Detroit’s Big Three auto makers lowered their profit outlooks for 2018, and each said fallout from U.S. tariffs on steel and aluminum is weighing on their bottom lines.
For months, automotive executives largely sidestepped questions about how the metals tariffs might affect them. The second-quarter results issued Wednesday by General Motors Co. , Ford Motor Co. F -0.47% and Fiat Chrysler Automobiles FCAU -11.83% NV made clear the elevated costs will linger through the year and into 2019, shadowing a relatively healthy backdrop for U.S. auto sales.
GM and Ford each said rising commodity prices—primarily steel—shaved about $300 million from their second-quarter results versus a year earlier. Ford said nearly half of the hit was related to the metals tariffs, while GM executives blamed “market forces” that drove up costs.
Both companies buy almost all of their steel for U.S. production from domestic suppliers. But U.S. steel prices have increased in reaction to the 25% tariff on imported steel that the Trump administration announced in March, according to analysts. The steel tariff took effect June 1, along with a 10% duty on aluminum imports.
Steel accounts for about 53% of the material in a typical automobile and aluminum 11%, according to consultancy Ducker Worldwide.
FCA said it expects prices for commodities such as steel to continue to rise over the next year. Fixed-price contracts this year will help blunt the impact but the company is building higher-price expectations into its 2019 plan.
The auto makers cited other factors for their lowered profit forecasts, too. GM has been hit by currency devaluations in South America. Both Ford and FCA said they face struggles in China, where recently increased tariffs threaten to cut into future profits.
The rising commodity costs come as auto makers try to extend a long run of strong U.S. auto sales. The strong economy and job market have helped U.S. vehicle sales remain near record levels, while auto makers have benefited from a consumer shift toward larger—and more profitable—rides, such as pickup trucks and sport-utility vehicles.
Fiat Chrysler cut guidance on a number of targets for the full year, marking a rocky start to the tenure for new Chief Executive Mike Manley. The lower-than-expected earnings sent the company’s stock price sliding and came hours after FCA said former Chief Executive Sergio Marchionne had died of complications from surgery.
FCA said adjusted operating profit fell 11% to €1.66 billion ($1.94 billion) from €1.87 billion a year earlier, short of analysts’ consensus forecast of €2.1 billion. The auto maker cut its guidance for adjusted operating profit to between €7.5 billion and €8 billion, against a previous forecast of at least €8.7 billion.
GM’s adjusted operating profit fell 13% to $3.2 billion. The nation’s largest auto maker by sales reduced its 2018 earnings-per-share forecast to $6, from a range of $6.30 to $6.60. Shares in GM fell 4.6%.
The downgraded profit outlook signals a likely end to GM’s three-year string of record adjusted-operating profits, which totaled $12.8 billion in 2017. GM originally had forecast this year’s bottom line to be in the same range as last year’s.
“While we were expecting an end to earnings resilience, this is slightly worse than feared” for the quarter and 2018 outlook, Jefferies analysts said in a note to clients.
Ford’s second-quarter profit was cut nearly in half, to $1.1 billion, and the company lowered its full-year profit guidance to $1.30 to $1.50 a share, from $1.45 to $1.70. It also outlined plans for a broad, multiyear restructuring that could result in $11 billion in charges.
Ford’s China business swung to an operating loss of $483 million, from a $23 million profit a year earlier. Ford finance Chief Bob Shanks said the company’s product portfolio has grown stale in the world’s largest car market, which has hurt pricing and sales volumes.
Appeared in the July 26, 2018, print edition.