New York (CNN Business)General Motors posted strong first-quarter earnings and said it’s on track to hit the high end of its full-year profit target despite the computer chip shortage dogging the industry.
The largest US automaker posted net income of $3 billion, about 10 times what it posted in the same quarter a year ago, when it was hit by the beginning of the Covid-19 pandemic. Revenue and vehicle sales fell slightly from a year ago because the global chip shortage and plant closings limited supply of vehicles. International sales also dropped.But the company was able to overcome the drop in vehicles sold by selling a more profitable mix of vehicles. GM accomplished that by using the chips it had on hand to build higher-margin large SUV and truck models. The tight supply of vehicles also improved average pricing, as it reduced incentives to attract consumer buyers and reduced sales to fleet buyers who typically buy vehicles at a discount.
Combined, the better mix and better pricing added $3.2 billion to its pre-tax profits during the quarter.
And GM’s finance arm also improved pre-tax profits by $1 billion, thanks to the combination of lower interest expense and high used vehicle prices which it enjoyed on leased vehicles returned to the company.Read MoreThe automaker had said earlier this year that it expected the chip shortage could trim $1.5 billion to $2 billion off of its full-year earnings. But it gave a more optimistic view of full-year results than some of its rivals have given.”This remains a challenging period for the company,” said CEO Mary Barra. “While we will have production downtime in the second quarter, we expect to have a strong first half …. and based on what we know today, we see results coming in at the higher end of the $10 billion to $11 billion [earnings] range we shared earlier this year.”Shares of GM (GM) rose 4% in premarket trading on the results.Automakers cut back computer chip orders early last year when the pandemic caused temporary plant closures and slammed the brakes on auto sales and production. Electronics makers, who enjoyed strong sales during the pandemic, eagerly snapped up the excess supply.But when car sales bounced back sooner than expected, the industry was left struggling to find necessary parts, causing widespread shutdowns around the globe.The shortage of cars available for sale and strong demand from buyers is driving up car prices. But that is primarily benefiting car dealerships — not the automakers themselves.Barra told reporters Wednesday that she expected the biggest impact from the chip shortage to come in the second quarter. The company has widespread temporary plant closings taking place currently. Despite saying the company is on track to hit its full-year earnings guidance, Barra said that the adjusted income before taxes and interest expenses should be $5.5 billion in for the first half of the year, meaning it would fall sharply this quarter from $4.4 billion it earned on that basis in the first quarter.Other automakers, namely Ford (F) and Stellantis, the owner of Fiat Chrysler, both recently warned that they expected the chip shortage will cause significant problems in the second quarter and the rest of this year..
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“We do expect it [the shortage] to improve in the second half, but clearly I think it would be naive to expect it to just disappear,” Stellantis’ CFO Richard Palmer said Wednesday when discussing first quarter sales and production. “It is possible that it will leak into 2022.”Ford CFO John Lawler last week said the company expects to lose about 50% of its planned second- quarter production, adding that the chip shortage “will get worse before it gets better.”
Source: edition.cnn.com