Despite pandemic, GM books a $6.4 billion profit in 2020, ups profit-sharing payouts

Detroit — Proving it can navigate a downturn, General Motors Co. booked net income of $6.4 billion despite the pandemic pressures of 2020 — and this year it faces a global semiconductor shortage that could cost $2 billion in lost profits.

Still, company leaders remain optimistic they can weather the storm: "Let me assure you the semiconductor shortage won't slow our growth plans," CEO Mary Barra said Wednesday. "With our mitigation strategies we still expect to see a very good year for General Motors."

Investors, however, didn't share the optimism. Shares in GM, which reached their post-bankruptcy high on Monday, slumped 3%, or $1.69, to close Wednesday at $54.37 — a sign that profit generation, not just electrification plans, remain a potent driver of investor sentiment.

The semiconductor shortage has caused the Detroit automaker to halt production at some plants and build some vehicles without the parts, adding them in later. Experts say the supply constraint could affect automakers, including GM and rival Ford Motor Co. through the second quarter, but GM executives wouldn't pinpoint when they expect to see the predicament ease.

The Detroit News is running a great deal right now for our new subscribers. Sign up here for just $1 for 6 months.

 "We see this situation resolving this year," Barra said. "I think it's a little too early to say precisely when it will end. How we're prioritizing semiconductors is based on customer demand."

GM said Wednesday the microchip shortage would not impact its growth or EV goals, but conceded it could deliver a $1.5 to $2 billion hit to earnings this year. The automaker expects pre-tax profits to total $10 to $11 billion in 2021 despite lingering effects of the microchip shortage on vehicle production.

"Mary is walking the walk, and just not talking the talk on EVs, and that remains bullish for the stock," Wedbush analyst Dan Ives said in a note to The Detroit News. 

This year, GM will spend more money on EV and AV development than gas and diesel-powered vehicle development for the first time in its history, GM's new CFO, Paul Jacobson, told investors on a call. GM's capital allocation plan includes spending more than $6 billion on EVs and $1 billion AVs this year alone. 

In a note, Credit Suisse analysts Dan Levy and AJ Denham said: "While some may focus on a guidance which is optically soft vs. consensus due to semi(conductor) shortage impact, we ultimately believe investors should look through it. Rather, with strong end market demand, and more importantly with the EV/Auto 2.0 narrative continuing to unfold for GM, we continue to see opportunity ahead for GM stock."

GM reported revenue of $122 billion in 2020, down from last year's $137 billion. Pre-tax earnings totaled $9.7 billion. And profit margins were 7.9%. Adjusted pre-tax earnings in GM North America totaled $9 billion, an increase from last year's $8 billion, resulting in average profit-sharing payouts of $9,000 to hourly workers later this month.

GM International lost $528 million, an increase from last year's loss of $202 million. In the fourth quarter, GM earned $2.8 billion in net income on revenues of $37.5 billion. 

GM was also able to achieve its 2018 goal of reaching $4.5 billion in cost savings by 2020. The Detroit automaker said it repaid the remaining balance on its $16 billion corporate revolver draw. It ended the year with an automotive cash balance of $22.3 billion and total automotive liquidity of more than $40 billion. 

GM's recovery from an eight-week pandemic-induced shutdown was driven by heavy demand for SUVs, crossovers and trucks. The automaker earned $4 billion in net income during the third quarter on those strong sales.

GM's sales have continued to recover with the fourth quarter's up 12% year-over-year despite limited inventory. December retail sales were up more than 19%, and into January, sales were up 9% year over year, Jacobson said.

"Chevrolet, GMC, Buick and Cadillac were especially well prepared when demand recovered faster than expected — Chevrolet and GMC with their outstanding full-size and midsize pickups; and all four brands with a mix of new small- and full-size SUVs, which we launched on time despite the pandemic," Barra wrote in a letter to investors.

"These products helped drive our largest year-over-year gain in total U.S. market share since 1990." A chronic loser of market share, GM's ended the fourth quarter of 2020 with U.S. market share of 18%. 

Ford Motor Co. last week reported a $1.3 billion loss on $127.1 billion in revenue for 2020 and a $2.8 billion net loss on $36 billion in revenue in the fourth quarter. It was the first full year loss for the company since the Great Recession.

Ford Chief Financial Officer John Lawler forecast that the automaker is on track to earn between $8 billion and $9 billion in adjusted pre-tax earnings this year, but short supply of the semiconductors could result in a 10% to 20% production loss in the first quarter.

If current estimates were projected across the first half of the year, the shortage could result in an adjusted pre-tax earnings loss of between $1 billion and $2.5 billion this year, Lawler said.

Most recently Ford had to reduce production at two plants where F-150 are built — Dearborn Truck and Kansas City assemblies. The automaker also had plants in Canada, Chicago and Louisville affected. 

GM has halted production at the Fairfax, Kansas, plant where the Cadillac XT4 and the Chevrolet Malibu are built, the CAMI plant in Ontario where the Chevrolet Equinox is built, and the San Luis Potosi plant in Mexico where the Equinox, the Chevrolet Trax and the GMC Terrain SUVs are built.

GM intends to build some vehicles without certain modules and then complete them later. It has started doing this at its Wentzville, Missouri, plant where mid-size trucks and full-size vans are built, and at the Ramos Arizpe assembly plant in Mexico where the Equinox and Trax are built. 

A plant communication at GM's Fort Wayne assembly plant where light-duty trucks are built said the plant will adjust vehicle mix in the next several weeks and build some vehicles without certain modules. 

Jacobson said it was "premature" to discuss volume loss because of the chip shortage. AutoForecast Solutions calculates that, with current production announcements as of Monday, globally automakers have already lost 600,000 units of production because oft he shortage.

Toyota Motor Co. on Wednesday said it has an up to four-month stockpile of chips and was not immediately expecting the shortage to impact its production, Reuters reported. Executives said the company remains in constant communication with suppliers and with semiconductor manufacturers. 

Stellantis NV, formerly Fiat Chrysler Automobiles NV, reports its earnings March 3. The automaker has also been affected by the global chip shortage, including having to halt production of the Chrysler Pacifica at its Windsor Assembly plant in Canada for three weeks

CEO Carlos Tavares on Wednesday during a roundtable with Detroit media members said the chip shortage "is a critical situation for the automotive industry."

"At the end of the day, as you know well, it is a competitive game, it’s all about protecting your company vis-a-vis the shortage," he said. "I think it is fair to say so far Stellantis has been able to protect ourselves reasonably well against our competitors. We are now having a daily crisis task force led by procurement and supply chain that is taking care of this topic."

khall@detroitnews.com

Twitter: @bykaleahall