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GM Expects Inflation and Semiconductor Shortage to Add $ 3 Billion in Additional Costs in Second Half

All-new Chevrolet cars are on display at the Stewart Chevrolet sales lot on May 14, 2021 in Colma, California.

Justin Sullivan | Getty Images

General Motors expects the current semiconductor chip shortage and rising inflation to increase spending in the second half of the year by up to $ 3 billion, CFO Paul Jacobson said on Wednesday afternoon .

The additional costs include a bigger than expected blow from the parts shortage in the third quarter as well as rising commodity prices that will force it to spend up to $ 2 billion more than in the first half of the year. year, he said.

Much, if not all of these costs could be offset by the performance of the CEO in the first half of the year. Earlier Wednesday, the general manager increased its profit forecast for the first half of the year to between $ 8.5 billion and $ 9.5 billion in adjusted pre-tax profits, compared to an estimated $ 5.5 billion.

The new forecast was driven by better-than-expected results from its GM financial unit and improved production in the near term as they were able to secure semiconductor chips that were expected in the third quarter, according to the company.

“I’m actually comfortable with the current situation as we look into the second half of the year, although there could be continued supply issues,” said Jacobson. “But there are fundamental pressures in the second half that I think are unique from the run rate we saw in the first half. It probably starts with commodity inflation.”

For the year, GM previously said it expected pre-tax profits “at the high end” of a range of $ 10 billion to $ 11 billion. It did not provide an update on its annual results. The forecast took into account the potential impact of the chip shortage, including an impact of $ 1.5 billion to $ 2 billion on profits.

The first half of the year was better than expected for automakers like GM. Supply constraints due to the shortage of chips have driven up vehicle prices and profits.

“We are certainly optimistic, about our previous forecast,” said Jacobson. “We intentionally don’t give a full year forecast, but we do want to do so on our earnings call as we begin to move into the third quarter and begin to understand what chip dynamics look 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. Vehicle supply constraints are expected to continue until 2022, he said.

“As long as this continues, we’re losing production there from some of the key chip vendors and it’s things like that that really make it a week-to-week phenomenon,” he said.

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