GM misses earnings expectations but boosts outlook

GM, the nation's largest automaker, reported Wednesday a record adjusted pre-tax profit of $4.1 billion for the second quarter. But adjusted pre-tax earnings of $1.97 per share fell short of the $2.23 estimate from analysts surveyed by Refinitiv.

Part of the problem: GM's warranty and recall expenses jumped by a shopping $1.3 billion in the quarter. That included $800 million set aside to replace the batteries in 61,000 models of its electric Chevrolet Bolt because of a fire risk. Increased commodity prices didn't help either.

Shares of GM, which had risen 39% year to date through Tuesday's close, fell 7% in early trading Wednesday.

On the positive side, GM's $34.2 billion in sales easily topped Wall Street's estimates.

GM also raised its guidance for the second half of the year, saying it expects adjusted pre-tax earnings of between $11.5 billion and $13.5 billion — up from its previous outlook of between $10 billion and $11 billion. GM also raised its earnings per share forecast for the same period.

That's despite the computer chip shortage that has hampered production of cars across the industry and forced temporary production halts at some factories. GM acknowledged the situation "remains fluid" and that "overall supply chain challenges continue."

GM also said it expects higher commodity prices will cost the company between $1.5 billion and $2 billion more in the second half of the year compared to the first half.

Demand for new cars has been exceptionally strong this year, particularly in the United States. The company sold 1.8 million vehicles worldwide in the second quarter, despite the limitations on production caused by the chip shortage.

That's an increase of 300,000 vehicles compared to the second quarter of 2020, when the pandemic and stay-at-home orders shut factories and dealerships and greatly reduced sales. But it's 200,000 fewer vehicles than GM sold in the same quarter of 2019 before the pandemic.

While prices of both new and used car prices have reached record levels, that's more beneficial to GM dealerships — which are independently owned — than to GM itself. The company did benefit from having to offer fewer incentives to buyers to purchase cars, and in the value of the used vehicles it took back when leases expired.

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