What’s going on?
General Motors announced on Wednesday that its profit came in below expectations last quarter, and it’s not the only carmaker getting the heebie jeebies right now.
What does this mean?
Rumour has it that if you say the words “chip shortage” five times in a Finimize newsletter, a semiconductor with a hook hand appears and drags you away. So we’d better be careful, because the chip shortage was precisely to blame for General Motors’ production issues and weaker-than-expected profit. So was the $1.3 billion earnings hit from warranty costs, mind you – most of which were tied to the Chevrolet Bolt, the electric car that’s twice been recalled in the past year due to defective batteries.
Still, GM is optimistic about its full-year prospects, and it raised its forecasted 2021 earnings by around 20%. The carmaker, after all, is seeing strong demand and soaring prices for its pickup trucks, which – given their high profit margins – are helping boost its bottom line.
Why should I care?
The bigger picture: Carmakers get a break.
The chip shortage is crippling plenty of industries, but none more-so than carmakers. They reportedly pay less than other chip-dependent companies, which sends them to the back of a very long line. The good news is that TSMC – the world’s biggest contract chipmaker – told carmakers last month to expect a sharp improvement, forecasting its production of auto chips to be 60% higher this year than it was in 2020 (tweet this). That should help, but it’s no silver bullet: GM still sees the chip shortage lasting into next year.
Zooming out: Kraft kuts the krap.
Kraft Heinz – of ketchup fame – reported better-than-expected sales and profits on Wednesday, thanks to strong demand for its snacks and packaged meals. That encouraged the company to reinstate its quarterly dividend to shareholders, which is certainly a lot easier to do when you don’t have a chip shortage to contend with. Wait – w… was that really five? No, no, nooooooo…