America isn’t quitting gas guzzlers yet
NEW YORK, Feb 3 (Reuters Breakingviews) - Internal-combustion engines aren’t fossils yet. Despite tit-for-tat discounts on electric vehicles, Detroit carmakers General Motors (GM.N) and Ford Motor (F.N) reaped a combined $19.4 billion in increased profit in 2022 by jacking up prices on, mainly, internal-combustion cars. America’s love affair with gasoline isn’t over.
On the face of it, both companies ended the year very differently. While GM tripped up in its second quarter and Ford in its third on chronic parts shortages, the former bounced back, ending 2022 with a record $14.5 billion in operating profit. Ford missed its profit guidance by $1.1 billion, it said on Thursday night. It was bad enough that boss Jim Farley admitted to leaving “$2 billion in profits on the table” by mismanaging costs and supply.
Look under the hood, though, and similarities emerge. Those supply issues left too few cars to satisfy demand over the last two years, juicing prices to record highs, and GM says it will run inventory lean to keep the market tight. That helped fuel its biggest year-over-year pricing boost since the start of the pandemic this quarter. And GM expects steady pricing in 2023. Executives on its earnings call were blunt: “We’re not doing anything to prepare for a price war.”
That cuts against the latest headlines in the electric market. GM reduced the price of its Chevrolet Bolt back in June. Electric leader Tesla (TSLA.O) began cutting prices in December. Ford did likewise in January. And yet, while EV prices declined by $3,594 in December versus November, overall average new vehicle prices reached an all-time high of $49,507, according to Kelley Blue Book. That’s reflected in GM and Ford’s results. With EV sales under 4% of U.S. volume for both companies, the jump in profit from pricing is coming from combustion-engine sales.
It’s indicative of a central truth of the U.S. auto market. Sure, EVs are taking more share. But in the United States, that share is less than half of what it is in Europe and about a quarter of the share in China. The home of gas-guzzling SUVs will be ruled by fossil fuels for a while. Indeed, GM might be counting on it: boss Mary Barra expects to only build 400,000 EVs between 2022 and the end of 2024’s first half – a fraction of GM’s total output, and less than Tesla’s over 450,000 estimated Model Y and Model 3 sales in the United States in 2022 alone. Electric may be the future, but the present is sticking around for a while.
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General Motors reported revenue of $43.1 billion for the fourth quarter of 2022 on Jan. 31, nearly 4% above analysts’ expectations, according to data from Refinitiv. Adjusted operating profit for the full year came in at $14.5 billion, a record.
Detroit-based peer Ford Motor reported revenue of $44 billion for its fourth quarter on Feb. 2, 9% higher than analyst estimates. However, it recorded $10.4 billion of adjusted operating profit for the full year, below guidance of $11.5 billion.
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