As World Wrestles With a Chip Shortage, GM’s Plants Fire Back Up
(Bloomberg) -- The global shortage of semiconductors is getting worse, but General Motors Co. has found ways to work its massive chain of suppliers and minimize the damage better than its biggest rivals.
The company is bringing back five plants that were shut down due to a lack of chips and adding a second shift at another, a clear sign that the largest U.S. automaker is managing the global crisis even as companies in many industries keep struggling. Crucially, two of the plants being reopened build small sport utility vehicles popular as family haulers and rentals, potentially helping to ease a scarcity of cars available for vacationers.
GM Chief Executive Officer Mary Barra has defied dour earnings forecasts in recent years thanks to cost cutting and the introduction of revamped pickup trucks and SUVs, but this is something different. In the competitive hunt for semiconductors, when the ability to manage a global supply chain has never been more important, her company has fared far better than most.
“They got an early jump on assessing the risk and on making shifts to move the chips where needed to have less of an impact on important vehicles,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive.
The secret to GM’s success really isn’t anything more dramatic than working its suppliers and any conceivable source of chips and moving them where they’re needed most, said David Barnas, a company spokesman. The automaker saw the crisis unfolding early on and started working on it. The purchasing team has calls twice a day, sometimes wrangling as many as 200 people to work out problems and talk about possible sources of supply.
Investors liked the plans, sending the shares up as much as 4.5% to $60.72, the highest since April 8. The stock had climbed 39% this year through Wednesday, partly because GM has stuck to its earnings guidance as rivals had to lower forecasts because of the semiconductor issue.
Ford Motor Co. has predicted a $2.5 billion hit to earnings because of the chip shortage. Alix Partners estimates the issue will ultimately cost the auto industry $61 billion.
LMC said GM lost 260,000 units of volume so far this year, while Ford lost an estimated 630,000. Stellantis NV, the owner of Fiat and Chrysler, lost 160,000 vehicles of production.
Critically, of the volume lost, only 2% of GM’s reductions came from its very-profitable pickup and SUV plants. At Ford, 46% came from those plants. Stellantis lost 17% of its big pickup and SUV production, Schuster said.
Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, says GM is outperforming its rivals.
“It shows poorly on how a company is managing this crisis when a truck plant goes down,” Fiorani said. “The fact that GM has not lost truck production reflects well on them.”
GM will start bringing back its small-SUV plants in Mexico first. One plant in San Luis Potosi, Mexico, will resume production May 31 after being closed for two weeks. A facility in Ramos Arizpe, Mexico, that makes the compact Chevy Blazer and the Chevy Equinox small SUV will reopen the same day. It was idled May 3.
The Equinox factory in Ingersoll, Ontario, will restart on June 14, which is earlier than expected. It will operate through July 2, when it will shut down for two weeks of scheduled maintenance. The plant has been quiet since Feb. 8. The Lansing Grand River plant in Michigan will resume assembly of the Camaro sports car on June 21, while output of the Cadillac CT4 and CT5 will fire up June 28. The facility will build high-performance versions of the sedans.
GM’s SUV plant in Bupyeong, Korea, resumes full production May 31. The facility, which builds the Chevy Trailblazer and Buick Encore GX, has been operating at 50% capacity since April 26. The plant will return to two shifts from one.
“We’re hoping that the trough is in the third quarter, but we keep getting more down time,” Fiorani said. “We’re hoping to see a new source of semiconductors dedicated for the auto industry and there are hints that things are going to happen. But we need something more concrete.”
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