General Motors is taking aggressive steps to get tens of thousands of vehicles awaiting parts to consumers quickly and the automaker is remodeling its supply chain to protect the company from future economic or supply challenges.
GM CFO Paul Jacobson said Tuesday that the automaker is "trying to be very cautious, but not alarming, in terms of what we see as potential headwinds down the road."
Jacobson, who spoke during the JP Morgan Auto Conference 2022 held virtually, said the global shortage of chips hit GM harder than expected last quarter and at a bad time, causing the automaker to hold back 95,000 new vehicles from delivery until chip parts arrived to complete their production.
As a result, GM's second-quarter earnings came in about 39% lower than the year-ago period largely due to the production disruptions. Jacobson assured Wall Street in late July that GM would complete and deliver those 95,000 vehicles, many of which are high-profit pickups and SUVs, to dealers by the end of the year.
"We’re leaning in very, very aggressively to get those vehicles to market because the demand is there," Jacobson said. "We need to get them in customers’ hands."
Unexpected big hit
The chip shortfall was a matter of "unfortunate" timing, Jacobson said.
"While we were expecting there to be some vehicles built without certain chips, we didn’t expect the volume to be that high and hit us late in the quarter," he said.
Since then, GM has made "tremendous progress" in getting the parts to finish those vehicles, clearing out 20,000 of them last month, Jacobson said.
GM is prioritizing which plants and products get first access to chip parts, he said. GM also is spending "a lot of money" on priority freight, expedited freight and air shipping to keep the production line full, he said.
"As the economy normalizes, whether we go into a recession or not, there’s a lot of cost pressures in the system that we’ve been dealing with that I think will start to work their way out as we get into 2023, 2024 and if we see an economic slowdown," Jacobson said.
Fewer chips, more partnerships
Longer term, GM is focused on requiring fewer chip parts and controlling how it gets the parts it does require.
"We’ve taken the step of reducing the number of chip families by 95% that are going to go into the vehicles," Jacobson said. "We think by the middle of the decade we’ll have three chip families and we’ll go all the way down the manufacturing tier to make sure that we’re helping to control the production of the chips and partnering with the chipmakers themselves."
GM CEO Mary Barra first outlined the strategy last month in an interview with Associated Press. The idea is rather than letting suppliers buy or make the chips for GM, by 2025, GM will control the situation.
GM will acquire the chips in bulk through chipmaking partners, assuring the supply won't be interrupted. There will be fewer chips, able to do multiple tasks, on the vehicle, thereby eliminating a need for dozens of chips for each car.
"The simplification is going to be tremendously beneficial to us as we look to scale and look to get more consistency in the supply chain over the longer term," Jacobson said. "We’ve applied many of those lessons to battery raw materials."
During GM's second-quarter earnings, it announced that it inked three new supplier agreements to help secure raw materials for the batteries needed to make the 1 million electric vehicles GM plans to produce by the end of 2025. It plans to sell a fully zero-emissions lineup by 2035.
The three new supplier agreements will give GM access to lithium, nickel, cobalt and Cathode Active Material (CAM) used in EV batteries. LG Chem will supply GM with 968,000 tons of cathode material between now and 2030, enough to build 5 million EVs.
Chemical manufacturer Livent will provide significant quantities of lithium for high-performance EVs. POSCO Chemical will provide a near-term supply of CAM from its South Korean operations from 2023 to 2025. CAM is a key battery material consisting of processed nickel, lithium and other materials. It makes up about 40% of the cost of a battery cell.
This article originally appeared on Detroit Free Press: GM CFO says supply plan will keep production going even in a downturn