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GM profit sinks as chip shortage takes toll

2 min read . Updated: 27 Oct 2021, 06:08 PM IST MIKE COLIAS, The Wall Street Journal

Auto maker says strong pricing, truck sales should help it hit high-end of 2021 profit forecast

General Motors Co.’s net profit dropped 40% in the third quarter compared with a year earlier as the computer-chip shortage dented factory output, illustrating that a parts crisis that emerged nearly a year ago continues to drag down car-industry earnings.

The Detroit auto maker, reporting record pricing and a lucrative mix of higher-profit SUVs and trucks, has been able to offset some of the challenges and said Wednesday its full-year profit would finish at the high end of its previous guidance.

Still, net income fell to $2.4 billion for the third quarter, as the company said it confronted lower production and heavier raw-material costs.

Operating profit excluding one-time items was $2.9 billion, or $1.52 a share, better than the average analysts’ estimate of 98 cents, according to FactSet. Revenue fell 25% to $26.8 billion.

In a letter to shareholders, Chief Executive Mary Barra said GM’s full-year operating profit would approach the high end of the company’s previously stated range of $11.5 billion to $13.5 billion.

GM has managed to post one of its best four-quarter stretches in history in terms of operating profit, even amid the upheaval in global supply chains. The company has benefited from the decision to give priority to its most expensive vehicles while sacrificing lower-end models, which led it to report a record transaction price of $47,467 a vehicle during the third quarter.

Still, the gap in investor enthusiasm for shares of traditional auto makers such as GM compared with those of Tesla Inc. was amplified this week, when Tesla’s valuation crossed $1 trillion. That figure is roughly 12 times higher than GM’s valuation of about $83 billion at Tuesday’s close.

Crosstown rival Ford Motor Co. reports third-quarter results Wednesday afternoon.

GM earlier this month made its pitch to investors as a growth company, outlining its strategy to double revenue and boost profit margins this decade by shifting to electric cars and introducing new features enabled by software. Shares rose about 8% in the days that followed as some analysts upgraded their forecasts.

GM executives previously said chip-related production troubles would worsen in the third quarter. In the first half of the year, GM managed to largely sidestep disruption to production of its large pickup trucks and sport-utility vehicles, its biggest moneymakers.

In the July-through-September period, though, it canceled output of roughly 60,000 big pickups and SUVs because of the chip shortage, according to research firm AutoForecast Solutions.

GM last month said it expected the chip shortage and other supply-chain problems to lower factory production for the second half of 2021 by about 200,000 vehicles relative to the first half, with the worst of the disruption coming in the third quarter.

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