Detroit (AP) – General Motors’ net income rose to $ 2.98 billion in the first quarter as strong US consumer demand and higher prices offset production cuts due to the global shortage of computer chips.
Despite the semiconductor shortage, GM stuck to its full-year pre-tax profit forecast of $ 10-11 billion released earlier in the year, and said earnings would be at the high end of the range. Net income for the full year is projected to be between $ 6.8 billion and $ 7.6 billion. The company forecasts a strong first half of the year with pre-tax profits of approximately $ 5.5 billion.
CEO Mary Barra wouldn’t say how much production she is likely to lose due to the shortage of chips. But she said purchasing, manufacturing, engineering, and sales teams are working to reroute chips from cars and smaller SUVs to full-size pickups, large SUVs, and new electric vehicles.
“Our company does a lot of really good work sourcing semiconductors and assigning them our most sought-after and (factory) capacity-constrained products,” she said.
GM reiterated that the shortage would cost $ 1.5 billion to $ 2 billion in pre-tax earnings this year due to production downtime. The company was forced to cut production on some smaller vehicles with lower profit margins like the Chevrolet Equinox SUV.
“Are there any effects this year? Absolutely, ”Barra said on a conference call with reporters. “But the team is still working to minimize this.”
The profit increase in the first quarter was twelve times the same period last year, when the start of the coronavirus pandemic forced automakers to close factories, limiting GM’s net profit to $ 247 million.
GM’s shares rose 3.5% on Wednesday’s opening bell.
Without one-time effects, GM posted earnings of $ 2.25 per share for January through March, doubling Wall Street estimates of $ 1.05. Sales of $ 32.47 billion were below estimates of $ 33 billion, according to FactSet.
The Detroit automaker reported pretax income of $ 4.4 billion for the first quarter.
During the quarter, the company announced that it was able to redirect valuable computer chips to higher-profit models like pickup trucks and full-size SUVs, resulting in increased revenue.
In the US, GM’s most profitable market, sales increased 4% year over year from January to March. Despite the growth, first-quarter sales were the second-lowest in the first quarter since 2015 at 639,406 vehicles, and according to Cox Automotive, the numbers were 4% lower than the same period last year.
Even so, demand was strong and inventory was low, allowing GM to reduce discounts and raise prices. GM’s average retail price hit a record $ 44,685, up 9% year over year, according to Cox figures.
Last week, Crosstown’s competitor Ford Motor Co. said worsening chip shortages would cut production in half this quarter. The situation will improve in the second half of the year, but Ford will still see a 10% drop in production from original plans. That means Ford won’t be able to make up for any more production losses this year.
The company expects factory production to lose 1.1 million vehicles for the year, from an earlier estimate of 200,000 to 400,000. That means fewer vehicles have to be sold, but so far it has brought higher prices because the demand is strong.
Virtually all automakers are grappling with the chip shortages caused by semiconductor manufacturers moving their factories to more profitable consumer electronics processors when the auto plants closed last year due to the coronavirus. The car factories came back faster than expected, but the chipmakers weren’t quick to switch their factories back to chips for automobiles. Then a March fire wiped out much of the chip production at a factory in Japan that makes chips for vehicles.
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This story has been corrected to show that GM had adjusted pre-tax profit of $ 2.25 for the first quarter, not $ 2.23.
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