Economy

Automakers Slammed by Trump’s Trade War, Expensive Metal

JM Ashby
Written by JM Ashby

Detroit's "big three" General Motors, Ford, and Chrysler all lowered their economics forecasts yesterday while pointing fingers directly at Trump's trade war.

Profits have dropped significantly because the price of metal is soaring under Trump's tariffs and what makes this all the more remarkable is the fact that Trump has barely even started.

From the Wall Street Journal:

“With regard to our total company outlook for the full year, the pressure from commodity prices and foreign exchange rates has been more significant than our original expectations,” Chief Financial Office Chuck Stevens told analysts on the company’s earnings call, according to a FactSet transcript.

“While we’ve been able to offset some of the headwind, the challenges have been greater than anticipated, and we expect approximately a $1 billion net headwind versus our original guidance."

General Motors (and probably other automakers as well) are reportedly planning to raise prices to compensate for the higher cost of commodities (metal) and the drop in sales they're seeing in China as a result of retaliatory tariffs.

GM would partially offset the commodity hit by negotiating price reductions with suppliers, raising prices on more popular models, and cost cutting, [Chief Financial Officer Chuck Stevens] told analysts.

Ford said tariffs could cost it up to $1.6 billion in 2018 in North America.

The automaker has also been hit by a 22 percent sales drop in China through May of this year and is seen as unlikely to be able to raise prices to offset tariffs there on U.S.-made vehicles, especially its luxury Lincoln models.

If automakers have underestimated the cost of Trump's initial round of tariffs on steel and aluminum, that seems like reason to believe we may all be underestimating the cost of his coming tariffs on actual cars and car parts.

Automakers and industry analysts have issued dire warnings about imposing tariffs on all foreign cars and parts and, more specifically, they say it would raise the average cost of popular cars, trucks, and minivans by thousands of dollars. That doesn't include the increase in price that we're going to see starting today.

Trump's happy talk with European Commission President Jean-Claude Juncker doesn't change the fact that this is happening right now and there's no indication it's going to stop anytime soon. It could get much, much worse.

I don't like alarmist rhetoric but I don't think most people understand where his could lead because most people have never seen anything like it. They're very far from perfect, but our trade deals have prevented something like this from happening for decades. Electing relatively normal politicians to the office of the presidency has prevented something like this from happening.

If you want to be optimistic, you might say it's a good thing that Trump is giving average Americans a lesson in basic economics and trade, albeit unintentionally. Trump is a case study in what not to do.

Polls show an almost complete inverse of public support for trade over the past year.

  • muselet

    When carmakers stop supporting, even rhetorically, R candidates, then and only then will I believe they give a monkey’s about earnings, share prices or their own corporate survival.

    Yes, Ds will regulate the industry—requiring, for example, significantly reduced fleet fuel consumption and carbon dioxide emissions—in ways the companies won’t necessarily like too much. On the other hand, a D-led government is far less likely to destroy the world economy in a fit of pique.

    I’m not holding my breath until Corporate America figures this out.

    –alopecia

    • Greed can be blinding. They only care about short term profits and could give a fig about long term stability and steady growth.

  • katanahamon

    Simple. Bail them out too..then cut taxes, then enact more tariffs, then bail whoever gets hurt out. Then, the world economy crashes, and guess what? The one percenters who are responsible for this won’t give a shit because they have so much money, you and I can’t even conceive it. Maybe then Susan Sarandon will be happy. She too will be just..fine.

  • ninjaf

    We have a GM vehicle lease that is up next year. If prices are still high, I guess we’ll take the buy out option instead of purchasing another lease on a vehicle assembled in Hamtramck, Michigan (the Chevy Volt; our second, by the way) by UAW workers. I hope those UAW workers who voted for this have their “economic anxiety” eased now.

  • Aynwrong

    Given enough time, I suspect many an American corporate titan will be secretly longing to return to the halcyon days when the country was run by the secretly Muslim, but also rabidly atheist, black crypto-socialist from Kenya.

    • But this points to something else that I still don’t get. The Market seems to be running okay. I’m not seeing that the “titans” are unhappy or hunkering down for a Recession. Are they being Pollyannas or did I miss something?

      • Aynwrong

        You make a good point. They might very well be seeking to potect themselves from the inevitable economic downfall as well as planning as to how to best exploit a disastrous situation to their own ends in which case, they’re just sociopaths.

  • Badgerite

    The obvious problem with the bail out package for farmers is that it would be a one time thing. Crops are grown every year in reliance on finding a market. What tariffs are doing is shifting markets away from US products. And those shifts could very well become permanent. Markets really do not like unpredictability. This is stupid. They are taking a healthy economy and destroying it.

    • ninjaf

      See also: past Republican administrations like G.W. Bush.

      This is nothing new for them; it’s just usually not so blatantly stupid.

      • Badgerite

        The “fundamentals are” NOT “sound”.

    • Not to mention two other important facts. First, once those markets are gone, they’re gone. If they get any markets back, history shows they will only get 80%, at best, back. So even if we ended this all tomorrow they’re looking at a 20% loss on their markets and that’s significant. Second, the one time bailout isn’t enough to cover already sunk costs, much less provide a buffer for what happens in the next quarter.

      • Badgerite

        If we know stuff like this, how is it that trump does not? His rural voters surely know this. Liberal tears my *ss. They voted to screw themselves.
        Some of them will go out of business entirely.

        • I presume that was a rhetorical question as the obvious and true answer is “Trump is an idiot.”

        • And deservedly so

          • Badgerite

            I would have thought that was a little harsh a couple of months ago but their support of someone who literally adopts a policy of child abuse and kidnapping practiced on those seeking asylum in the US
            changed that.