GM chip outlook, earnings boost shares

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DETROIT – Shares of General Motors Co. hit record highs on Thursday after the company said its efforts to deal with the global computer chip shortage have worked better than expected, so its bottom line will improve.

The company said in a statement Thursday that it had made technical changes, prioritized the use of semiconductors and pulled some potential second quarter shipments. The results for the first half of the year will therefore now be significantly better than the forecasts issued earlier in the year.

GM had predicted a pre-tax profit of about $ 5.5 billion in the first half of the year when it released its first quarter results in May. The company also said it was optimistic for the full year, but gave no further details.

GM shares rose 6.4% Thursday afternoon to $ 63.47. During the day, it hit $ 63.58, an intraday high since the company exited bankruptcy protection in November 2010.

In the first quarter, the company posted net profit of $ 2.98 billion as strong demand from U.S. consumers and rising prices offset production cuts caused by the chip shortage.

GM previously forecasted a full-year pre-tax profit of $ 10 billion to $ 11 billion and said profits would be at the high end of the range. Annual net profit is expected to be between $ 6.8 billion and $ 7.6 billion.

In an online discussion Thursday afternoon with a Credit Suisse analyst, GM CFO Paul Jacobson said the chip supply situation was volatile, but GM was able to ramp up its market a bit. production compared to what it expected a month ago. The company sees the shortage last until the third quarter.

“We certainly see it start to improve in the second half of the year and hopefully reach a point where we have reached normalization in 2022,” he said, warning against predictions so far into the future. .

Credit Suisse analyst Dan Levy said GM has enough dealer inventory to meet just 22 days of demand, when it normally has 80.

Jacobson said consumer demand is strong, especially for SUVs and full-size pickups. He said the company may not revert to inventory its dealers held before the pandemic, but it needs to increase inventory from current levels because there are “too many dealerships with empty lots.”

The chip shortage happened because automakers and parts suppliers closed factories and canceled chip orders early last year as the novel coronavirus spread. Factories returned in eight weeks, faster than expected, but by then the semiconductor industry had shifted to producing chips for the burgeoning consumer electronics market.

A fire on March 19 at a Japanese auto chip manufacturing plant compounded the problem. The shortage has forced production cuts, reducing the supply of new vehicles just as demand is recovering from the coronavirus pandemic, causing shortages and raising prices for new vehicles. Prices for used vehicles have reached record levels.

Renesas, the company affected by the fire, said production has now returned to 88% of what it was before the fire. With the installation of new equipment, the company plans to resume full production by mid-June.

Ford said the shortage would cut production in half from normal levels in the second quarter. Almost all automakers have been affected, including Nissan, Honda, Stellantis, Tesla and Volkswagen.

GM’s statement says its factories will still be affected by the chip shortage in June and July. But it is shifting the chips to higher-margin, high-demand vehicles such as pickup trucks and full-size SUVs. U.S. assembly plants that make these products won’t suffer the traditional two-week summer shutdown this year, the company said.

In addition, GM’s heavy-truck plant in Flint, Mich., Will produce about 1,000 additional trucks per month due to the efficiency of the production line, the company said.

GM also said it was starting to install computers in midsize trucks that were built without them due to the shortage. These vehicles will be shipped in early July.

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