Good news for the US economy, but not for the stock; shares tanked 8%.
By Wolf Richter for WOLF STREET.
GM, which reported earnings today, imports vehicles from Mexico, South Korea, China, and Canada, and those that it produces in the US have many imported components. So GM is more exposed to tariffs than most other major automakers.
The top foreign brands all have huge factories in the US. Most Honda/Acura models in the US are right behind Tesla models in the lineup of vehicles with the most US content – most of them of 65% and higher. These automakers are least impacted by tariffs. There are also models from Volkswagen, Kia, Jeep, and Toyota in that top group.
The US-assembled Chevy Colorado is further down, and that’s the top GM entry. So GM has to compete with automakers that are getting barely dented by the tariffs.
Today, in its quarterly earnings report and conference call, it shed some additional light on the tariff situation.
GM ate $1.1 billion in tariff-related costs in Q2, and CFO Paul Jacobson added in the conference call that Q3 “net tariff costs” will likely be higher.
The company stuck to its projection, announced on May 1, that for the whole year, net tariff costs would total $4-5 billion, of which about $2 billion is related to imports from South Korea. Or it might be a little less if tariff rates are reduced, CEO Mary Barra said.
“Over time, we remain confident that our total tariff expense will come down as bilateral trade deals emerge, and our sourcing and production adjustments are implemented,” Jacobson said.
GM’s tariff “mitigation efforts” are largely focused on upgrading existing US factories to bring more production of vehicles, batteries, and components to the US.
Adjusted automotive free cash flow plunged by nearly in half, by $2.5 billion year-over-year, to $2.8 billion, “primarily driven by tariff payments as well as headwinds from working capital and lower dealer inventory levels,” Jacobson explained during the conference call (transcript via Seeking Alpha).
For GM North America (GMNA), earnings before interest and taxes (EBIT) plunged by 45% year-over-year in Q2, or by $2.0 billion, to $2.41 billion. And compared to Q2 2023, North America EBIT plunged by 24%.
Tariff a tax on gross profits: GMNA’s EBIT margin was 6.1%, but “excluding the impact of tariffs, our margin would have been approximately 9%,” CFO Paul Jacobson explained during the conference call.
For the total company, net income plunged by 35% to $1.86 billion, which was apparently still plenty to resume wasting oodles of cash on share buybacks, which recommenced in early July.
CEO Barra outlined one of the projects for bringing production to already existing plants in the US as part of the tariff mitigation efforts:
“For example, the $4 billion of new investment in our U.S. assembly plants will add 300,000 units of U.S. capacity for high-margin light-duty pickups, full-size SUVs, and crossovers to help us greatly reduce our tariff exposure, satisfy unmet customer demand, and capture upside opportunities as we launch new models.
“The capacity begins coming online in just 18 months after which we project building more than 2 million vehicles in the U.S. each year as we scale.”
So these “mitigation efforts will take time to yield results, limiting their effect on the second quarter,” explained CFO Jacobson.
The company is “still tracking to offset at least 30% of the $4-5 billion full year 2025 tariff impact through strategic actions such as manufacturing adjustments, targeted cost initiatives, and consistent pricing,” he said.
“As far as the other aspects of the tariffs, we talked about the $4 billion, which will bring us, when all that is implemented, to producing over 2 million vehicles here in the U.S. That will take care of a large part of the other remaining tariffs that are out there,” he said.
For refence, GM sold 2.7 million vehicles in the US in 2024:
“We’re still working through supply chain and other indirect tariffs, but we’re not speculating on what it will be. But I expect that it is likely lower than the current run rate of what you would see just as things shake out. Remember, we’re only 90 days into this,” he said.
“So I think we’ve got a longer-term plan to be able to mitigate a substantial part of this. We’re obviously looking for things to normalize around these trade deals that will get done, and we expect that will happen. But it’s too soon to extrapolate that as a run rate into the future,” he said.
On the news that GM and suppliers are eating the tariffs, rather than consumers, and that GM is investing in the US to cut the costs of those tariffs – all good news for the US economy and for the precarious US fiscal situation, but not for shareholders – GM’s shares tanked 8.1% to close at $48.89.
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So, by the time GM brings back their production to the US, Trump will be on his way out and they can go back to business as usual.
That’s not what GM said. They’re investing billions of dollars in the US to manufacture more in the US, and they cited a number of reasons for that, including production flexibility, and they won’t trash an investment like that. And the CFO pointed this out:
“I mean, these are shifts in sort of the general operation of the business that we don’t necessarily think go away if tariffs are reduced.”
In addition, the government is going to get addicted to spending the tariff revenues and the tax revenues from US economic activity and employment that US production entails and won’t want to give up on it again.
Time for a government bailout…or wait for a recession? CHIPS may have saved Intel. Why not spread the largesse…typical Trump about face.
GM is still very profitable. They don’t need a bailout, LOL. What’s your problem!
But what happens when the tariffs they get drunk on spending start to diminish if/when on-shoring actually happens? What will the money-spenders in DC do then about that loss of revenue?
READ THE ENTIRE SENTENCE!!!
This is the entire sentence:
“In addition, the government is going to get addicted to spending the tariff revenues and the tax revenues from US economic activity and employment that US production entails and won’t want to give up on it again.“
We’ve been told it takes years for companies to open up new factories. So in your world it would take years for them to move it back out.
Companies will go where it is most profitable. Once infrastructure exists, it makes economic sense to use it as long as possible. New or replacement infrastructure will go where makes economic sense at that time in the future.
Only sudden, significant changes (like big tariffs) can change that in short order, though it doesn’t shorten the build time.
I’m positive these kinds of moves are good for the country and the economy. It’s just going to be a tough road to go down for a few years for GM and other companies working on making more product in the U.S.
We will need more engineers, tradesmen and general plant workers. A good thing for everyone. I’ve been around long enough to see a lot of the manufacturing businesses move operations out of the country (big steel mills, auto plants, appliance plants, non-ferrous manufacturing, etc). It will be nice to see some of it come back.
The question is how much new production will increase employment, rather than be done with automation. There was a good article on Keen’s shoe manufacturing in the US. Pre-Trump, they’ve been working on increasing production in the US, motivated by faster shipping times to online buyers. They are leaning heavily on figuring out how to automate shoe production.
You can’t compare the auto industry with a shoe manufacturer. I’m not going to say anymore than that.
Automation creates highly qualified high-paying jobs, including many tech jobs. It doesn’t create sweatshop jobs though.
GM makes an array of the worst imaginable vehicles in the industry and keeps losing market share because of that. Cadillack has become a total joke in the luxury segment. Mary Barra needs to be fired immediately.
GM has gained market share this year and last year.
In 2024, General Motors (GM) held an estimated 17% market share in the United States, making it the leading automaker in the country, according to Statista and Visual Capitalist. This signifies a strong position for GM, especially considering the competitive automotive landscape in the US where Toyota now holds 15% market share.
I can not imagine a scenario where I would buy a GM vehicle…
Is reliability as bad as a BMW or Audi?
Re: “ Today, in its quarterly earnings report and conference call, it shed some additional light on the tariff situation.”
I’ve been stumbling around looking at who’s laying tariffs, after reading about the billions, Customs is taking in, with recent duties — but I never find anything, in terms of which corporations are paying (what).
So, it’s nice to see the actual framework of how tariffs are passed down, in terms of either consumers paying more, or company profits declining.
Obviously, the tariff perfume molecules are in a nebulous state, with some perfume not yet sprayed, and other molecules drifting in the air.
My new investment theme, is to not invest in anything, until all the perfume is out of the bottle. I may be waiting until end of January 2026, but I want to see more corporate accounting and see retail prices with my own eyes. This is far from being settled!
America’s last new car under $20,000 ends production…
Popular sedan bites the dust as carmaker confirms model will be discontinued forever in 2026. The model holds the title of America’s last new car under $20,000.
Currently, the dependable Nissan Versa holds the title of America’s last new car priced at under $20,000.
But, according to Car Edge, that isn’t enough to keep it alive – as the Japanese firm has confirmed the Versa will be discontinued in 2026.
Nissan has confirmed that the Versa will be discontinued in 2026, citing low profit margins and declining customer demand for budget sedans as their primary reasons.
They’re not popular, except with rental fleets. Which is why they’re being discontinued. Including fleet sales, Nissan sold 11,489 Versas in Q2, compared to 20,987 Sentras and 26,298 Altimas. And it doesn’t even have any competition in that space anymore.
Despite what some commenters here say they would buy, not enough Americans like small vehicles with small engines that scream while clinging by their fingernails to 65 mph up the I-80 grade across Donner Pass. Americans like big equipment with some oomph, and they’d rather buy 2- or 3-year-old big used, than small new, for the same price.
So many people are conditioned to be like the elephant and the stake.
GM and these mega corps are not your friend. Let these folks squirm and be punished by the new realty of America First, until they get back in line.
Good news, getting better. Wolf is absolutely right about revenue and the government at all levels. They will NEVER EVER give up new found revenue. Never.
They just gave up trillions of revenue by extending the Trump tax cuts.
Touche.
The thing is they haven’t had those revenues in years. They gave them up a long time ago and got used to it. So they didn’t give them up again now. What they did is decide to not impose those taxes all over again.
Remember that the other party wanted to raise the corporate tax rate but the problem with that is that corporations shield their profits overseas. Good luck doing that with tariffs
There’s plenty of research that shows the taxing corporations directly is not a good way to increase tax revenue. Low corporate tax makes for profitable companies that stay local and grow which makes for much higher income tax (employees) and capital-gains tax (shareholders) revenue.
Wolf, GM is still solid Profitable like you said, but that is 1/3 of there Profit (Net Income) being drained by Tariffs in the 2nd Quarter .
Well the US tax payer lost about 11.2 billion on GMs bailout so boohoo
The final cost to U.S. taxpayers for the General Motors (GM) bailout was $11.2 billion. This loss is the difference between the $49.5 billion spent by the government to bail out GM and the amount recovered through the sale of its stock. While the government initially held a 61% stake in the company, they gradually sold off their shares, ultimately incurring a loss.
PS: an uninformed opinion: there may be only 2 ways out of this: merger or govt writes a check. The possible acquisition of Jeep would set some mouths watering. In either case, unload the French brands. To who? The French govt, once it is confronted with their demise.
So?
They can always stop incinerating cash with their share buybacks. As long as they have so much cash that they have to incinerate it to dispose of it, they’re not paying enough in tariffs?
The big fat canary is Stellantis that with a 2.7 billion dollar loss, does not have a profit to eat.
Stellantis has been a basket case for years — well documented here. Their US unit sales have been in a death spiral:
https://wolfstreet.com/2025/01/03/ugly-charts-of-us-auto-sales-2024-stellantis-spirals-into-catastrophe-gm-toyota-ford-honda-rise-but-far-below-their-peaks-hyundai-kia-sets-record-ev-sales-10-despite-teslas-dip/
I own a GM diesel pickup (circa 2008), and as a result I’m on a GM diesel pickup forum. While the idea of a diesel engine is reasonably simple, the implementation of a modern diesel is far more complex, especially in the often cryptic error codes the system may throw for any number of issues.
Recently someone put up a video of a former GM engineer discussing the problems they have been having with QC on various rather expensive assemblies—like motors & transmissions.
My immediate neighbor next door has a non-diesel 2025 pickup that, since he fought it in 2024, has easily been back to the dealer 1/2 dozen plus times for any number of issues.
NOW, GM has offered all truck owners (diesels & the larger gas models like his) multi-year extended warranties. They have issues with engine’s & transmissions grenadine in well under 100k miles.
The engineer in that video discussed how the “bean counters” were consistently choosing the cheapest components that, unfortunately, could not keep up with other components in these large assemblies.
While I have no specific knowledge, I’d be HIGHLY SURPRISED if GM was not burying these added warranty & repair costs in the “tariffs” category.
What makes the least sense is these are their most profitable vehicles. They’re destroying their flagship vehicle fan club trying to save maybe $1-300/vehicle.
A few years back I needed service on my own vehicle so I took it to a local dealer. The young service writer seemed encyclopedic about all the GM trucks, especially the diesels. So I asked him “Which series (mine is the LMM) of these vehicles has the best service history?” He immediately replied “Yours. Dont trade that in, especially for a new one as we’re having lots of problems.”
If someone wants the video search YouTube for “Former GM Powertrain Engineer”
Yes, GM disclosed a $300 million warranty hit for Q2, which was part of the reason for the decline in profits.
I wonder how many other companies will see their profits shrink by 1/3? That’s a big hit to take.
Im surprised they couldn’t just pass the tax onto consumers, I mean who would even tell the difference new cars are so expensive anyway? I guess it’s the straw that finally breaks something.
They had some other stuff going on too, such as a $300 million additional warranty problem. The good thing is that they stopped losing $1-billion plus a year on Cruise, which they shut down.