GM Sees High Costs, Shift to Budget Cars Capping Profit

(Bloomberg) -- General Motors Co. is seeing signs of an easing in the semiconductor shortage that curbed vehicle output last year, but cautioned that a shift to producing lower-margin models and rises in materials prices will cap profit this year.

Like most automakers, GM dealt with the unprecedented supply crunch by prioritizing its most profitable vehicles at the expense of higher-volume models with lower margins. The manufacturer was hit among the hardest in the fourth quarter, when a 43% drop in domestic sales forced the company to relinquish its crown as top U.S. automaker for the first time since 1931.

As GM shifts production to higher-volume and less profitable models, the company expects a 25% production increase in the first quarter and gains of as much as 30% for the year, Chief Financial Officer Paul Jacobson told reporters. The lower margins, together with rising input costs, will restrain profits, he added.

The Detroit-based automaker is “seeing sizable supply chain pressure on commodities,” Jacobson said.

GM expects 2022 earnings roughly in line with the year just ended. The company forecasts adjusted earnings before interest and taxes of $13 billion to $15 billion in 2022 and adjusted earnings per share of $6.25 to $7.25. That compares $14.3 billion in adjusted earnings last year and $7.07 a share.

“With an improving outlook for semiconductors in the U.S. and China, we expect our 2022 results will remain strong,” Chief Executive Officer Mary Barra said in a letter to shareholders.

Shares of the carmaker rose 2.1% in premarket trading, building on Tuesday's gains of 2.5% following the earnings announcement. The stock is down 7.8% this year.

Barra told reporters on a call that GM expects to benefit from pent-up demand on the order of several million vehicles in the U.S. alone, something she said will likely keep retail prices elevated.

GM has no plans to reinstate a dividend that it suspended almost two years ago, Barra said on a call with analysts.

The automaker on Tuesday reported fourth-quarter earnings that beat analysts' estimates and forecast 2022 sales and profit within the range projected by Wall Street. Sales declined to $33.6 billion, missing the average Wall Street estimate of $34.5 billion.

In North America, the automaker reported full-year profit of $10.3 billion, up from $9.07 billion in 2020. GM earned $2.17 billion in North America in the fourth quarter, down 17%.

North America

The company made headway globally, with international operations earning $275 million in the fourth quarter and $827 million for the year -- after losing $528 million in 2020. GM's China profit doubled to $1.1 billion in 2021.

GM Financial, the lending arm, also put up big numbers. The unit made $5 billion in earnings before taxes for the year, a jump from $2.7 billion in 2020.