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GENERAL MOTORS COMPANY

(GM)
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GM Affirms Profit Outlook Despite Chip-Shortage Woes -- 3rd Update

05/05/2021 | 02:08pm EDT

By Mike Colias

Auto makers fresh off heady sales and profits in the first quarter are preparing for a rough ride ahead, as the global computer-chip shortage clouds an otherwise ripe environment for car sales.

General Motors Co. on Wednesday reported a near-record operating profit for the January-March period while rival Ford Motor Co. a week earlier posted its best bottom line in years. Jeep-maker Stellantis NV said sales rose 14% for the quarter and confirmed earlier full-year guidance of 5.5% to 7.5% adjusted operating margins. It reports half-year earnings results in August.

But each company said the shortage of semiconductors that has forced production cuts across car factories world-wide since January will pinch production and inventories even more heading into the summer, just as American car buyers are turning out to dealerships in droves.

That means car shoppers in the coming months are likely to find slimmer options and fewer deals, from new and used dealerships to the rental-car lot.

The auto industry's inventory crunch has produced a favorable knock-on effect: record pricing. Dealers and car companies are working with such thin inventory that they have been able to withhold the generous discounts and promotions they normally dangle to entice shoppers.

In the first quarter, the average financial incentive on new vehicles fell 20% from a year earlier, while the average price paid hit a quarterly record of $37,314, according to research firm J.D. Power.

Meanwhile, the economic conditions for new-vehicle demand are more favorable than they have been in years, analysts and executives say, as pandemic restrictions loosen, federal stimulus money flows and interest rates remain tame. The pace of new-vehicle sales in April hit its fastest clip in more than 15 years on a seasonally-adjusted basis, according to JPMorgan Chase.

But with the chip shortage worsening, car makers have been cutting more factory work shifts. While auto executives see the situation improving after June, for now, it is crimping inventory even further and could dampen what was setting up to be a banner summer at U.S. car dealerships.

Stellantis said the lack of semiconductors resulted in an 11% reduction in planned first-quarter production, or about 190,000 vehicles, and that the problem will force it to cut second-quarter production even more.

Ford said last week that it will lose half of its planned second-quarter production because of strained chip supplies. Its shares slid 9% the day after it laid out profit guidance for the rest of 2021 that disappointed investors.

On Wednesday, Ford said it is adding at least two more weeks of down time or limited output at several factories that had been shut for weeks, including its Explorer SUV plant in Chicago and a Kansas City, Mo., factory where it makes F-150s and Transit vans. Ford also is idling its Ranger pickup plant near Detroit for the second half of May, a spokeswoman said.

GM wouldn't quantify its production cuts, but confirmed the chip shortage will hurt more in the second quarter.

Still, it seems clear that it is hurting Ford worse. Ford pegged the fallout for the year at about $2.5 billion, while GM estimated its impact at $1.5 billion to $2 billion.

The semiconductor shortage has forced Ford to reduce output for several weeks at its two plants that assemble the F-150 pickup truck, the company's bestseller and its biggest moneymaker.

Meanwhile, GM's key pickup-truck and big-SUV factories have managed to sustain near-normal schedules.

RBC analyst Joseph Spak said investors were spooked by Ford's dimmer outlook and had been waiting to see if GM would cut its profit forecast because of the semiconductor situation.

"Bottom line, GM looks to be managing through better," he said in a note.

Tens of thousands of factory workers have been put on layoff for weeks or even a month or two as the auto makers have canceled work shifts. The companies pay them reduced wages under terms of their contracts with the United Auto Workers.

GM Chief Executive Mary Barra said she is confident that GM can hit the high range of its original 2021 pretax profit forecast of $10 billion to $11 billion. Ford's guidance is for $5.5 billion to $6.5 billion.

Shares of GM rose 3.5% in afternoon trading Wednesday and were up 33% this year through Tuesday. Ford's stock rose 1.2% Wednesday and was up 30% this year through Tuesday.

GM credited its $4.4 billion pretax first-quarter profit in part to brisk sales of its redesigned large SUVs, including the Chevrolet Suburban and Cadillac Escalade, which have routinely sold for more than $100,000 since refreshed models arrived last year.

Ms. Barra said the semiconductor situation is "complex and fluid" and will cause more trouble in the second quarter, but should subside through the second half of the year.

Ms. Barra also said the disruption won't affect the company's plan to spend bigger this year on developing electric and autonomous vehicles, future bets that today are money losers but have sparked investor enthusiasm. GM has said the majority of its roughly $10 billion in capital expenditures this year will go toward those potential growth areas.

"We continue to manage the transformation while managing, I'll say, the tactical challenges of the semiconductors that we will move out of," Ms. Barra told reporters during a conference call.

GM also cited strong results from its lending arm, GM Financial, which is benefiting from surging resale values for the used cars it keeps on its books. The lender posted a record first-quarter pretax profit of about $1.2 billion.

Nick Kostov and Nora Naughton contributed to this article.

Write to Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

05-05-21 1608ET

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -1.58% 33290.08 Delayed Quote.10.51%
FORD MOTOR COMPANY -1.69% 14.52 Delayed Quote.65.19%
GENERAL MOTORS COMPANY -2.20% 58.76 Delayed Quote.41.11%
JPMORGAN CHASE & CO. -2.53% 147.92 Delayed Quote.16.41%
STELLANTIS N.V. -2.85% 16.472 Real-time Quote.0.00%
STELLANTIS N.V. 0.00% 16.464 Delayed Quote.12.31%
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Financials (USD)
Sales 2021 134 B - -
Net income 2021 7 961 M - -
Net cash 2021 7 593 M - -
P/E ratio 2021 10,6x
Yield 2021 0,66%
Capitalization 85 241 M 85 241 M -
EV / Sales 2021 0,58x
EV / Sales 2022 0,49x
Nbr of Employees 155 000
Free-Float 95,1%
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Technical analysis trends GENERAL MOTORS COMPANY
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Mean consensus OUTPERFORM
Number of Analysts 22
Average target price 72,57 $
Last Close Price 58,76 $
Spread / Highest target 53,2%
Spread / Average Target 23,5%
Spread / Lowest Target 5,51%
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Managers and Directors
NameTitle
Mary Teresa Barra Chairman & Chief Executive Officer
Mark L. Reuss President
Paul A. Jacobson Chief Financial Officer & Executive Vice President
Randall D. Mott Chief Information Officer
Matthew Tsien Chief Technology Officer & Executive VP
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