[DETROIT] General Motors cut its full-year profit outlook citing as much as US$5 billion of exposure to auto tariffs, among the biggest financial hits revealed by any company so far from President Donald Trump’s trade war.
The automaker now expects earnings before interest and taxes to fall into a range of US$10 billion to US$12.5 billion, down from its initial guidance in January of as much as US$15.7 billion. The reason, according to a letter on Thursday (May 1) to shareholders from chief executive officer Mary Barra, is the toll from tariffs.
GM lowered its guidance even after Trump issued what he’s characterised as relief for automakers by lowering some levies on imported vehicles and parts. Even so, GM expects a hit to profit this year unless trade deals are cut that would reduce the automaker’s exposure.
“We look forward to maintaining our strong dialogue with the administration on trade and other policies as they continue to evolve,” Barra said in the letter. “As you know, there are ongoing discussions with key trade partners that may also have an impact. We will continue to be nimble and disciplined and keep you updated as we know more.”
Just two days ago, GM pulled its guidance and postponed an earnings call with analysts, saying it needed to see more tariff details from the Trump administration.
Tariff relief
Trump signed two executive orders on Tuesday that reduced his initial tariffs on vehicles and parts. The first executive order gave vehicles a reprieve from separate tariffs on aluminium and steel, so levies and parts and metals would not be compounded.
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He also changed the 25 per cent tariff on imported auto parts that takes effect on May 3. Carmakers who produce and sell completed automobiles in the US can claim an offset worth up to 3.75 per cent of the value of American-made vehicles.
That offset will reduce in one year to as much as 2.5 per cent of the value of those cars, and then be eliminated the following year. The offset will be available for cars that were produced after Apr 3.
Automakers still face a 25 per cent duty on imported vehicles, which hurts GM because it makes several popular models in Canada, Mexico and South Korea. The company has a plant each in Canada and Mexico making its profitable and top-selling pickup trucks. Its most affordable models, the Chevrolet Equinox family SUV and Chevy Trax compact SUV, are also made outside the US.
The automaker has been working to reduce its exposure to tariffs and lower the impact on profit. One move: increasing pickup truck production at a plant in Indiana to meet demand with fewer trucks that are hit with tariffs.
The company said in presentation slides released Thursday that it expects to defray at least 30 per cent of its tariff exposure through US production offsets.
GM said on Apr 29 that it beat Wall Street estimates with a profit of US$2.78 a share, but profits fell due to lower truck production and foreign exchange costs.
The company also moved to preserve cash. GM cut capital spending in the first quarter by US$900 million to US$1.8 billion. BLOOMBERG
