Business

GM sideswiped by trade war; cuts outlook as prices rise

Diminished expectations overshadowed a strong second quarter at General Motors, sending shares of the automaker down more than six per cent Wednesday.
General Motors said Wednesday it expects 2018 per-share profits of $5.14, down from $6. It cited "recent and significant increases in commodity costs" along with unfavourable currency exchange rates (Mark Humphrey/Associated Press)

General Motors, facing rising commodity costs in a trade showdown with Europe and elsewhere, cut its outlook for the year.

The diminished expectations overshadowed a strong second quarter and shares tumbled 4.6 per cent. The rest of the auto sector was dragged down as well on Wednesday. The S&P 500 Automobile Manufacturers index dropped 2.8 per cent.

Quarterly profit rose 44 per cent to $2.39 billion, or $1.66 per share. A year ago, the company had a loss on the sale of its European Opel unit

Excluding charges, the Detroit company earned $1.81 per share, topping Wall Street expectations for $1.78, according to a poll by FactSet. Revenue was flat at $36.76 billion, falling short of Wall Street forecasts.

GM now expects 2018 per-share profits of $5.14, down from $6. It cited "recent and significant increases in commodity costs" along with unfavourable currency exchange rates. Wall Street had been projecting 2018 per-share earnings of $6.42.

"The pressure from commodity prices and foreign exchange rates has been more significant than our original expectations, said chief financial officer Chuck Stevens. "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."

President Donald Trump imposed steep tariffs on steel and aluminum coming out of Canada, Mexico and the European Union. The 25 per cent tariff on steel and 10 per cent tariff on aluminum, which took effect in June, have driven up costs sharply as domestic producer raise prices.

That, of course, is a major input cost for carmakers.

"Our biggest exposure, our biggest unmitigated exposure is really steel and aluminum when you look at all of the commodities," said Stevens. "And frankly, the biggest driver of that is steel."

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