GM extends production cuts due to semiconductor chip shortage

The global semiconductor chip shortage led General Motors (GM) to extend production cuts at three North American plants and add a fourth to the list of factories hit, and Stellantis to warn the pain could linger far into the year.

The extended cuts do not change GM’s forecast last month that the shortage could shave up to $2 billion from this year’s earnings. GM Chief Financial Officer Paul Jacobson subsequently said chip supplies should return to normal rates by the second half of the year and he was confident the profit hit would not worsen.

However, Stellantis did not give an estimate for the financial hit it expects this year from the shortage and said the issue could last into the second half of 2021.

The chip shortage, which has hit automakers globally, stems from a confluence of factors as carmakers, which shut plants for two months during the COVID-19 pandemic last year, compete against the sprawling consumer electronics industry for chip supplies.

Consumers have stocked up on laptops, gaming consoles and other electronic products during the pandemic, leading to tight chip supplies. They also bought more cars than industry officials expected last spring, further straining supplies.

GM did not disclose the impact on volumes or say which supplier or parts were affected by the chip shortage, but the US automaker said it intends to recover as much of the lost output as possible.

“GM continues to leverage every available semiconductor to build and ship our most popular and in-demand products, including full-size trucks and SUVs,” GM spokesman David Barnas said. “We contemplated this downtime when we discussed our outlook for 2021.”

GM said it would extend downtime at plants in Fairfax, Kansas, and Ingersoll, Ontario, to at least mid-April, and in San Luis Potosi, Mexico, through the end of March. In addition, it will idle its Gravatai plant in Sao Paulo, Brazil, in April and May.

The Detroit automaker had previously extended production cuts at three North American plants into mid-March and said vehicles at two other plants would only be partially built. Following Wednesday’s cuts, forecasting firm AutoForecast Solutions estimated GM could lose more than 216,000 units globally due to the shortage.

While reporting quarterly results on Wednesday, Stellantis said the chip shortage could weigh on 2021 earnings and Chief Financial Officer Richard Palmer told analysts on a conference call the financial impact was a “big unknown.”

Stellantis Chief Executive Carlos Tavares said the automaker was working hard to find alternative chip supplies, but he was “not so sure” the issue would be resolved by the second half of 2021.

Ford Motor Co said last month the lack of chips could cut company production by up to 20% in the first quarter and hurt profits by as much as $2.5 billion. It had previously cut production of its top-selling F-150 pickup truck.

Some automakers, including Toyota Motor Corp and Hyundai Motor Co, avoided deeper cuts by stockpiling chips ahead of the shortage.

Industry officials and politicians have pushed U.S. President Joe Biden’s administration to take a more active role in dealing with the chip shortage.

Last week, Biden said he would seek $37 billion in funding to supercharge chip manufacturing in the United States. An executive order also launched a review of supply chains for such critical products as semiconductor chips, electric vehicle batteries and rare earth minerals.

Complicating matters was a severe winter storm in Texas last month that killed at least 21 people and led to the shutdown of several chip plants.

Semiconductor industry officials said customers would face knock-on effects in several months.

Low global car inventories and cost cuts should boost Stellantis’s profit margins this year, though a shortage of semiconductors and investments in electric vehicles could weigh on results, the newly-formed automaker said on Wednesday.

The forecast came as Stellantis, created by the January merger of Peugeot-maker PSA and Fiat Chrysler (FCA), reported better-than-expected results for 2020 that sent its shares up around 3% in morning trading.

“Stellantis gets off to a flying start and is fully focused on achieving the full promised synergies (from the merger),” Chief Executive Carlos Tavares said in a statement.

Stellantis is the world’s fourth largest carmaker, with 14 brands including Fiat, Peugeot, Opel, Jeep, Ram and Maserati. It said 2021 results should be helped by three new high-margin Jeep vehicles in North America and a strong pricing environment there. The U.S. market has driven profits for years at FCA and starts off as the strongest part of Stellantis.