Big Three automakers release earnings reports for third quarter of 2021
Last week, the “Big Three” US automakers, General Motors, Ford and Stellantis, issued their financial reports for the third quarter. Earnings across the board dropped year over year, though some did beat analysts’ expectations, pointing to the major impacts that the labor shortage and disruption to global supply chains continue to have on the automotive industry worldwide.
GM recorded gross profits of $3.79 billion for the third quarter ending on September 30, with total revenues of $26.78 billion for the quarter. Profits have dropped 40 percent year over year, according to the Detroit Free Press. GM’s revenues, while still enormous, reflect a 25 percent drop from the third quarter of the previous year. Despite this, GM’s third quarter earnings beat Wall Street’s expectations.
General Motors’ stock rose to $54.43 at the close of markets on Friday, inching up to its 10-year high of $59.31 in June 2021. This is up from the 10-year low of $22.29 from the near collapse of the stock market in early 2020 at the start of the pandemic, before the passage of the multitrillion-dollar CARES Act bailout.
Ford’s earnings per share was 51 cents in the third quarter, nearly double analysts’ expectations of 27 cents. Ford’s stock jumped after the news to $17.08 Friday, its highest level since 2014. Auto revenue also slightly beat expectations at $33.21 billion compared to an expected $32.54 billion.
However, Ford’s revenue is still 5 percent below the level from the third quarter of 2020, and pretax adjusted earnings were $3 billion last quarter compared to $3.6 billion last year. Still, Ford announced Wednesday that, beginning in the fourth quarter, it would reinstate its regular dividend, which it had suspended beginning with the onset of the pandemic.
In its report, Ford noted stronger sales for its Bronco SUV and Mustang Mach-E, an electric vehicle. However, Ford’s sales and market share for its Ford and Lincoln brands are at their lowest levels in 6 years, according to Cox Automotive.
Stellantis, the company formed out of a merger between US-Italian automaker Fiat Chrysler and French automaker PSA in January 2021, reported net revenues of $37.8 billion in the third quarter, a 14 percent drop from what the two companies reported in revenues from the same quarter last year. It also reported 1.1 million vehicle shipments in the third quarter, a 27 percent drop compared to last year, according to the Detroit Free Press. The global semiconductor chip shortage caused planned production to drop up to 30 percent at Stellantis plants worldwide.
Richard Palmer, Chief Financial Officer for Stellantis, said in a press release last week that the corporation’s revenues “reflect the success of our recent vehicle launches, including new electrified offerings, combined with significant commercial and industrial actions executed by our teams in response to unfilled semiconductor orders.”
All major US automakers are investing more and more resources in electric vehicle (EV) production, with the overall aim of cornering the market to compete with production from China and dominate the global market. Ford, Stellantis and GM have all released electrified models over the past two years, and last month Stellantis unveiled plans to set up four new EV platforms to support production of 2 million vehicles per year.
GM CEO Mary Barra told the New York Times that its joint battery venture with LG would start up production next year in Ohio. Ford CEO Jim Farley announced Wednesday that Ford planned to “simplify the technology” of its BlueCruise hands-free highway driving system, delaying its rollout to the beginning of next year. His reason for the delay was that Ford needed to “catch up” to major EV competitors GM and Tesla, according to CNBC.
Yet obstacles to electrification efforts exist in the ongoing microchip shortages and disruption to global supply chains, themselves the economic consequences of the subordination of pandemic policies on the part of capitalist governments to private profit. But it is the working class who have been made to pay for disruptions to production in the form of wage and job cuts, speedup, longer workdays and more dangerous conditions.
All of the Big Three automakers have alternated shutting down and ramping up production since the global supply shortage began. It is notable that most production shutdowns were due not to the spread of COVID-19, which has killed dozens of autoworkers in the US alone, but due to a shortage of irreplaceable parts.
In a UAW memo circulated at the Stellantis Belvidere Assembly Plant in Belvidere, Illinois, which builds Jeep models, workers were told that they must work 60 hours per week through the end of this year. The plant has operated off and on since February 2021 and has laid off two shifts, leaving the plant operating with one shift only. When workers have been laid off, many have struggled to collect unemployment benefits from the state and have found no better recourse through the United Auto Workers.
Workers at several other plants worldwide have experienced similar patterns of production shutdowns and layoffs followed by brutal levels of forced overtime. Stellantis announced in October that it would lay off 1,800 workers at its Windsor, Ontario plant in Canada, where it had rotated shutdowns due to the chip shortage earlier this year. In India, Ford has plans to shut down all of its car-making operations in the country, leaving 4,000 workers and their families in the dust. Meanwhile, Sterling Heights Assembly Plant near Detroit has been placed on “critical status” until the Christmas holiday, with workers liable to work seven days a week for 90 consecutive days.
All of the major US carmakers expect the chip shortage to affect production and financial gains well into 2022, with Ford predicting that it could affect its production through the beginning of 2023, according to CNBC. Notably, GM, Ford and Stellantis all pointed to rising car prices as an earnings driver in the face of production stoppages. In the US, the Consumer Price Index, which measures inflation of consumer goods, has stood at over 5 percent since at least July.
Companies are doing whatever they can to increase supply to make up for shortages. But perhaps the most important issue confronting auto executives is fear of opposition from the working class, such as that which forced a shutdown of global Big Three operations in March 2020. More than 10,000 workers at John Deere agricultural and construction equipment manufacturing plants in the US are currently on strike, part of a broader push by workers in the US and around the world to demand wage increases that keep pace with inflation, better working hours and safer working
conditions
US records lowest growth rate in pandemic “recovery”
The latest data from the US Commerce Department, showing gross domestic product grew at an annual rate of only 2 percent in the third quarter, down from 6.7 percent over the previous three months, is part of a global trend.
The US slowdown comes in the wake of lower growth in China, where third quarter growth fell to 4.9 percent year on year—an increase of only 0.2 percent on the previous three months—and the announcement earlier this week by the German government that it was cutting its forecast for growth this year from 3.5 percent to 2.6 percent.
This means that the world’s first, second and fourth largest economies respectively have all reported lower growth this month.
The situation is no better in the world’s third largest where the Bank of Japan this week revised down its growth estimate for the year to March 2022 from 3.8 percent to 3.4 percent. Over the longer term it said potential economic growth was “around zero or slightly positive.”
The US growth figure of 2 percent in seasonally adjusted terms was the lowest since the recovery from the pandemic recession and was well below economists’ forecasts of a 2.7 percent increase.
The main factor in the decline was the fall in consumer spending which rose at an annual rate of just 1.6 percent for the quarter compared to an increase of 12 percent in the second. Behind this was a 9.6 percent decline in consumer goods purchases which has been attributed to supply chain problems.
New vehicle sales fell by an annual rate of 68.1 percent, furniture sales dropped by 15.4 percent and sales of household appliances were down 17.7 percent. Services spending rose at an annual rate of 7.9 percent compared to an annual increase of 11.5 percent in the previous quarter.
Business spending on capital equipment also showed a decline. It fell at an annual rate of 3.2 percent in the September quarter, largely because of reductions in spending on technical equipment and transportation.
As the US economy shows signs of slowing, inflation continues to rise. The consumer price index rose by 5.4 percent in September and shows no sign of abating. When prices began to rise as a result of increased commodity prices, particularly for oil and energy, and as a result of supply chain problems, Fed chair Jerome Powell insisted the surge would be “transitory.”
But confronted with economic reality, Powell has had to adjust his assessment. Speaking at a virtual conference last week, he said: “Supply-side constraints have gotten worse. The risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation.”
The Fed’s greatest concern is that the rising inflation will further fuel the developing upsurge in the working class. Powell repeated previous assurances to Wall Street that “no one should doubt that we will use our tools to guide inflation back down to 2 percent.”
The surge in inflation and the development of bottlenecks across the economy is being blamed on the effects of the pandemic.
But a different perspective was provided in a comment piece published in the Financial Times earlier this month by Jeff Currie, the head of commodities research at Goldman Sachs.
He wrote that apart from some labour issues the present bottlenecks “have little to do with COVID.” The roots of the “commodity crunch,” he continued, could be “traced back to the aftermath of the financial crisis and the following decade of falling returns and chronic under-investment” in what he called the old economy.
This was a direct result of the policies pursued after the global financial crisis of 2008 when the Fed, via its quantitative easing (QE) program, supported financial markets.
“Lower-income households faced sluggish real wage growth, economic insecurity, tighter credit limits, and increasingly unaffordable assets. Higher-income households, on the other hand benefited from the financial asset inflation caused by QE.”
This disparity in incomes hit the old economy hard. As lower-income demand fell so longer-term investment declined “in favour of short-cycle ‘new economy’ in investment in areas such as technology.” Currie did not refer to it, but he could have pointed to the massive amounts of capital that were diverted to speculation on stocks and other financial assets as well as share buybacks.
His conclusion was that “as infrastructure aged and investment waned, so did the old economy’s ability to supply and deliver the commodities underpinning many finished goods” and, after years of neglect, phenomena such as rising gas prices and copper shortfalls could be described as its “revenge.”
The European economy is also being gripped by the same forces—rising inflation and supply bottlenecks. In her press conference following a meeting of the European Central Bank’s governing council on Thursday, ECB president Christine Lagarde acknowledged these factors would remain longer than expected.
She maintained, however, that price rises were temporary as she pushed back against pressure to raise interest rates. At 4.1 percent, the annual rate of inflation in the euro zone is at its highest level in 13 years and in Germany it reached 4.6 percent this month, the highest since 1993.
In Spain the inflation surge is even stronger with prices rising at an annual rate of 5.5 percent in October, the biggest increase in almost three decades and a full percentage point above predictions by economists.
Rising energy prices, which have gone up by 18.6 percent, according to the German statistical agency, are cited as the main reason for the overall surge in consumer prices.
Lagarde said the ECB’s discussions have been focused on “inflation, inflation, inflation” and the governing council had done a lot of “soul searching” to test its analysis that it would subside.
Financial markets are already pricing in higher levels. However, Lagarde said the ECB analysis did not support raising interest rates next year “nor anytime soon thereafter.”
This stand is being driven by the fear that any interest rate rise could choke off the recovery in the euro area economy. Lagarde said while the economy continued to recover “strongly,” momentum had “moderated to some extent.”
Despite the ECB’s efforts to maintain stimulation, it may be overwhelmed by market movements. Questioned about ECB policy in the light of moves for rate tightening by the Canadian, New Zealand and UK central banks, Lagarde said such comparison were “odious” and the outlook was different in Europe.
As she spoke, financial markets, increasingly sceptical of the claim that inflation is a passing phase, were giving a different message. A comment in Bloomberg noted that the yields on five-year Italian bonds have surged in the past weeks and reached their highest level in more than a year.
The ECB, like other central banks, seeks to give the impression that it has the economy in hand but the surge in inflation, the result of forces beyond its control, is making that much more difficult.
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