GM, the country’s largest automaker, on Wednesday announced record adjusted pre-tax profit for the second quarter of $ 4.1 billion. But the adjusted pre-tax profit of $ 1.97 per share is lower than the estimate of $ 2.23 from analysts polled by Refinitiv.
Part of the problem: GM’s warranty and recall expenses jumped $ 1.3 billion in the quarter. That included $ 800 million set aside to replace batteries in 61,000 models of its electric Chevrolet Bolt due to a fire hazard. Rising commodity prices haven’t helped either.
Actions of DG (DG), which had risen 39% year-to-date through Tuesday’s close, fell 7% at the start of Wednesday’s trading.
On the bright side, GM’s $ 34.2 billion in sales easily exceeded Wall Street estimates.
GM has also raised its guidance for the second half of the year, saying it expects adjusted pre-tax profit of between $ 11.5 billion and $ 13.5 billion, up from its previous forecast. between $ 10 billion and $ 11 billion. GM has also raised its earnings per share forecast for the same period.
This despite the shortage of computer chips which has hampered the production of cars throughout the industry and forced temporary production stoppages in some factories. GM acknowledged that the situation “remains fluid” and that “the global supply chain challenges continue.”
GM also said it expects higher commodity prices to cost the company between $ 1.5 billion and $ 2 billion more in the second half of the year compared to the first half of the year.
Demand for new cars has been exceptionally strong this year, especially in the United States. The company sold 1.8 million vehicles worldwide in the second quarter, despite production limitations caused by the chip shortage.
That’s an increase of 300,000 vehicles from the second quarter of 2020, when the pandemic and stay-at-home orders closed factories and dealerships and drastically reduced sales. But that’s 200,000 fewer vehicles than GM sold in the same quarter of 2019 before the pandemic.
While the prices of new and used cars have reached record highs, it is more advantageous for GM dealers – which are independently owned – than for GM itself. The company benefited from having to offer fewer incentives to buyers to purchase cars and the value of used vehicles that it took back when leases expired.