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Tariffs implemented by President Donald Trump — and in some cases, falling sales in China as a result — are hitting Detroit automakers in the wallet.

General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV each adjusted full-year outlooks for 2018 on Wednesday as they revealed lower-than-expected second-quarter earnings — all of which were impacted by rising costs of steel and aluminum. The automakers all expect to incur higher commodities costs through the end of the year following a tariff tit-for-tat set off when the Trump administration placed duties on foreign steel and aluminum.

Ford reported tariffs cost the company roughly $145 million in the second quarter, and estimated it would incur about $500 million to $600 million in costs in 2018 due to the ongoing trade war. GM's second-quarter profits dropped 2.8 percent compared to the same period a year ago due primarily to rising domestic steel and aluminum prices as a result of tariffs, the automaker reported Wednesday. 

While GM buys more than 90 percent of its steel and aluminum from the U.S., domestic producers have seized the opportunity to raise their prices as foreign metals grow more expensive. The rising cost of materials was more than GM had anticipated.

The Detroit automaker posted a $2.4-billion second-quarter profit, but lowered its full-year earnings outlook on expectations that costs of commodities like steel and aluminum will continue to rise. It said its full-year diluted adjusted earnings per share would come in at around $6, with an adjusted free cash flow of roughly $4 billion. GM had previously forecast diluted adjusted earnings per share would be in the $6.30-$6.60 range.

“The new issue is the commodity escalation,” said Chuck Stevens, GM chief financial officer. “The unexpected or accelerating pressure is really on the steel side of the business.”

CEO Mary Barra said repeatedly that GM was in position to brave challenges presented — even indirectly — by the ongoing trade war: “Even with the recent macro-economic challenges, I continue to be confident."

GM made $592 million in China in the second quarter. But earnings in China were offset by unfavorable currency devaluations in South America which cut GM's international profit to $143 million.

On the day Fiat Chrysler CEO Sergio Marchionne died, the transatlantic automaker reported that second-quarter earnings climbed 39 percent and achieved net industrial cash — a longtime Marchionne goal — for the first time. 

The company said Wednesday its net profit grew to $882 million (754 million euros). It posted an 8-percent adjusted pre-tax margin in North America, a 0.4 percent decrease compared to a year ago. North America continues to deliver the bulk of the automaker's rising profits.

But even Fiat Chrysler adjusted its full-year outlook for 2018, lowering its projected revenue for the year from $146 billion (125 billion euros) to a range between $134 billion (115 billion euros) to $137 billion (118 billion euros).

China proved to be a trouble spot for Fiat Chrysler, with a $114 million (98 million euros) loss in the Asia-Pacific region that includes China.

Fiat Chrysler's new CEO, Mike Manley, told investors in his first public remarks on Wednesday that China is an ongoing challenge the company is facing as he transitions to the top leadership position. 

"Clearly when you step back and look at our results for the quarter, the biggest challenges we face, and frankly we're going to face to some extent for the balance of the year, are all focused in China," he said. "With duty changes that were announced, these particularly impacted Maserati, which resulted in a slowdown of sales and shipments to dealers."  

Ford blamed a May supplier fire that disrupted F-150 production for days, as well as poor performance in China, for second-quarter for profits that were down nearly $1 billion compared to a year ago.

The Dearborn automaker made $1.1 billion in the second quarter of 2018, a nearly 50 percent decrease compared to last year. The Dearborn automaker also lowered its full-year earnings guidance, blaming a "challenging quarter" in its Asia-Pacific and European markets.

Ford now forecasts an adjusted earnings per share of $1.30 to $1.50. That's down from the $1.45 to $1.70 per share forecast at the start of the year, according to CFO Bob Shanks, a roughly 11-percent decline.

The results come during a tough transitional period for Ford. Not only is the company undergoing internal shifts to the organizational structure, but its sales are slipping compared to a year ago due to an aging product lineup. The automaker is not performing in China compared to a year ago, and Ford is still nearly a year away from a product launch gambit expected in 2019.

The automaker said it was taking "urgent action to address underperformance" in China, including resetting its product lineup in the country and adding more localized products like the Explorer that will be built in China. 

“Candidly, we’re extremely dissatisfied with our performance in Europe and China and we did not plan for these results,” Jim Hackett, Ford president and chief executive officer, said during a call with investors. 

Ford’s disappointing performance in China reflects “a policy environment that is uncertain” due to tariffs, Shanks said. “We had a very difficult quarter with year over year decline in almost every metric all driven by China. We are very disappointed in our performance in China. We lost $483 million in the quarter."

Shanks said Ford’s poor performance in China was driven by “unfavorable market factors for Ford and Lincoln." The Dearborn automaker also blamed “tariffs and industry-related net-pricing impacts.”

At a press conference in the White House Rose Garden on Wednesday with European Commission President Jean-Claude Juncker, Trump talked about an agreement to “work towards” zero tariffs on non-auto related industrial goods. He made no mention of relief for automakers or a tariff standoff with China. 

“We’re starting the negotiation right now, but we know where it’s going,” Trump said of his talks.

Michelle Krebs, senior analyst for Autotrader, said the numbers from Detroit's automakers show they are healthy despite the uncertainty they face domestically and internationally. 

"The next couple of years will be challenging because the U.S. market, from which the Detroit Three derive most of their sales and profits, are in a post-peak era," she said. "We expect sales to remain strong, but off record levels due to rising interest rates. Added costs from tariffs that are passed along to consumers will also cause sales to fall." 

Krebs said Detroit's automakers learned lessons from the last recession that led to two of the city's three manufacturers accepting bailouts from the federal government. 

"I would expect continued discipline," she said, "not only in terms of inventories, but in terms of keeping costs in check."

klaing@detroitnews.com

(202) 662-8735

Twitter: @Keith_Laing

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