Chip Shortage: Ford, GM Profits Fall With Dropping Sales

The computer chip shortage currently agonizing the global tech space has reflected in the third-quarter profits of two automakers, Ford and General Motors, as  both companies has to make do with temporarily closing factories, affecting supplies.

The implication of this is a significant drop in the company’s net income, with Ford’s net income of $1.83 billion falling to 23 percent from that of a year ago, while General Motors profit dropped 40 percent to $2.4 billion. The sting from lower sales was although eased from the high prices, that were mainly for the pickup trucks and big SUVs the two automakers sold.

Reporting results after Wednesday’s closing bell, Ford announced it would continue the payment of the 10 cents per share dividend, beginning from the fourth quarter. The company claimed this would cost it around $400 million per quarter.

With its stock jumping 7.5 percent in aftermarket trading, Ford’s revenue dropped 5% from a year ago to $35.68 billion, falling short of WSG’s $38.2 billion estimation.

With the exclusion of one-time items, Ford made 51 cents per share, beating the 27 cents expected by analysts polled by FactSet.

The United States being Ford’s most lucrative market had sales in the country falling 27 percent from July through September, with the company losing 2.4 percentage points of U.S. market share, as it couldn’t produce enough vehicles for demand.

The Chief Financial Officer of Ford, Mr. John Lawler said the company has the cash and income to invest in electric vehicles and services, adding that the company is confident in the trajectory of its business.

“That’s providing us the financial flexibility to fully fund our plan and all of our other capital needs,” he said. “We also are focused on total shareholder returns, not only appreciating stock price but also the dividends.”

According Lawler, the company can’t meet the very strong demand for Ford’s products because of the chip shortage, adding that the company could globally sell 200,000 Mustang Mach-E electric SUVs per year.

He hoped the chip shortage would ease a bit from October through December, projecting the 10 percent rise of sales to dealers this quarter over the precious one. He further added that the shortage will continue into 2022 and possibly into 2023, even if supplies improve.

General Motors on the other hand had its earnings falling from $4 billion last year, with sales slumping, making the company lose its market share in the U.S, its most lucrative country, with the revenue for the quarter plunging 25 percent to 26.78 billion.

The  CEO of General Motors,  Mary Barra, in a conference call with analysts said she is “pretty confident” that GM’s San Francisco-based Cruise autonomous vehicle subsidiary would be carrying passengers without human safety drivers sometime next year, with it needing a final permit from California regulators to pull through.

She furthermore notified reporters that the global shortage of semiconductors, and COVID outbreaks at supplier factories, hit the company during the third quarter. “It still continues to be somewhat volatile,” she said.

The GM’s Chief Executive noted that she made contact with the CEO of many chip makers, adding that the companies are working on strategies to make sure the shortages don’t happen again. “I think we’ll definitely see changes to ensure we have the right supply,” she said.

While being hopeful of GM’s market share bouncing back immediately factories get back to normal production, Barra added that the company is selling everything they can, while she wishes they had more vehicles.

General Motors though had the money coming in, as a result of Consumer willingness to pay high prices for scarce new vehicles, with the average sale price for a GM vehicle topping $50,000 for the quarter, a 16 percent increase from a year ago, with Barra affirming that the high prices will ease when supplies begin to grow more.

GM upped its full-year net income guidance to a range of $8.1 billion to $9.6 billion, with it having a $7.7 billion to $9.2 billion for the year in the second quarter.

GMM shares closed down 5.4% at $54.26 on Wednesday.