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Inflation Cuts Both Ways for GM


Inflation in vehicle prices has been very helpful for car makers lately. Now investors are seeing the flip side of the coin.

General Motors reported underwhelming second-quarter results Wednesday. First-half adjusted operating profits came in at $8.5 billion, a postbankruptcy record but at the bottom end of the range it indicated as recently as mid-June. The company raised its guidance for full-year profits, but to below where most analysts’ forecasts now sit. The stock fell about 8% in morning trading.

The most disappointing quarterly number was arguably the 10.4% adjusted operating margin in the all-important North America region, down from 12.1% in the first quarter. Vehicles have been sparse on dealer lots due to the microchip shortage, leading to a surge in prices that showed up clearly in GM’s revenues. But higher costs ate away the benefit.

One reason was a big charge associated with product recalls, notably $800 million for the Chevrolet Bolt electric vehicle. The company discovered a battery defect in the 2017 to 2019 model years that can cause fires. The unexpected cost highlights one of the less-discussed financial risks associated with the industry’s embrace of fast-evolving EV technology.

Another reason for the cost increase was inflation in raw-material prices, notably steel and platinum-group metals. Unlike the recall, which is hopefully a one-time effect, this is a continuing headwind. GM Chief Financial Officer Paul Jacobson told analysts that commodity costs would be $1.5 billion to $2 billion higher in the second half than in the first.

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