As General Motors pays more for raw materials, it could increase the prices of its vehicles, effectively passing the increased cost on to the consumer.
“To the extent that we have opportunistic ability to pass along some [of the higher costs], we will,” said GM Chief Financial Officer Chuck Stevens during the GM second quarter 2018 earnings call with analysts.
Costlier raw materials as well as unfavorable exchange rates in Brazil and Argentina will rob the largest American automaker of $1 billion in profit this year, causing the firm to trim its profit outlook for the year. GM shares plunged on the news, seeing their biggest one-day percentage drop since November 2011. The shares have since recovered some of their lost value.
General Motors Company stock performance as of market close Tuesday August 7th, 2018 (NYSE/Google Finance)
Offsetting Higher Costs
So far this year, GM has been able to offset some of the negative impact of higher commodity costs and disadvantageous exchange rates by selling higher-priced vehicles, said Stevens. Consumers’ growing interest in crossover utility vehicles (CUVS), sport utility vehicles (SUVs) and pickup trucks has helped GM in that regard, since the models are generally more profitable than cars.
Stevens also stated that GM is open to other options to combat higher costs, include substituting materials.
Delayed Impact
Raw material prices are showing signs of easing from recent highs, but GM will experience a bigger impact associated with the matter in the second half of the year, said Stevens. That’s because it takes roughly three months for the high-priced commodities to make their way into the automaker’s supply chain.
GM shares closed Tuesday, August 7th at $37.58, up from the $36.62 one-month low.
Comments
They will increase prices on cars regardless of what happens with exchange rates in Brazil or trade.
The economy is booming. Crossovers are selling like hotcakes. That won’t stop unless the economy slows down or lending tightens.
As if GM’s prices aren’t high enough.
Higher commodity prices meaning higher prices for steel and aluminium, right?
We all know where this comes from.
We sure do. He was strongly warned not to impose the tariffs on steel and aluminum by well regarded economists. The worst of the effects is yet to come.
No pain , no gain . you the knowledgeable electorate elected the Art of the Deal genius . Someone has to pay for the huge deficit that is now over 20 trillion and heading for 30 , real fast . He has eliminated food stamps and will turf people off medicare /medicad . Tariffs will also bring in some big bucks to help bring down the debt as will kicking immigrants out of the country and relief funds needed except perhaps all those Trump hires from the Phillipines for his resorts . After all , the country has always had the working man carry the USA on his back , you have to be used to it now ! Corporations paying a huge 14 % tax rate will also do their fair share , right ??
Yes, GM is greedy for their CEO and top exes. The salary for the CEO and Vice Presidents equal the salary of 750 factory workers. Greed Greed and more Greed
Vote in November and Impeach in December and REPEAL tax cuts for greedy companies like GM