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Mark Wilson / Getty Images Trump Has Three Months to Conclude This Agreement - The three major US automakers have lowered their profit forecasts for the year 2018.
- Trump's trade wars and tariffs are hurting business in the United States and China, the world's two largest markets.
- The auto industry predicted a slowdown, but GM, Ford, and FCA might have sent a unified signal to Trump. It was not done quickly, the slide could arrive ahead of schedule.
Wednesday was not a good day for the US auto industry. It started with the tragic news that Fiat Chrysler Automobiles CEO Sergio Marchionne had died as a result of surgical complications, and Adam Jonas, a Morgan Stanley badyst, asked Ford CEO Jim Hackett if Hackett was thinking of keeping his job. employment. General Motors, Ford and FCA have all lowered their earnings guidance for the entire year while posting their second quarter earnings, and Ford has missed Wall Street earnings forecasts. (Hackett, by the way, told Jonas that he would not go anywhere.)
GM blamed part of the Trump administration's tariffs on aluminum and steel for contributing to an unexpected headwind of $ 1 billion in 2018. Ford also has expensive steel because of tariffs, as well as a fire at a supplier that has reduced the production of pickup trucks and a collapse of panic inducing operations in China's automaker. Hackett also revealed that Ford needs to spend $ 11 billion over the next three to five years to settle its affairs.
Everyone has slipped, with Ford now dangerously close to falling in single-digit numbers. the Big Three all made money during the quarter, the US auto sales market has been flourishing for three years, unemployment is very low in the United States and the gas remains relatively cheap. There are still problems in the auto industry, but most of the time, the case has been pretty good.
But Trump did everything he could to create new problems. The rates, which have had an immediate negative impact on Detroit's costs, are just the tip of an ugly iceberg.
Discussing second-quarter results with Wall Street badysts, GM executives were asked whether the growing trade war between the United States and China engenders an anti-American sentiment in the Middle Kingdom. , the whole world. the largest vehicle market and where GM is looking for future growth.
"We have not seen anything yet," said CFO Chuck Stevens. But he mentioned the specter of the Japanese and South Korean difficulties with the problem in China – somewhat damaged the ability of these countries to sell cars to Chinese consumers.
In the context of trade hostilities with China, Ford now owes its business in the region after a drop in sales, with forecasts that tariffs and tariffs could cost the automaker $ 300 million in 2018.
FCA saw a collapse in sales of Maserati in China the market that the trade war has caused.
If anyone thought that the industry could come out in 2018 without feeling any pain from Trump's movements, they were wrong. The Pain Has Arrived Quickly
Deep Consequences
Business Insider And That Could Have Serious Consequences. No one in the Trump administration has thought about this, and now that they have started a trade war, they can not lose it. While the big three of Detroit are in good financial shape after years of strong sales, they are not immune to hardship – the business is extremely capitalistic in the best of times and dramatically when a positive environment is deteriorating.
The US sales cycle is well prolonged after a logical slowdown point – an annual sales pace of nearly 17 million vehicles has persisted since 2015 – Detroit was waiting for times to be more difficult . They could have weathered until 2019, as profitable pickup trucks and SUVs left dealer lands, transaction prices were historically high, and financial branches of GM and Ford got favorable results then that credit continued to circulate.
Until Trump's trade wars and tariffs were felt, the greatest concern was a big jump in the price of gasoline. That has not been the case, and with Detroit helping Trump get back on the fuel economy standards that were locked up late in the Obama administration and also benefiting from a reduction in fuel efficiency. corporate tax, builders thought everyone wanted.
But this was not the case, and now the US market – the most competitive in the world – and the Chinese market, where other annual sales of $ 10 million could develop over the the next decade, have become very difficult. About the World Automobile Industry
Ford A Ford Pickup Truck Trump has shown since the 2016 campaign that he literally knows nothing about the Automotive industry of the 21st century. This ignorance has now been compounded by the misunderstanding of its trade and economic team on how the global auto industry of $ 2 trillion has been organized since the 1990s and after the financial crisis [19659022]. The late Sergio Marchionne well said when he often explained that weak discipline, poor execution, and bad leadership are quickly punished.
He was not alone.
"It's a very difficult case" I said with dark clarity. But Marchionne and Ford were talking about an industry that is under tremendous pressure when all is well.
Throw a few mbadive unknowns, and the punishment becomes more severe, and what was hard may become impossible.
Stevens says when he was asked how GM was going to face additional costs of steel in the second half of 2018.
But Trump can pull a big lever
The guy with the big lever is, of course, at the White House. It's time for someone to tell him that even though this deal with the auto industry does not seem too bad, it's way worse than it looks. The inevitable slowdown in US sales, moderate or severe, could take shape over the next quarter, undermining Detroit's already depressed earnings outlook.
Survival expenses will multiply as everyone struggles to maintain their market share. Balance sheets, now big with money, will become thinner, damaging the automakers' ability to avoid layoffs when the slider takes speed. The investment will go into exile. The stock prices will be tank.
If we are at the beginning of a difficult period, Trump could avoid a recession in the auto sector by canceling the trade war and waiving tariffs. But he must act quickly. The big three presented him with an excuse on a gold platter by sending a united signal through lower earnings forecasts in the second half.
Will he accept the gift? Unlikely. But if it does, there is a window of three months before we reach the fourth quarter and a negative dynamic will be almost impossible to stop.
Get the latest Ford stock price here.
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