GM warns of challenging Q3, bigger impact from chip shortage
General Motors predicts a challenging third quarter and warned Wall Street on Friday that its vehicle sales and production volumes would take a bigger-than-expected hit in the second half.
GM’s CFO Paul Jacobson told analysts at an RBC Capital Markets conference that because of the ongoing global shortage of semiconductor chips, the automaker’s second-half vehicle sales and production would be down 200,000 units, largely in the third quarter.
Last month, when GM reported its second-quarter earnings, it told investors its wholesale volumes in North America in the second half would be down about 100,000 units from the first half when GM delivered 1.1 million vehicles.
GM said the bigger hit is due to the worsening supply constraints on semiconductor chips out of southeast Asia.
“The global supply chain continues to deteriorate a little bit,” Jacobson said. “We’ve got multiple impacts that have worsened, primarily, the semiconductor supply chain risk. As you know, inventories have been very, very thin all year. And that’s going to give us a little bit of risk throughout the year.”
He said the impact of the COVID-19 pandemic in southeast Asia has increased production restrictions.
“But it’s a different situation than really it was in the beginning of the year,” Jacobson said “In the beginning of the year, it really was about fabrication capacity and really way back at the wafer phase. What we’re seeing right now is really kind of in the back-end processing facilities that are in southeast Asia.”
The news comes a day after GM extended production shutdown of various plants in North America because of the global chips shortage.
For example, Lansing Grand River Assembly will idle until Sept. 27. The plant had been doing some production of the Cadillac Blackwing and Chevrolet Camaro sports cars. Lansing Delta Township, which was due to restart Sept. 20, will remain idle until Sept. 27. GM makes the Chevrolet Traverse and the Buick Enclave midsize SUVs at the plant, which has been down since July 19.
Also idled until Sept. 27: Wentzville Assembly in Missouri, where GM makes the Chevrolet Colorado and GMC Canyon midsize pickups and Chevrolet Express and GMC Savana full-size vans. It went down for the first time this week.
The chips are used in a variety of vehicle parts as well as personal electronics. Demand for chips rose during the pandemic as more workers and children stayed home for work and school and needed laptops and other devices.
Still, GM held its profits despite interruptions to production and having to build vehicles just shy of all the parts, then storing the cars in various parking lots around the country to await arrival of the chips to complete assembly and ship them to showrooms.
In the second quarter, GM reported net income of $2.8 billion compared with a net loss of $738 million in the year-ago period during the height of the pandemic. GM’s gains came largely from high-priced pickups and large SUVs continuing to roll off the assembly lines.
“GM has been agile and decisive in managing COVID-related impacts on our production and wholesale volumes, and we continue to believe we will be within our calendar-year earnings guidance range even though the third quarter will be challenging,” said GM spokesman David Caldwell in a statement Friday. “Despite all the volatility we have seen this year, our calendar year guidance is still higher than our initial guidance for 2021.”
GM has said it expects its full-year adjusted earnings before interest and taxes (EBIT) to be $11.5 billion to $13.5 billion, up from previous guidance of $10 billion to $11 billion.