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ECONOMY | 25-07-2018 13:55

GM cuts 2018 profit forecast, citing trade war, slumps in Argentina and Brazil

The company cited significant increase in commodity costs, as well as the sinking valuation of the Argentine peso and Brazilian real that have marred its sales outlook in those markets.

General Motors cut its full-year profit forecast on Wednesday, in part due to higher commodity costs as it amplified its warning that mushrooming trade conflicts could dent US and global car sales.

GM trimmed its earnings forecast from its prior range of US$5.52 to US$5.82 per diluted share to approximately $5.14 per share.

The company cited a "significant" increase in commodity costs, as well as the sinking valuation of the Argentine peso and Brazilian real that have marred its sales outlook in those markets.

GM continues to see US auto sales coming in above the solid level of 17 million vehicles for all of 2018 but views the outlook for 2019 as up in the air in light of trade policy uncertainty, said chief financial officer Chuck Stevens.

"We're not expecting a tariff impact to impact the US industry in 2018," Stevens told reporters at a briefing.

"What happens beyond 2018, I think there's a lot of uncertainty in this space at this point in time. We're going to have to see where it lands and how ultimately that impacts the US industry and the global industry frankly."

Like other leading automakers, GM has been a vocal critic of President Donald Trump's proposed tariff of up to 25 percent on foreign vehicles and parts, joining a chorus of industry officials in blasting the idea at a hearing last week. 

The US giant has warned that the tariffs could "lead to a smaller GM." 

The Commerce Department has been collecting public comments on the proposal and is not expected to present its findings to the White House for about two months.

Higher costs

The biggest US automaker reported second-quarter profit of US$2.4 billion, which was up 44 percent from the year-ago level following car sales increases in North America and China.

Revenues were US$36.8 billion, down 0.6 percent from a year ago.

GM's North America sales continued to benefit from a strong performance in sport utility vehicles, pickups and other large vehicles, with key vehicles scoring double-digit increases in sales in the United States. 

GM also reported another round of strong sales in China, where its unit delivered more than 858,000 vehicles in the second quarter.

Several other industrial companies including Whirlpool and Alcoa have cited higher costs for metals and oil-related commodities as a drag in the second quarter. 

One factor has been US tariffs on imported steel and aluminum. Stevens said most of GM's steel and aluminum is sourced in the US.

Regarding South American currency devaluations, Stevens said the company was hopeful the situation would improve after elections in Brazil this fall. 

"We're still optimistic and constructive in South America," he said. 

"With that said, we have to react long-term to the macro situation and I'm sure if we don't see improvement to the macro situation that we'll step back and take a look at it just like we have in other markets."

Stevens said GM's performance in China bested expectations in the first half of 2018 but that the second half of the year would be tougher due to more pricing pressure from competitors and the lower valuation of the Chinese yuan. 

Shares of GM sank 5.4 percent to US$37.36 in pre-market trading.

- AFP

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