GM profit surges to $2.98B on sales of higher-margin trucks

DETROIT >> General Motors’ first-quarter net income surged to $2.98 billion as strong U.S. consumer demand and higher prices offset production cuts brought on by a global shortage of computer chips.

Despite the shortage, GM stuck with full-year pretax earnings guidance of $10 billion to $11 billion issued earlier in the year and said earnings would be at the high end of the range. Fullyear net income is expected to be between $6.8 billion and $7.6 billion. The company predicts a strong first half with a pretax profit of around $5.5 billion.

GM executives wouldn’t give specifics on how much production they expect to lose to the chip shortage. But CEO Mary Barra said purchasing, manufacturing, engineering and sales teams are working to divert the chips from cars and smaller SUVs to fullsize pickup trucks, big SUVs and new electric vehicles.

“A lot of really good work is being done across our company to source semiconductors, allocate them across them our most in-demand and (factory) capacity-constrained products,” she said.

The company reiterated that the shortage would cost it $1.5 billion to $2 billion in earnings before taxes this year due to lost production. GM has been forced to cut production of some smaller vehicles with lower profit margins, such as the Chevrolet Equinox SUV.

“Is there an impact this year? Absolutely,” Barra said on a conference call with reporters. “But the team keeps working to minimize it.”

Edward Jones Senior Equity Analyst Jeff Windau said GM appears to be managing the chip shortage well, but he would like to see more specifics on how many vehicles it won’t be able to produce. He said the company may have been trying to keep the focus off the shortage. “Some of the other peers have come out and expressed significant production cuts in the second quarter, and obviously the stock prices have been punished for that,” Windau said.

GM’s first-quarter profit increase was 12 times larger than the same period last year, when the start of the coronavirus pandemic forced automakers to shutter factories, limiting GM’s net income to $247 million.

Shares of GM jumped 4.1% to $57.63 in midday trading Wednesday.

Excluding non-recurring items, GM made $2.25 per share from January through March, doubling Wall Street estimates of $1.05. Revenue of $32.47 billion was below estimates of $33 billion according to FactSet.

The Detroit automaker reported pretax income for a first quarter at $4.4 billion.

During the quarter, the company said it was able to divert precious computer chips to higher-profit models such as full-size pickup trucks and SUVs, and that brought the higher income.

In the U.S., GM’s most profitable market, sales rose 4% from January through March compared with a year ago. But even with the gain, first-quarter sales of 639,406 vehicles was the second-lowest the first quarter since 2015, and the figures were 4% below the same period in 2019, according to Cox automotive.