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GM’s Disclosures Hinted at Trouble

GM’s Disclosures Hinted at Trouble

After announcing plans to shutter four production plants, halt production of various car models, and eliminate as many as 15,000 jobs, GM is taking heat from Washington. CEO Mary Barra has been summoned for two days of meetings with lawmakers this week. Meanwhile, the White House has been lobbing insults at GM and Barra via Twitter. It’s an unwelcome situation for any public company. One criticism that Washington pols won’t be able to make of Barra, however, is that she didn’t warn them this was coming.

Indeed, the company’s public statements over the past half year clearly indicate that tariffs borne from the current administration’s trade war could necessitate action very much like the cuts the company just announced. A check of the Intelligize platform, in fact, reveals that the company was talking about the threat of tariffs all the way back in February. In a 10-K filed then, GM specified the U.S.’s withdrawal from NAFTA and “new or higher tariffs” as a material risk factor for its business. In July, after the administration announced its steel and aluminum tariffs, GM wrote in a 10-Q that “we . . . anticipate higher costs associated with tariffs.” (Signaling its recently announced move away from cars and toward SUVs, the company also said that it was “focusing on a greater mix of crossovers relative to passenger cars compared to 2017.”) GM reiterated this concern in a late October 10-Q.

The company spelled out things even more plainly in June commentary that it filed with the Commerce Department, in which it made a case against tariffs. Broad tariffs on autos, GM said, “could lead to a smaller GM.” They would raise the prospect of “less—not more—U.S. jobs,” while “undermining GM’s competitiveness against foreign auto producers.” While GM has responded diplomatically to the Twitter broadsides coming from 1600 Pennsylvania Avenue, and has not specified a figure, it is widely believed that the tariffs have cost GM about $1 billion, roughly equivalent to what Ford has incurred.

Of course, when she meets with lawmakers, Barra’s task won’t be as simple as pointing to Trump’s tariffs and GM’s statements warning of their dangers. The backstory here is more complicated. Certainly, the changing taste of the American consumer—away from sedans, and toward SUVs and trucks—is one of many other forces that have driven the company’s difficult choices. So too, incidentally, are tariffs that have long protected U.S. truck manufacturers against foreign competition. The 1962 “chicken tax” (which gets its name because it was passed in retaliation against a European tariff on U.S. chickens) places a 25 percent tariff on foreign-made trucks and SUVs. That tariff helps explain why American manufacturers dominate the truck market.

But then every story in Washington, and business, is complicated. We can expect that GM will try to simplify it for politicians by referring to the warnings it sounded as early as February.

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