Engines assembled as they make their way through the assembly line at the General Motors (GM) manufacturing plant in Spring Hill, Tennessee, August 22, 2019.
Harrison McClary | Reuters
The temporary plant closures range from a week or two to several additional weeks for plants that have already been idled due to the parts disruption. GM also will restart production Monday of midsize pickups after a two-week shutdown due to the shortage at a plant in Missouri.
The cost of the closures have been factored into the company’s earnings forecast for the year, according to GM. The automaker expects the problem will reduce its operating profit by $1.5 billion to $2 billion this year.
“We continue to work closely with our supply base to find solutions for our suppliers’ semiconductor requirements and to mitigate impact on GM,” GM said in an emailed statement. “Our intent is to make up as much production lost at these plants as possible.”
Semiconductors are key components used in the infotainment, power steering and braking systems, among other things. As multiple plants shut down last year due to Covid, suppliers directed semiconductors away from automakers to other industries, creating a shortage after consumer demand snapped back stronger than expected.
GM’s plant in Spring Hill, Tennessee will close beginning Saturday through April 23, according to a message from the United Auto Workers union to workers obtained by CNBC. The plant builds the GMC Acadia and Cadillac XT5 and XT6 crossovers. GM confirmed the shutdown.
In addition to that, GM said another crossover plant that produces the Chevrolet Traverse and Buick Enclave near Lansing, Michigan will be idled the week of April 19 and production of the Chevrolet Blazer at a plant in Mexico will also be canceled that week.
The company also is extending downtime at plants in Kansas and Canada that produce cars and crossovers through mid-May. They produce the Chevrolet Malibu sedan and Equinox and Cadillac XT4 crossover. Another plant in Lansing that produces the Chevrolet Camaro and Cadillac CT4 and CT5 also had its downtime extended by two weeks to the first week of May.
For months, GM has been prioritizing assembly of high-margin vehicles such as full-size pickups by cutting production of cars and crossovers. The company is even partially building pickups to complete and ship at a later date.
GM was forced to cut production of the Chevrolet Colorado and GMC Canyon midsize pickups for two weeks. Production of the smaller trucks is scheduled to restart Monday, according to GM.
Consulting firm AlixPartners estimates the chip shortage will cut $60.6 billion in revenue from the global automotive industry this year.
GM said it expects to earn $10 billion to $11 billion, or $4.50 to $5.25 per share, in adjusted pretax profits this year. It projects adjusted free cash flow of $1 billion to $2 billion for its automotive division in 2021. The forecasts factor in the potential impact of the chip shortage, including a hit of $1.5 billion to $2.5 billion to its free cash flow.
GM CFO Paul Jacobson said last week he was “increasingly confident” the automaker would hit its earnings targets for the year despite the plant closures.