General Motors Co. cut its full-year profit outlook due to as much as US$5 billion ($6.53 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.
Trump earlier this week 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," Chief Executive Officer Mary Barra said Thursday in a letter to shareholders. "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 suspended its guidance and postponed an earnings call with analysts, saying it wanted to wait for the Trump administration to announce more tariff details.
GM's shares slipped 0.3% at 9.34am in New York. The stock has fallen 15% this year. Analysts at Barclays Plc said the guidance was "better than feared."
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Tariff relief
The company said it expects to defray at least 30% of its tariff exposure through US production offsets. Its guidance assumes current car pricing remains relatively consistent for the remainder of the year.
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.
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The company also moved to preserve cash. GM cut capital spending in the first quarter by US$900 million to US$1.8 billion.
GM said on April 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. Barra told analysts on the rescheduled earnings call Thursday that tariffs had a "small impact" on first-quarter results.
Trump signed two executive orders 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 wouldn't be compounded.
He also changed the 25% tariff on imported auto parts that takes effect on May 3. Carmakers that produce and sell completed automobiles in the US can claim an offset worth up to 3.75% of the value of American-made vehicles.
That offset will reduce in one year to as much as 2.5% of the value of those cars, and then be eliminated the following year. The offset will be available for cars that were produced after April 3.
Automakers still face a 25% 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.
