Backseat driver throws GM into lower gear
Detroit’s engine is pushing into overdrive. General Motors on Tuesday blamed President Donald Trump’s tariffs for a $1.1 billion increase in quarterly expenses, triggering a 7% loss of market value. Standard ways of offsetting the burden, such as price hikes, are tapped out while boss Mary Barra’s costly electric-vehicle strategy is kicking into gear at just the wrong time. The last thing she needs is a backseat driver in Washington.
Barra could be forgiven for no longer knowing what normal looks like. From strikes in 2019 to the Covid-19 pandemic to yet more labor unrest and now historically high tariffs, GM has run into seemingly endless obstacles. It also benefited along the way: as supply and demand moved out of whack, sale prices jumped nearly 14% during 2021 alone, according to research outfit Cox Automotive. Government support enacted under President Joe Biden also paved the way to catch up with Tesla in battery-powered vehicles.
Those promising conditions are now fading fast. Prices have broadly flatlined as consumers reach their spending limits. The Trump administration is yanking electric subsidies. Even Tesla is now probably losing money in its core business, Morgan Stanley analysts reckon. The White House imposed levies on auto-related imports that it promised would raise enough revenue to seemingly wipe out the industry’s profit.
The damage is steep. Some $1.1 billion in extra costs from tariffs were a big reason that GM’s adjusted operating profit tumbled 32% year-over-year to $3 billion in the second quarter. The company expects an up-to $5 billion impact from the levies for the year. Even if it can offset 30% of the total, as Barra forecasts, it means a $1 billion quarterly cost will be added to the new baseline.
Those prospective mitigations also involve tough operational challenges, including new U.S. production capacity. At least GM is now the main domestic challenger to Tesla, after more than doubling sales in a year to grab nearly 16% of the market, according to the company.
A $600 million hit from inventory adjustments on EVs indicates that GM keeps losing money, while Barra’s team warns on sales prospects. Long-term U.S. demand is also hard to gauge with incentives expiring. Trump is at least easing some of the regulatory burden for profitable gas guzzlers. Most of his involvement, however, is painfully unhelpful.
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CONTEXT NEWS
General Motors said on July 22 that it suffered a 32% slump in second-quarter operating profit, to $3 billion, from the same period a year earlier, largely blaming tariffs on imported vehicles and auto parts for a $1.1 billion increase in costs. The carmaker also reported a 2% decrease in revenue, to $47 billion.
Both the top line and operating profit, adjusted for interest income and expense, along with one-time charges, exceeded what analysts had anticipated, according to estimates compiled by Visible Alpha.
GM said it expects the impact from tariffs to be higher in the third quarter, but that it remains committed to mitigating 30% of projected full-year costs between $4 billion and $5 billion.
