GM Takes Financial Hit in Q3 Due to Chip Shortage

28th October 2021

General Motors put its chips on the table, releasing third-quarter earnings that took a nosedive. The company has many plants idled in the quarter because of the semiconductor chip shortage. It was expected: GM has warned Wall Street the quarter would feel the brunt of the global microchip shortage. You can’t make money if you are not making vehicles. And you can’t make vehicles without the hundreds of chips used in everything from powertrain to infotainment to safety systems.

The financial impact: net income fell 40 percent to $2.4 billion in the third quarter, and North American profits were cut in half to $2.1 billion. Chief Financial Officer Paul Jacobson had warned that GM would cut about 200,000 units of production in the second half. Most of that fell in the third quarter, when GM scheduled downtime at many plants, running at only 60 percent capacity compared with 112 percent capacity (with overtime) in the same period a year ago. GM used the chips it had to keep building profitable fullsize pickups and SUVs while other factories had long stretches of downtime.

Time To Build Vehicles Again But supplies are improving. November will be the first time since February that all plants are expected to be up and running. Much of the shortfall will be made up in the final months of the year but GM CEO Mary Barra warned the shortage will continue to hurt the industry through the first half of 2022.

On the bright side, with low inventory, average transaction prices are high (lower trim vehicles are more likely to be parked awaiting chips before they can be delivered). With sales concentrated on the more profitable models, GM expects to end the year with adjusted earnings at the high end of their full-year guidance of $11.5 billion to $13.5 billion.

Barra is still bullish on the electric vehicles coming, starting with the 2022 GMC Hummer EV pickup this fall.