General Motors Co. has become the highest-profile American company to fall victim to Donald Trump’s trade wars, cutting its profit forecast this year on surging prices for steel and aluminum.
Adjusted earnings will drop to about $6 a share, down from a previous projection for as much as $6.50 a share, the Detroit-based company said Wednesday. Raw material costs probably will be a $1 billion headwind to profit this year -- roughly double GM’s previous expectation -- while the Argentine peso and Brazilian real are likely to drag on results through the remainder of 2018. The carmaker’s shares plunged in early trading.
The hit to GM’s profit underscores the risk that Donald Trump’s policies pose to automakers. While the U.S. president is moving to weaken fuel economy mandates, his tariffs on steel and aluminum -- and potentially on imported cars -- is undercutting what was shaping up to be a near-record year for an iconic American company that weeks ago was riding high on a $2.25 billion investment in its autonomous-driving unit.
GM had increased profit three years in a row, a streak punctuated by the record $6.62 a share earned last year. Record income in China, market share gains at home and strong results at its lending arm were positioning the company for more growth until those gains were spoiled by the surge in steel and aluminum prices linked to the U.S. slapping tariffs on the metals in June.
“Our execution continues to be strong,” Chief Financial Officer Chuck Stevens told reporters at GM’s headquarters. “We expect some of these headwinds to continue in the second half.”
GM shares dropped as much as 5.8% as of 8:01 a.m. in New York, before the start of regular trading. The stock was down 3.7% for the year through Tuesday’s close.
Second-quarter earnings dropped to $1.81 a share, beating analysts’ average estimate for $1.77 a share. Equity income from GM’s China business, bolstered by soaring sales for Cadillac and its local budget brand Baojun, climbed to $592 million and pretax profit from GM Financial was $536 million -- both records.
GM’s global vehicle sales fell 12% to 2.06 million in the three months ended in June, the lowest since the third quarter of 2010. Deliveries were flat when excluding Europe, a market the company abandoned by selling its Opel and Vauxhall brands to France’s PSA Group last year.
GM said the introduction of its all-important Chevrolet Silverado and GMC Sierra pickups are still on track, with initial deliveries of the redesigned full-size trucks starting early next month and arriving in showrooms in earnest in the fourth quarter.
Trump’s tariffs aren’t all that’s eroding GM’s profit. The automaker said that net revenue sustained an $800 million hit in the quarter because consumers bought a less-lucrative mix of vehicles. A lot of that stems from the company’s pickups being in the last year before a revamp, and customers are taking advantage of deals and buying less loaded models.
The weakening of the Argentine peso and Brazilian real also hurt revenue by about $100 million. Commodities other than metals also are getting costlier.
“Yes, steel and aluminum are being impacted -- as well as oil-based commodities, copper, resins, diesel prices,” Stevens said in a Bloomberg Television interview. “Market forces” have been “much greater than we expected as we entered the year.”
By David Welch
