GM profit stalls, but late surge drives earnings

DETROIT — General Motors’ profit fell 4.5% in 2020, but a strong second half more than offset the effects of pandemic-related factory closures and a costly air bag recall.

The Detroit automaker said Wednesday that it made $6.43 billion as demand for its vehicles surged late in a year dominated by coronavirus upheaval. In the fourth quarter, the company made $2.85 billion.

After GM’s North American factories reopened in May, the company ran many of them flat-out but couldn’t make up all the lost production. As customers returned to buying again, inventory was short and GM’s U.S. sales for the year fell 12% from 2019. But because buyers bought more expensive trucks and SUVs and loaded them with options, the company was able to turn a big profit.

Even with the strong performance, GM shares fell 2.1% Wednesday, largely because of cautious company guidance about a semiconductor chip shortage affecting the auto industry. GM predicted the shortage will cost it $1.5 billion to $2 billion in earnings before taxes this year due to lost production. Still, GM expects pretax income for the year of $10 billion to $11 billion, or $4.50 to $5.25 per share.

The shortage has forced GM to cancel shifts at several factories, but CEO Mary Barra said it won’t affect GM’s most profitable vehicles that are in high demand. She expects the chip shortage to be resolved this year, but it was too early to predict precisely. “We’re doing everything possible,” Barra said. “We won’t lose any production throughout the year as it relates to full-size trucks and SUVs.”

GM could build vehicles without chips and install them when the parts become available, she said.

CFRA analyst Garrett Nelson, who has a “hold” rating on GM stock, wrote in a note to investors about the near-term risk of the chip shortage. He also sees “significant operational and profitability related risks” from the company’s planned transition to all-electric light vehicles in the coming years. GM has set a goal of making all light vehicles it sells run on batteries by 2035.