GM Bucks Chip Shortage Hit With Quarterly Profits As High Margin Model Demand Grows

Despite a global semiconductor chip shortage, better than expected results for the first quarter was announced by General Motors Co as the company managed to keep costs low and focused on sale of pickup trucks and SUVs that deliver higher margins.

The company expects its pre-tax profit for the current year to come in at the high end of its forecast.

“The speed and agility of our team are front and center as we move from managing through a pandemic to managing the global semiconductor shortage,” Chief Executive Mary Barra said in a letter to shareholders. “This remains a challenging period for the company as we emerge from 2020.”

Barra added that the automaker’s “supply chain and manufacturing teams are maximizing production of high-demand and capacity-constrained vehicles.”

There will be a worsening of the global chip shortage in the second quarter before showing some improvement by the second half of the year, Barra said in a conference call with reporters.

While reiterating its full-year 2021 earnings guidance, the top automaker of the United States said “based on what we know today,” the adjusted pre-tax profit of the company will remain at the upper end of the $10 billion to $11 billion forecast that it had made previously.

The previous forecast of the company of a hit of $1.5 billion to $2 billion from its profits for the current year because of the global chip shortage was also repeated by the company.

The global chip shortage has forced many car makers globally to cut down on production which hampered the efforts of the companies to stage a rebound from the Covid-19 pandemic induced slump. The semiconductors are used in everything from computer management of engines to driver assistance systems.

There will be more production cut in the second quarter because of the chip shortage, said Stellantis on Wednesday and warned that the production cuts could last well into 2022. Last week, Ford Motor Co said it anticipated the chip shortage will hit its second-quarter vehicle output by about 50 per cent.

For GM, the focus has been on the those vehicles that delivers the highest profit vehicles which includes Chevrolet Silverado and GMC pickups, even during the chip shortage. The focus of the company to push its high-margin models, coupled with a high consumer demand that also pushed up prices, resulted in GM making $3.2 billion of its first-quarter pre-tax profit from sale of those high-margin models.

The company reported net profit of $3 billion, or $2.03 per share for the first quarter which was higher than the $294 million or 17 cents per share the company had reported for the same period a year earlier. The company earned $2.25 per share, well above analyst expectations of $1.04 per share, excluding items. Revenue in the quarter dipped slightly to $32.5 billion from $32.7 billion. Analysts had expected revenue to be flat at $32.7 billion.

(Adapted from Reuters.com)

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