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Trade angst takes a toll on profit outlooks

By Paul Welitzkin in New York | China Daily USA | Updated: 2018-07-27 00:15
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The impact of tariffs and global trade disputes may be starting to filter down to corporate bottom lines.

Automakers General Motors Co (GM) and Fiat Chrysler Automobiles NV(FCA) on Wednesday reduced future profit forecasts, citing in part the effect of tariffs. Harley-Davidson Inc said on Tuesday the company also expects tariffs to pressure its margins.

The warnings from the corporate heads come amid growing concern over tariffs and a possible global trade war. Economists polled by Reuters said a now-robust US economy will soon lose momentum on rising interest rates and escalating trade disputes.

GM pointed to higher steel and aluminum costs for its 2018 profit forecast reduction due to tariffs imposed by US President Donald Trump's administration. Trump has also imposed tariffs on Canada, Mexico and China.

GM's CFO Chuck Stevens told Wall Street that GM would partially offset the commodity hit by negotiating price reductions with suppliers, raising prices on popular models, and cost cutting.

In FCA's case, Chinese demand slumped in the quarter ahead of a July cut in import duties, resulting in higher incentive spending and an increase in unsold vehicles that "particularly affected Maserati," new CEO Mike Manley told analysts.

Manley said "very, very cost conscious" Chinese consumers sat on the sidelines during the second quarter waiting for prices to come down. FCA results were overshadowed by the news that former CEO Sergio Marchionne died after suffering complications from surgery.

Harley Davidson said that it expects its operating margin as a percent of revenue will come in at 9 to 10 percent because of the tariffs, down slightly from last year. In June Harley-Davidson said European Union tariffs would add $2,200 to the cost of a typical motorcycle, posing "an immediate and lasting detrimental impact to its business" according to the Washington Post.

In June, Harley announced it would move production of motorcycles for the European Union from the United States to its overseas facilities to avoid the tariffs imposed by the trading bloc in retaliation for Trump's duties on steel and aluminum imports.

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