General motor (Gm 2.37%) The stock lost nearly half of its value in the first half of 2022, but all of the losses occurred earlier in the year. Shares of GM rose 5.92% in the second half, according to data provided by S&P Global Market Intelligencethe beating S&P 500 But that doesn’t mean the bad times are in the past.
Economic uncertainty and falling used car prices have punished auto investors in the first half of 2022, and investors should be aware that the same factors could continue to weigh on the stock in 2023.
Among the surprise winners of the pandemic was General Motors. Supply chain issues and production shutdowns lead to reduced inventory, which in turn drives up new and used car prices. General Motors achieved $10 billion in net income in 2021 and set single-year EBITDA, margin and earnings per share records.
Investors flock to auto stocks as GM rises 40% in 2021.
But fears of an economic slowdown ate into investor confidence in 2022. The Federal Reserve’s efforts to combat rising inflation have raised the risk of a potential recession. And high interest rates make it harder for auto buyers to afford expensive new cars.
GM, to its credit, was not caught off guard. In a midterm update, CEO Mary Barra said the company is controlling costs ahead of potential turbulence and actively managing expenses and cash flow, telling investors, “We are prepared to take more deliberate action when and if necessary.”
General Motors also reaffirmed its profit outlook for 2022 at the time.
The comments seem to have the desired effect. While automakers can’t escape the economic cycle, they can prepare for the inevitable ups and downs and respond accordingly.
The worst-case scenario envisioned by some investors as early as 2022 never materialized in the second half of the year. GM expects to sell 2.27 million units in the U.S. in 2022, up 3% year over year. Vehicles that tend to have higher margins tend to move; GM sold 1.1 million pickups and SUVs for the year.
In the company’s fourth-quarter and full-year data released in early January, GM executive Steve Carlisle was quoted as saying the company is “carrying strong momentum into 2023” and that the company sees opportunities to grow its electric vehicle market share and “expand our truck leadership.”
Questions about economics are not fully answered. The Fed appears poised to raise rates, and we don’t yet know whether the central bank will succeed in orchestrating a so-called “soft landing” where the economy slows without falling into recession, or whether it will have a tougher time. ahead
But we have significant evidence that GM is ahead of potential economic woes, and that the company’s refreshed lineup, including nine all-electric models, continues to resonate with customers. Time will tell if GM shares hit their lows for the cycle in the first half of 2022, but it appears the stock is more likely to track broader markets and sentiment about the economy, after years of ups and downs.
Lou Whiteman has no position in any of the stocks mentioned. Motley Fool has no position in any of the stocks mentioned. Motley Fool has a revealing policy.