term.
BRIAN SOZZI: It doesn't sound like then just given your GM's focus on more affordable EVs that you do need to cut prices.
PAUL JACOBSON: Not necessarily cut prices. It's a matter of really putting vehicles across all classes. And I think some of our competitors have struggled with the cost of battery cells, et cetera. Obviously, Tesla is doing incredibly well and a lot of lessons that I think everybody can learn from them.
But at the end of the day, it's about driving efficiencies. And we think with the Ultium platform and with our scale of manufacturing, we can offer vehicles in different classes and different segments at different price points that are better than anything out there and to be able to do it while hitting our margin targets.
BRIAN SOZZI: You and I are both car guys here. And from one car guy to another, I have to-- I have to ask this. Why is GM investing, what, almost $900 million in small-block V-8s? I thought that engine, Paul, was just supposed to be discontinued and we're plugging everything in.
PAUL JACOBSON: Well, we continue to believe that the ICE portfolio has really strong value. In fact, it's funding the transformation. And when you look at the results that we see-- we saw in 2022 with record levels of free cash flow while investing increasing amounts back in the business, that's coming from the ICE portfolio. But we're also called to make that more efficient, and there's a lot of efficiencies that are coming in to those new engines. And they're going to continue to be around for a while as we transform our vehicles into 100% EVs by 2035.
RACHELLE AKUFFO: That was General Motors Chief Financial Officer Paul Jacobson with Yahoo Finance's Brian Sozzi.