GM expects further prices of $ three billion within the second half of the 12 months from inflation and semiconductor shortages

All-new Chevrolet cars will be on display on the sale lot at Stewart Chevrolet on May 14, 2021 in Colma, California.

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General Motors expects the ongoing semiconductor chip scarcity and rising inflation to add up to $ 3 billion to its spending in the second half of the year, CFO Paul Jacobson said Wednesday afternoon.

The added cost includes a bigger-than-expected blow from the third quarter parts shortage, as well as rising commodity prices that will force the company to spend up to $ 2 billion more than it did in the first half, he said.

Much, if not all, of these costs could be offset by GM’s performance in the first half of the year. Early Wednesday, GM raised its profit guidance for the first half to $ 8.5 billion to $ 9.5 billion in adjusted pre-tax profit, up from an estimated $ 5.5 billion.

The new forecast was supported by better-than-expected results from the GM Financial unit and improved short-term production as it was able to receive some semiconductor chips that the company said was expected in the third quarter.

“I feel comfortable with our current situation as we think about the second half of the year, even though there may be some persistent supply bottlenecks,” said Jacobson. “But there are some fundamental pressures in the second half of the year that I think are unique compared to the run rate we saw in the first half. That probably starts with commodity inflation.”

For the year earlier, GM said it expected “high end” pre-tax profit of $ 10 billion to $ 11 billion. There was no update on full year earnings. The forecast took into account the potential impact of the chip shortage, including a $ 1.5 billion to $ 2 billion profit.

The first half of the year was better than many expected for automakers like GM. Delivery bottlenecks due to the shortage of chips have led to higher vehicle prices and profits.

“We are certainly optimistic about our previous guidance,” said Jacobson. “We’re purposely not providing a full-year forecast, but we want to do so on our earnings call as we move into the third quarter and begin to understand what the chip dynamics are like.”

Jacobson said the chip situation remains very fluid. For example, a new Covid outbreak in Malaysia is disrupting the semiconductor chip market, he said. The vehicle delivery bottlenecks are expected to persist through 2022, he said.

“As long as it goes on like this, we will lose some of the production there from some major chip vendors, and it is things like this that are really making this phenomenon week to week,” he said.

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