General Motors to deploy ‘Covid playbook’ to offset $5bn tariff hit

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General Motors has said it will pull out its “Covid playbook” to offset an up to $5bn hit from President Donald Trump’s sweeping tariffs with cost cuts, as it slashed its annual profit guidance for the year.

In a letter to shareholders on Thursday, the US carmaker said it now expected to report annual adjusted earnings of between $10bn and $12.5bn before interest and taxes, compared with a previous range of $13.7bn to $15.7bn.

Just two days earlier, the company had pulled its guidance and temporarily suspended share buybacks due to the uncertainty surrounding the US trade policy, marking the latest carmaker to either abandon or cut its outlook in recent days.

GM’s warning of a tariff exposure of between $4bn and $5bn — including $2bn for vehicles imported from South Korea — came even after Trump offered some relief to the car industry earlier in the week by sparing auto companies from some of his steepest levies.

The company said it planned to offset 30 per cent of the $5bn exposure by making more of its cars, battery modules and other components in the US, rather than by raising prices. It also plans to make its electric vehicles more cost effective, while continuing to invest in petrol cars.

“The environment remains fluid,” said chief financial officer Paul Jacobson.

He added that GM would reduce non-essential spending while making sure not to cut too much: “We’ve pulled out the Covid playbook. [But] we don’t want to panic.”

Carmakers have struggled to keep pace with the frequent changes in tariff policy, and profits have fallen during the first quarter even before the full force of the 25 per cent levies on imports of foreign-made vehicles has taken effect. US motorcycle maker Harley-Davidson pulled its guidance on Thursday following similar moves by Stellantis and Mercedes-Benz a day earlier.

In a speech in Michigan on Tuesday, Trump offered small rebates to carmakers that produce their vehicles in the US to offset the costs of his broader levies, as well as an exemption from the administration’s tariffs on steel and aluminium for imported parts.

“There are trade discussions going on with very important trading partners. We’re going to monitor how that situation goes,” GM’s chief executive Mary Barra told investors.

Shares in GM were up 2 per cent in morning trading in New York.

The rebates announced by Trump apply to US-assembled vehicles, while GM makes about half the vehicles it sells in the US in Mexico and Canada, including its popular Chevrolet Silverado pick-up truck.

Components from Mexico and Canada that are compliant with the rules of the 2020 USMCA trade agreement will remain tariff-free. Non-compliant vehicles will face a maximum tariff of 25 per cent.

Barra said 80 per cent of the parts used in GM’s US-assembled vehicles are compliant with USMCA, while all of its vehicles built in North America are also compliant.

To mitigate the tariffs, GM has said it plans to increase production of full-size pick-up trucks at its assembly plant near Fort Wayne, Indiana, by about 50,000 units a year. “We are developing plans to further increase US vehicle production,” Barra said.

On Tuesday, GM reported adjusted earnings of $3.5bn before interest and tax in the first quarter, down 9.8 per cent year on year, on a 2.3 per cent rise in revenue to $44bn — slightly higher than the average analyst estimate, according to S&P Capital IQ.