GM and Ford expect impact of chip squeeze to linger through next year

The impact of the chip shortage will last into next year, and possibly even 2023, executives at two top US carmakers said on Wednesday.

Ford chief financial officer John Lawler said that while the automaker expects “the scope and severity” of the shortage to diminish, “the constraints on the chips will remain fluid through 2022, and they could extend into 2023”.

General Motors chief executive Mary Barra said that while she expected the worldwide semiconductor shortage to ease somewhat by the end of this year, the carmaker will feel the impact through the first half of 2022.

“We think [the shortage] will get better toward the end of the year, but I have to tell you, it still continues to be somewhat volatile,” Barra said.

The shortage squeezed sales and profits at both companies in the third quarter as dealers struggled with inventories too low to meet consumers’ demand for new cars and trucks.

Still, Ford on Wednesday raised its full-year earnings guidance and reinstated the dividend it eliminated at the outset of the pandemic. GM said it planned to hit the high end of guidance for the full year on adjusted earnings before interest and taxes that it set two months ago.

Ford’s 10 cent per share dividend will cost about $400m a quarter. It comes at a time when Ford and GM are spending billions to fund the transition to electric vehicles, locked in an arms race against each other and rivals like Tesla, whose market value has hit $1tn.

“We are not capital constrained,” Lawler said. “What it reflects is the strength of our business . . . We can fund all of our growth initiatives.”

Ford’s revenue fell 5 per cent from the third quarter a year ago to $35.7bn. Adjusted earnings before income and taxes fell nearly 17 per cent to $3bn.

GM’s third-quarter revenue tumbled 25 per cent to $27bn, while adjusted earnings before interest and taxes fell 45 per cent to $2.9bn. Adjusted operating profit margin dropped to 10.9 per cent, from 14.9 per cent a year ago.

Carmakers first began to feel the effect of the chip shortage last year when they tried to ramp up vehicle production after factory closures due to Covid-19. The shortage was later exacerbated by a plant fire at a major chipmaker, and in the third quarter the Delta coronavirus variant forced the idling of foundries in south-east Asia.

As carmakers have struggled to secure microchips, the number of vehicles that dealers have to sell has plummeted to historic lows.

“We are selling everything we can,” Barra said. “I wish we could sell more.”

GM said it was “on track” to deliver full-year adjusted operating profits “approaching the high end” of the $11.5bn to $13.5bn range it gave in August. Ford raised its full-year adjusted ebit projections to a maximum of $11.5bn.

Low inventories have allowed GM and Ford to command higher prices for the vehicles that dealers do sell, and with its limited chip supply, the manufacturers have prioritised assembling higher-margin products such as trucks and sport utility vehicles.

Wedbush analyst Daniel Ives said that “while chip shortages were clearly an issue in the quarter (to no surprise of anyone) and limited supply/production, we believe moderation of these headwinds will start to manifest for GM and the rest of the auto industry into 2022”.

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