Common Motors says worst of world chip scarcity could also be behind it

General Motors employees work on the assembly line at the Fairfax Assembly & Stamping Plant in Kansas City, Kansas on Friday, April 26, 2019. The Fairfax facility produces the Cadillac XT4 and the Chevrolet Malibu.

Jim Barcus for GM

General Motors executives believe the worst global chip shortage that has forced automakers to cut production and shut down plants is over, and are confident the company will hit its profit forecast for the year.

“In the past few weeks, when we’ve been talking about this being a volatile situation, we’ve actually seen the situation improving for us,” said GM Chief Financial Officer Paul Jacobson during a Wolfe Research conference on Wednesday afternoon. “At this point I would say that we are very confident that we can deliver on the leadership we have put on the road.”

GM announced earlier this month that it is expected to make $ 10-11 billion, or $ 4.50-5.25 per share, in adjusted pre-tax profits this year.

Adjusted free cash flow of $ 1 billion to $ 2 billion for the Automotive division is projected for 2021. The projections took into account the potential impact of chip scarcity, including a $ 1.5 billion to $ 2.5 billion impact on free cash flow.

“We are confident that we can solve this problem and that we can get back to normal in the second half of this year … and a great deal of confidence that it won’t.” Problem for us in the future, “said Jacobson.

Due to the shortage, GM temporarily closed auto and crossover plants in Kansas, Canada and Mexico through mid-March. The automaker has said it is prioritizing the production of its “most sought-after products – including full-size trucks as well as SUVs and Corvettes,” which also happen to be the most profitable vehicles.

Consulting firm AlixPartners estimates the chip shortage will reduce global auto industry sales by $ 60.6 billion this year. This estimate spans the entire supply chain – from dealers and automakers to large suppliers and their smaller colleagues.

Automakers and suppliers warned of the shortage late last year after vehicle demand rose faster than expected after automakers were forced to stop production last spring to help contain the coronavirus pandemic.

Semiconductor chips are extremely important components of new vehicles for areas like infotainment systems and more basic parts like power steering and brakes.

Experts say a vehicle could have hundreds of semiconductors depending on the vehicle and its options. High-priced vehicles with advanced security and infotainment systems have far more than a basic model, including different types of chips.

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