On Sep. 2, General Motors (NYSE:GM) cut production at eight of its plants in North America. It blamed the chip shortage. GM could raise prices and sell the most profitable products first. As supply constraints worsen, GM’s profits will shrink.
GM will stop producing its profitable trucks in the month at various plants. It will also stop the production of SUVs and Cadillac at six other assembly plants. This will lead to unsold inventory until GM gets chips to complete the work. Investors holding GM stock should anticipate the stock underperforming the indices for a few weeks longer, at least.
Last week, Ford (NYSE:F) also shared negative news. Its U.S. retail sales fell by 39.6% in August. Most worrisome is the truck sales falling by 29.4% Y/Y. Still, electric vehicle sales rose by 67.3%, albeit on only 8,756 vehicles.
Ford does not have the pricing power to raise prices to offset lost revenue. Prices are already very high for the used car market. Consumers desperate for a new vehicle will pay a premium for a new vehicle. Once those who can afford them are absent, Ford can only wait for the chip shortage to get resolved. Unfortunately, the company did not diversify its suppliers, hurting output. Conversely, Toyota (TM) bet against a slowdown in demand during last year’s Covid-19 outbreak.
Ford stock is unchanged but could face selling pressure in light of the weak sales.