(CNN) — The Trump administration’s tariffs on imported cars and auto parts will cost General Motors between $4 billion and $5 billion this year. But in an interview on CNN, CEO Mary Barra said the company doesn’t necessarily expect to pass those higher costs onto consumers in the form of elevated prices.
“We believe …pricing is going to stay at about the same level as it is,” she told CNN’s Erin Burnett Thursday, although she added, “Pricing changes in our industry at least monthly, and sometimes more frequently. We’re going to respond to the market.”
The company does expect the higher tariff costs to eat into its earnings as it slashed its profit guidance for the year. The estimated tariff cost, and the lower profit target, were revealed in a letter to shareholders from Barra released early Thursday. The letter and guidance were delayed from their planned release on Tuesday, when the company reported lower first-quarter earnings and awaited tariff changes from the Trump administration.
The lower earnings guidance resulted in GM halting plans to spend additional billions in repurchasing its stock, a move it announced Tuesday. But it’s not just investors who could be hurt by lower profits. The roughly 45,000 members of the United Auto Workers union also get profit sharing payments from the company annually. They received record payments of up to $14,500 for 2024.
GM is the first major company to estimate, in dollars, how much President Donald Trump’s sweeping tariffs will cost it. Many others have walked back earnings forecasts because of the ensuing economic uncertainty.
Trump’s tariffs have unnerved not only global companies, but investors, nations and everyday Americans alike. Major stock indexes closed out a volatile April, and on Wednesday new data showed that the US gross domestic product unexpectedly shrank in the first three months of the year as recession fears abound.
The auto industry has been a particularly central target for Trump’s tariff efforts, with levies already in place on most imported automobiles and tariffs coming this Saturday on many of the imported parts used to build cars at American factories.
Record profits of 2024 will take a hit
While GM is not the dominant global auto player it once was, it is still the largest American automaker, with US sales of 2.7 million cars and trucks last year.
It also has been very profitable, posting net income of nearly $12 billion in 2024, excluding special items. Barra’s letter says that 1 million US workers depend on GM, either as employees, suppliers or dealers, with 50 US manufacturing plants and parts facilities in 19 states.
But Barra’s letter says the company now expects adjusted earnings before interest and taxes of between $10 billion and $12.5 billion this year, sharply lower than the record $14.9 billion it earned on that basis last year, and less than the guidance it gave in January before Trump announced his levies.
GM faces tariffs on several fronts. It builds cars and trucks in Mexico and Canada, producing nearly 1 million vehicles in those two countries last year, according to S&P Global Mobility. Most of those vehicles end up being exported to US dealerships.
In addition, GM imported more than 400,000 vehicles from South Korea last year. All imported cars now face a 25% tariff, although the Canadian and Mexican tariffs can be reduced by credits for American- and Canadian-made parts.
In fact, all the 1.7 million cars and trucks GM built in the US last year depended on imported parts to some degree. According to an estimate from American University Kogod School of Business, GM’s US-built vehicles have American parts making up an average of 54% of their content.
Starting this Saturday, GM could face 25% tariffs on many of those imported components. While the Trump administration announced some partial offsets, GM could still face substantial costs.
Nevertheless, Barra thanked the Trump administration for the break on auto parts tariffs and raised hopes for further changes.
“We look forward to maintaining our strong dialogue with the administration on trade and other policies as they continue to evolve,” she said. “As you know, there are ongoing discussions with key trade partners that may also have an impact.”
Car prices constrained by weaker demand
Car prices are not directly set by automaker. Instead, prices are the result of millions of individual negotiations that take place between dealers, who are independently-owned businesses that buy cars wholesale from manufacturers, and car buyers.
If the 25% tariffs on imported cars cause a drop in the supply of vehicles being shipped to dealers, that can put upward pressure on pricing. The economic law of supply and demand suggests that less supply and unchanged demand will push prices higher.
That’s what happened in 2021, when a shortage of computer chips during the Covid-19 pandemic caused a sharp cut in production across the auto industry. The average new car price jumped 17% between January and December of 2021, according to Edmunds’ data. The shortage, coupled with higher prices, sent many typical new car buyers into the used car market, which rose even faster at 32%.
But car buyers in 2021 were enjoying low interest rates and federal stimulus checks. Neither is available to spur demand today. And current surveys show very low consumer confidence fed by fears of a possible recession.
However, many car buyers rushed to buy cars in March and early April on fears that prices would rise due to tariffs, pulling forward some sales that might have taken place later in the year. So softer demand could keep prices in check.
The-CNN-Wire
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