GM raises financial outlook for 2021, citing improved chip supply

General Motors Co. raised its full-year financial outlook Wednesday, citing better availability of semiconductor chips amid a yearlong shortage of the crucial component.

Chief Financial Officer Paul Jacobson said during a Credit Suisse event that he expects GM's adjusted earnings before interest and taxes, a closely-watched financial indicator, to be roughly $14 billion for the year. The company had said in October that it expected to hit the high end of its guidance of $11.5 billion to $13.5 billion in pre-tax earnings.

“We’ve seen continued strength in the consumer. There’s some winds of caution out there with the omicron (coronavirus) variant that we’re all watching very, very closely, but I’m pleased to say that we’ve experienced a little bit of favorability on costs, and volumes have been trending higher than we expected them to be, primarily on chip availability," Jacobson said Wednesday. "Consequently, our fourth quarter is coming in stronger than where we expected to be just a month ago. … All signs are pointing to good trends in the business.”

But underscoring the fluidity of the microchip shortage and its varying impact across the industry, competitor Stellantis NV said Wednesday it will idle a Jeep plant next week. 

The shutdown comes after more than a month without interruption at the transatlantic automaker’s North American plants.

Belvidere Assembly Plant in Illinois, home of the Cherokee that has had multiple layoffs and a shift cut this year because of the shortage, will have downtime the week of Dec. 6.

"Stellantis continues to work closely with our suppliers to mitigate the manufacturing impacts caused by the various supply chain issues facing our industry,” spokeswoman Jodi Tinson said in a statement.

Richard Palmer, the transatlantic automaker's chief financial officer, said in late October the company didn’t expect vehicle inventories to deplete further after North American dealer inventory was down 272,000 vehicles at the end of September from December 2020, though the chip shortage is expected to extend into late next year. CEO Carlos Tavares said on Wednesday there aren’t indications that the omicron variant is expected to worsen the situation, but the company continues to face a variety of supply-chain and logistics challenges.

“We have been addressing much more serious situations than the current one ...,” Tavares said during a virtual Reuters Next conference.

Meanwhile, Jacobson said Wednesday that while GM expects a strong year on numerous fronts in 2022, he doesn't expect the automaker to reach a "normal" inventory level by the end of next year, amid high consumer demand and a continued shortage of chips.

“We see the ability to generate 10% margins in 2022, as we continue to transition the business to electric vehicles and platform innovator status," he said. "And most importantly, I think we see some of the trends in semiconductors improving throughout the year.”

As for the omicron variant, Jacobson said the company will continue following the safety protocols it and other automakers implemented in 2020 when the pandemic began. 

"I think we would just set that aside and say, it does represent a risk. There’s no doubt about that," he said. "But I feel comfortable in terms of the way we’re running the business and the way we’ve adjusted so far, and we’ll adapt the business to make sure that we’re reaching our goals.”

GM expects delivery volumes to improve in 2022, but does not expect a full recovery, Jacobson said: "The way I would describe it is, it's stabilized. ... I think we expect to see first quarter be probably similar to fourth quarter (2021), and then starting to stabilize and improve throughout the second half of the year."

GM last month announced a new strategy to reduce the number of micro-controller units — parts in vehicles that are powered by semiconductor chips — by as much as 95%, and said it was working more closely with semiconductor companies on co-development, sourcing and manufacturing to help it better manage the shortage.

Still, with consumer demand expected to remain strong, "It'll take some time to work through that," Jacobson said. "We also don't necessarily see inventories building considerably throughout the year, based on that demand curve."

GM is slated to provide financial guidance for 2022 during its next earnings release on Feb. 1.

Twitter: @JGrzelewski

Twitter: @BreanaCNoble