General Motors, and indeed the broader auto industry, is facing down several challenges through the second half of the 2021 calendar year, including possible major impacts from the latest resurgence of COVID-19, as well as the ongoing global microchip shortage. However, despite these challenges, General Motors may still be in store for record profits.
Per a recent report from Automotive News, GM says it expects $13.5 billion in adjusted earnings this year, as compared to the previous forecast of $10 billion to $11 billion. Notably, this would eclipse GM’s post-bankruptcy record of $12.85 billion, set in 2016.
“What you’re hearing from us is sort of a very real acknowledgment of what we see out there with COVID,” said General Motors CFO Paul Jacobson last week. “It may turn out to be less impactful than we think it is.”
Jacobson also indicated that there is currently $1.4 billion worth of vehicles waiting for new microchips, which are needed in order for the vehicles to be completed. “Significant cash flows could shift from 2021 to 2022 if we have these work-in-process vehicles held,” Jacobson said.
Looking ahead, General Motors certainly has its work cut out for it. During the first half of the year, General Motors saw one-time gains in equity investments, while lower lease-termination volume and commodity inflation were notably absent from the first half of the year. Taken together, these factors add up to $3.5 billion to $4.5 billion in headwinds for the second half of 2021, according to Automotive News.
Production is another critical piece of the puzzle. General Motors expects to produce 100,000 fewer vehicles in North America in the second half of the year compared to the first half. However, to keep production rolling, General Motors has adopted a number of strategies to reduce the impact of the microchip shortage. One of these is the so-called “build-shy” strategy wherein popular models are produced without certain features, then completed later as additional chips are sourced. General Motors has also dropped certain features outright, including AFM / DFM fuel management from certain pickup truck models.
Nevertheless, the potential for record profit-making remains. Notably, General Motors rival Ford Motors Co. also raised its full-year earnings guidance, up to $9 billion to $10 billion from the $5.5 billion to $6.5 billion set previously.