US GM extends production cuts on semiconductor shortage, warns of $2bn hit to 2021 earnings

HOUSTON (ICIS)–US automaker General Motors Co is extending production cuts at three North American sites because of a global shortage of semiconductors and will use the available supply of microchips to focus on building its most popular products.

The company announced the plan on Tuesday and said it will reassess in mid-March.

GM executives said during an earnings conference call on Wednesday that the scaled back production could reduce 2021 earnings by as much as $2bn.

“We expect the shortage to be temporary, and we’ll look to focus on protecting supply of our highest demand products such as full-size trucks and SUVs as well as EVs (electric vehicles),” CFO Paul Jacobson said.

Production will continue to be scaled back in the US at Fairfax, Kansas; the CAMI plant in Ontario, Canada; and in Mexico at San Luis Potosi.

The automaker said it will use all available semiconductors to build and ship its most popular and in-demand products, including full-size trucks and SUVs and Corvettes, to customers.

GM said it intends to make up for the lost production in the second half of the year.

“In addition, when there is a shortage of semiconductors that impacts production, in some cases we intend to build vehicles without certain modules and will complete them as soon as possible,” the company said in a release.

US automaker Ford Motor Co said last week that it was also scaling back production because of the shortage.

The auto industry is still recovering from reduced production in 2020 related to the coronavirus pandemic.

Reductions in auto production have a direct impact on the chemical industry.

The automotive industry is a major global consumer of petrochemicals which contributes more than a third of the raw material costs of an average vehicle, and production disruptions could severely weigh on demand.

According to ICIS, chemicals with a significant percentage of their global demand tied to the automotive industry include nylon resins, styrene-butadiene-rubber (SBR), polypropylene (PP), acrylonitrile-butadiene-styrene (ABS), polymethyl methacrylate (PMMA) and polycarbonate (PC).

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Image shows an automobile. Photo by Imaginechina/REX/Shutterstock