What happened
General Motors (GM +1.46%) stock lost nearly half of its value in the first half of 2022, but all the damage occurred early in the year. Shares of GM were up 5.92% in the second half, according to data provided by S&P Global Market Intelligence, beating the S&P 500 during that period. But that doesn't mean the bad times are in the past.
Economic uncertainty and a fall in used car prices punished auto investors in the first half of 2022 and investors need to be aware that those same factors could continue to weigh on the stock in 2023.
So what
General Motors was among the surprise winners of the pandemic. Supply chain issues and manufacturing shutdowns led to a fall in inventories, leading to higher prices for new and used vehicles. General Motors generated $10 billion in net income in 2021, and set records for single-year EBITDA, margins, and earnings per share.
Investors rallied into auto stocks as a result, with GM up 40% in 2021.
But fears of an economic slowdown ate into investor confidence in 2022. The Federal Reserve's effort to fight surging inflation raised the risk of a potential recession. And higher interest rates made it harder for auto buyers to afford expensive new cars.
GM, to its credit, was not caught off guard. In a midyear update, CEO Mary Barra said the company was curbing spending and actively managing costs and cash flows ahead of potential turmoil, telling investors, "we are prepared to take more deliberate action when and if necessary."
General Motors also reaffirmed its profit outlook for 2022 at that time.
The comments seemed to have the desired effect. While automakers can't escape the economic cycle, they can prepare for the inevitability ups and downs and react accordingly.
NYSE: GM
Key Data Points
Now what
The worst-case scenario envisioned by some investors early in 2022 never materialized in the second half of the year. GM sold 2.27 million units in the U.S. in 2022, up 3% year over year. Vehicles that tend to be higher margin continue to lead the way; GM sold 1.1 million pickups and SUVs for the year.
In the company's fourth-quarter and full-year information released in early January, GM exec Steve Carlisle is quoted as saying that the company is "carrying strong momentum into 2023" and the company sees opportunities to grow its electric vehicle market share and "expand our truck leadership."
The questions about the economy have not fully been answered. The Fed appears poised to continue to raise rates, and we still don't know if the central bank will succeed in orchestrating a so-called "soft landing," where the economy slows without falling into a recession, or whether more difficult times are ahead.
But we do have significant evidence to suggest GM is staying ahead of the potential economic issues, and the company's refreshed lineup, including nine all-electric models, continues to resonate with consumers. Time will tell if GM shares hit their low for this cycle in the first half of 2022, but it does appear the stock is more likely to track the broader markets, and sentiment about the economy, after a multiyear period of wild swings up and down.
