GM ready to rev up output of popular trucks, expects uptick in financial results
General Motors Co. said Thursday it is taking steps to accelerate production of some of its most popular models amid high demand from consumers and a lingering global shortage of semiconductor chips that is hitting inventories of new vehicles across the industry.
And GM now expects its first-half financial results will be "significantly better" than prior guidance. Wall Street responded favorably to the update; GM's stock closed up 6.4% to $63.46 per share Thursday.
The automaker said that due to "production line efficiencies" achieved by employees at its Flint Assembly plant, production of the Chevrolet Silverado HD and GMC Sierra HD full-size pickups will increase by about 1,000 trucks per month beginning in mid-July. GM has managed to keep production there running with no shutdowns stemming from the chip shortage.
The company also plans to ship about 30,000 Chevrolet Colorado and GMC Canyon mid-size pickups — which are built at Wentzville Assembly in Missouri — from mid-May through the week of July 5. Those units had been held at the plant awaiting parts due to the chip shortage and will now go through testing, GM said.
Chief Financial Officer Paul Jacobson, speaking at a Credit Suisse event Thursday, said the move essentially amounts to GM pulling forward deliveries it had expected to make in the second half of the year.
But given the fluidity of the chip situation, he said, it's too soon to say whether the worst of the chip crisis is past.
"Clearly we've had some wins," he said. "And I would expect that we would get some wins in the back half of the year, but it doesn't mean that we're necessarily through the woods in terms of being able to say unequivocally that the situation is getting better."
According to data from AutoForecast Solutions, Wentzville had some chip shortage-related downtime in March, April and May and has lost about 47,000 units of planned vehicle production.
The automaker said, too, that smaller volumes of vehicles that are being held at other plants will complete testing and then ship to dealers in June and July.
Meanwhile, U.S. assembly plants that build GM's "most capacity-constrained products" will not take any dedicated vacation downtime this summer. And as previously announced, full-size pickup production at GM's Oshawa Assembly in Canada is slated to resume in the fourth quarter.
The automaker said that its moves to accelerate its production timeline and make up for lost volume "are expected to make an impact in 2022, as production ramps up." The company said it expects its efforts to mitigate the impact of the chip shortage to result in better-than-expected financial results for the first half of the year. Second-quarter results will be released in August.
During the company's first-quarter earnings release, executives said they expected first-half adjusted earnings, before taxes and interest, would be about $5.5 billion. The company has said that the chip shortage could lead to a $1.5 billion to $2 billion hit to earnings for the year, but has continued to adjust its guidance.
"I don't think we like necessarily updating guidance a month after we just issued it, but that tells you how fluid and volatile the situation has been," Jacobson said. GM's ability to step up production and make additional chips available in the second quarter, he said, prompted the update.
"We remain very, very optimistic about the full year," he said. "We're optimistic that we can beat the high end of our $10 billion to $11 billion guide for the year, but as you can tell from these updates, it is very fluid."
Jacobson, though emphasizing the rapidly changing nature of the situation, said he expects it to improve in the second half of the year and hopefully normalize in 2022. Other automakers and industry analysts have given similar forecasts.
Asked by Credit Suisse analyst Dan Levy about the automaker's low level of inventory (Levy pegged GM's days' supply at 22), Jacobson said that while GM has learned it may not need to maintain the significantly higher levels it previously did going forward, it needs more than what it has now.
"We have too many dealers that have empty lots, and consumers want to be able to go into a dealership and drive off in their new vehicle," he said. "We've got to make sure that we have some inventory available, well above the current levels that we've been carrying."
In another signal that the worst of the chip crisis is abating, GM last week confirmed plans to restart production at four North American plants over the course of about a month.
The automaker planned to restart its San Luis Potosi Assembly plant in Mexico for production of the Chevrolet Equinox and GMC Terrain this week after a two-week shutdown. It also said it would resume production this week of the Chevrolet Blazer and Equinox at Ramos Assembly in Mexico, which had been down since May 3.
Additionally, after being shut down since Feb. 8, CAMI Assembly in Ontario, where the Chevrolet Equinox is built, will resume production earlier than expected on June 14 and run through July 2 until a scheduled two-week summer shutdown period.
And production of the Chevrolet Camaro at the Lansing Grand River plant also will begin earlier than expected June 21. That plant has been down since May 10.
Meanwhile, GM plans to keep Fairfax Assembly in Kansas, which has been down since Feb. 8, idle through at least the week of July 5. That plant builds the Chevrolet Malibu and Cadillac XT4.
The chip shortage has been plaguing the auto industry, as well as other sectors that rely on the components, since late last year. Global consulting firm AlixPartners has estimated the shortage will cost the industry $110 billion globally in revenue this year and about 3.9 million units of planned vehicle production.
Staff Writer Kalea Hall contributed.