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General Motors (GM) Slashes Truck Production Amid Chip Dearth

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General Motors (GM - Free Report) recently announced the decision to abort the production of most of its full-size pickup trucks in North America amid the ongoing global semiconductor supply crisis plaguing vehicle production.
The auto giant noted that its Flint Assembly plant in Michigan that develops the Chevrolet Silverado HD and GMC Sierra HD pickups will run for only one production shift during the week of Jul 26.

Also, the automaker’s Fort Wayne Assembly plant in Indiana that builds the Chevrolet Silverado 1500 and GMC Sierra 1500 model trucks will halt production the entire next week. The company’s Silao Assembly plant in Mexico that also manufactures the Chevrolet Silverado 1500, Cheyenne and GMC Sierra 1500 will also cease production next week.

All three plants are expected to restart regular production starting the week of Aug 2.

Semiconductors are silicon chips that perform control and memory functions, and are indispensable components of high-performing computer chips that power electronic devices like computers, mobile phones and other gadgets. With vehicles on the road becoming more like computers on wheels, automobiles are vastly automated, and require semiconductors for various applications, like engine controls and automatic braking systems.

When the pandemic hit the economy, the auto sector bore severe brunt of the crisis, with auto sales hitting rock bottom in the second quarter of 2020. Amid the tanking auto sales, semiconductor manufacturers shifted their production capacities to other sectors, such as consumer electronics.

Nonetheless, with the global economy gradually recovering from the mayhem caused by the pandemic, auto sales managed to rebound faster than anticipated, especially in China, the world’s largest car market. This encouraged major automakers to ramp up production and replenish weak inventories at dealerships.
However, semiconductor makers have been unable to meet the surging demand for automotive semiconductors and will take months to realign production to cater to this upswing in demand. This has caused a shortage of semiconductors in the auto sector and has proven to be a speed-bump for automotive sales. Reportedly, the ongoing semiconductor chip shortage is expected to hit revenues from the global automotive industry to the tune of $110 billion in 2021.

Like most other automakers, General Motors was hobbled by this semiconductor chip dearth, used in various car parts, since the first part of the current year. This had earlier forced the automaker to temporarily halt production across several plants in North America.

Nonetheless, the automaker was able to successfully navigate the chip crunch, as was evident by the company’s plans to ramp up production and deliveries of nearly all its vehicles, announced in June. General Motors was able to bring nearly all of its assembly plants back to operation by diverting the scarce chip parts to the vehicles that are in the highest demand and generate the biggest profits.

Nevertheless, this latest production suspension will prove to be a speed-bump for production and deliveries of General Motors’ most profitable trucks, and will most likely adversely impact the automaker’s earnings. Besides, it is a sign that the supply-chain woes could take longer to wane out than previously anticipated.

Other automakers scrambling with this supply-chain issue include Ford (F - Free Report) , Toyota (TM - Free Report) and Honda (HMC - Free Report) .
General Motors currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.