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General Motors chief expects impact of chip squeeze to linger through next year

General Motors chief executive Mary Barra said that while she expected the worldwide semiconductor shortage to ease somewhat by the end of this year, the carmaker will feel the impact through the first half of 2022.

The shortage squeezed sales and profits in the third quarter as dealers struggled with inventories too low to meet consumers’ demand for new cars and trucks. Still, GM said it planned to hit the high end of the guidance for the full year on adjusted earnings before interest and taxes that it set two months ago.

“We think [the shortage] will get better toward the end of the year, but I have to tell you, it still continues to be somewhat volatile,” Barra said.

Third-quarter revenue tumbled 25 per cent to $27bn, while adjusted earnings before interest and taxes fell 45 per cent to $2.9bn. Adjusted operating profit margin dropped to 10.9 per cent, from 14.9 per cent a year ago.

Carmakers first began to feel the effect of the chip shortage last year when they tried to ramp up vehicle production after factory closures due to Covid-19. The shortage was later exacerbated by a plant fire at a major chipmaker, and in the third quarter, the Delta coronavirus variant forced the idling of foundries in south-east Asia.

As carmakers have struggled to secure microchips, the number of vehicles that dealers have to sell has plummeted to historic lows. GM reported earlier this month that company dealers sold 446,997 vehicles in the US in the third quarter, falling a third from a year ago.

“We are selling everything we can,” Barra said. “I wish we could sell more.”

GM said it was “on track” to deliver full year, ebit-adjusted earnings “approaching the high end” of the $11.5bn to $13.5bn range it gave in August. The company originally forecast in February a range that topped out at $11bn.

Low inventories have allowed GM to command higher prices for the vehicles dealers do sell, and with its limited chip supply, the manufacturer has prioritised assembling higher-margin products such as trucks and sport utility vehicles.

Wedbush analyst Daniel Ives said that “while chip shortages were clearly an issue in the quarter (to no surprise of anyone) and limited supply/production, we believe moderation of these headwinds will start to manifest for GM and the rest of the auto industry into 2022”.


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