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Thursday, December 1, 2022

Earnings at General Motors and Ford are hurt by a shortage of chips

However, there were hints that the worst of the interruption had passed, according to two major Detroit automakers who stated Wednesday that the global shortage of computer chips had hurt on their third-quarter results, but that the worst of the disruption had passed.

Ford Motor Company fared better than the other. Its sales decreased by around 5% from the previous year, to $35.7 billion, whereas General Motors’ revenue decreased by 25%, to $26.8 billion.

A letter to shareholders from General Motors’ CEO, Mary T. Barra, said that the company’s “quarter was tough owing to persistent chip headwinds.”

Ford’s statement underscored the improvement in the company’s outlook. “Semiconductor supply continues to be an issue, but has significantly improved since the second quarter,” the company said.

Investors in Ford were likewise optimistic. Ford’s statement, which occurred after the market closed, resulted in an 8 percent increase in the company’s stock. General Motors released their earnings report before the market opened, and the company’s stock closed the day down by 5%.

Modern vehicles need hundreds of computer chips, the most of which are manufactured in Asia, for a broad variety of electronic components, including engine controllers and entertainment systems, to function properly. The shortage of chips as a result of pandemic-related manufacturing and transportation issues forced General Motors to temporarily halt production in August and September at plants across North America, including several that manufacture the company’s highly profitable pickup trucks and large sport utility vehicles.

However, although General Motors was hurt harder by the chip shortage than Ford in the third quarter, Ford had bigger difficulties earlier in the year since one of its main chip suppliers was also hindered by a fire at a facility in Japan during the first half of the year.

Ford expects significant progress in the fourth quarter, despite the fact that a shortage of semiconductors will continue to plague the car industry for some time. John Lawler, Ford’s chief financial officer, said on a conference call with reporters that the company anticipates chip supply constraints to remain flexible through 2022 and maybe extend into 2023. “However, we expect the severity of the constraints to decrease,” Lawler said.

As a result of the manufacturing limits, dealers have only a limited number of new automobiles in stock. General Motors’ new-vehicle sales in the United States decreased by a third during the quarter.

In the case of automobile manufacturers, one advantage is that vehicle prices have increased, boosting the profit on each truck or car sold. Moreover, both businesses increased their profit forecasts for the year, with Ford announcing that it will begin dividend payments in the fourth quarter. As a result of the epidemic that ravaged the United States last year, neither corporation has paid a dividend.

Ford recorded a net profit of $1.8 billion for the three months that ended in September, compared to a profit of $2.4 billion a year earlier in the same period. G.M.’s earnings was $2.4 billion, a decrease from $4 billion the year before.

G.M.’s earnings may have been much lower had it not been for a $1.9 billion payment from the battery supplier LG Electronics, which was tied to a huge recall of Chevrolet Bolt electric vehicles in the United States. Furthermore, the comparisons with the previous year were rendered more difficult by the abnormally strong demand for automobiles early in the epidemic.

Ms. Barra said on a conference call with reporters that she had spoken with a number of semiconductor vendors in order to boost General Motors’ supply of computer chips. We are deliberately developing a plan to ensure that we do not have these sorts of limits in the medium term, and definitely not in the long term,” she said.

G.M. needs to continue making significant profits since it is spending extensively in the development of new electric cars and the construction of manufacturing facilities to produce them. In addition, Ms. Barra said that a new battery facility in Ohio, which is a joint venture with LG, will begin production the following year.

G.M. wants to offer 30 new electric vehicles throughout the globe by 2025, with 20 of those vehicles being introduced in North America.

Ford is also putting in a significant effort in the area of alternative energy, including the introduction of an electric version of its best-selling F-150 pickup vehicle. This past month, it stated that it will invest billions of dollars to construct three battery factories and an electric truck facility in the United States, resulting in the creation of 11,000 jobs over the next four years.

David Faber
I am a Business Journalist of The National Era
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