Tax cuts signed by an America First president are turning out to be a major boon to some of the world’s biggest automakers — except those based in the U.S.
General Motors Co. took a $7.3 billion charge in the fourth quarter because the assets it racked up from having reported years of losses in the past are no longer as valuable with the lower U.S. corporate tax rate. Ford Motor Co. has forecast an adjusted effective tax rate of about 15 percent this year, about the same as what it paid in 2017.
Compare that with the big boost Japanese and German automakers expect from President Donald Trump’s tax bill. Owing less to Uncle Sam will lift profit by about 346 billion yen ($3.1 billion) at Honda Motor Co. and 290 billion yen at Toyota Motor Corp. in the fiscal year ending in March, according to the companies. Mercedes-Benz maker Daimler AG reported a favorable impact of about 1 billion euros ($1.2 billion) to 2017 profit.
“That’s very ironic, for sure,” David Whiston, an analyst with Morningstar Inc. in Chicago, said by phone. “There are always unintended consequences of government intervention and change. But long term, this is a positive for everybody because they’re going to save some cash taxes.”
GM and Ford generated deferred tax assets by being unprofitable in the U.S. for years before major restructuring — the former filed bankruptcy in 2009. GM has so many of those assets that the company expects to pay a cash tax rate of less than 10 percent into the middle of the next decade, according to Chief Financial Officer Chuck Stevens.
The tax bill doesn’t take those assets away, it just makes them less valuable for accounting purposes. Since the U.S. corporate tax rate is now much lower, GM’s deferred assets are worth less. Ford also will pay less than the 21 percent corporate tax rate set by Trump’s tax bill, thanks to the company’s own assets. It doesn’t see a material impact.
The benefits to GM and Ford’s rivals, on the other hand, will be manifold. Toyota is already the world’s most valuable automaker with a market capitalization rivaling the combined value of GM, Ford, Fiat Chrysler Automobiles NV and Volkswagen AG.
Toyota is building a car factory in Alabama with partner Mazda Motor Corp. worth about $1.6 billion — roughly half of this year’s tax savings — that’ll allow the company to sell more cars in the U.S. The company already has more than 36,000 U.S. employees and plans to add 4,000 jobs at the plant it’ll share with Mazda.
While Fiat Chrysler — with roots in Auburn Hills, Michigan, and Turin, Italy — is still often looped in with U.S. automakers, the company’s tax headquarters are in London.
Chief Executive Officer Sergio Marchionne has estimated about $1 billion a year in savings from the lower U.S. tax rate. Some of those were passed down to U.S. workers in the form of $2,000 bonuses announced last month.
While Germany’s BMW AG won’t release earnings until next month, the company has estimated a positive impact on 2017 profit of about 950 million to 1.55 billion euros in December.
To be sure, the tax bill isn’t totally devoid of benefits for U.S. automakers. Ford sees paying low rates for a longer period of time because of the tax reform act, CFO Bob Shanks said last month.
And while the tax cut won’t deliver a direct benefit to GM, it will probably spur economic growth and help auto industry sales, Stevens said in January.
“This is really the transition from protecting the losses post-2005, to protecting the profits,” Kevin Tynan, an auto analyst for Bloomberg Intelligence, said in an email.