General Motors profit falls as Trump tariffs add $1.1 billion in costs

By David Welch

 

General Motors Co. said it suffered a $1.1 billion profit hit from Donald Trump’s tariffs and revealed no plan for a near-term fix to return to pre-tariff profit levels.

 

The Detroit-based automaker said Tuesday it earned $2.53 per share on an adjusted basis, above the Bloomberg consensus forecast of $2.33 but short of the $3.06 it made a year ago. GM’s profits also suffered from higher warranty costs and a buildup in inventory of electric vehicles, which are set to lose federal subsidies under Trump’s recently passed budget bill.

 

GM’s results showcase the difficulty automakers face to maintain profits in an environment that newly penalizes globally integrated parts supply chains and cross-border vehicle sales. Even though the automaker beat profit expectations, earnings in its all-important US business suffered from import duties on vehicles made in Canada, Mexico and South Korea.

 

 

GM hasn’t moved to raise already high average sticker prices enough to recoup tariff costs, instead opting to absorb the blow by cutting costs and repatriating some production. Chief Executive Mary Barra hinted at the challenges adjusting to the new reality in a letter to shareholders. 

 

“We are positioning the business for a profitable, long-term future as we adapt to new trade and tax policies, and a rapidly evolving tech landscape,” Barra said, noting an announcement in June to shift some production to the US from Mexico.

 

Shares of the carmaker fell 5.9 per cent to $50.07 as of 9:40 am in New York. 

 

GM grew US vehicles sales in the the quarter despite higher tariffs and achieved a second straight quarterly profit in China, which improved by $175 million over a year ago. But net income still declined 35 per cent to $1.9 billion compared with $2.9 billion in the second quarter of last year.

 

The carmaker said it can offset one-third of its $4 billion to $5 billion in tariff exposure later this year as more of its mitigation efforts begin to more fully take hold. But it also indicated that the toll from those trade levies may be higher in the current quarter than in the April-June period. 

 

In last month’s announcement, GM said it will invest $4 billion to add more production to factories in Michigan, Kansas and Tennessee. Part of that move includes building more small SUVs and large pickups in the US instead of Mexico.

 

The company kept its current full-year forecast for earnings before interest and taxes in a range of $10 billion to $12.5 billion. GM had slashed its 2025 outlook in May, cutting it from initial projection in January for earning as much as $15.7 billion this year.

 

Evercore analyst Chris McNally said in a research note to investors that unchanged forecast “may be the slight disappointment” to some investors who had hoped for an improvement.

 

Some non-tariff costs also hurt GM in the most recent quarter. The company said in April that it would recall nearly 600,000 trucks due to an engine defect, which contributed to $300 million in costs in the latest three-month period. 

 

It also built up EV inventory as it launched new models and worked to spur plug-in sales, but that added $600 million in costs as those cars lose money. Weaker pricing on fleet sales weighed on profits to the tune of $200 million.

 

All told, earnings before interest and taxes in GM’s North America business fell $2 billion in the quarter compared with the same period a year ago. Revenue fell 1.8 per cent to $47.1 billion, partly from weaker pricing.