Are the “Big Three” in Big Trouble?

By: Bridget Clerkin August 16, 2018
The Motor City's major automakers are experiencing major setbacks, as steel tariffs and poor performances in China result in less-than-expected earnings for the second quarter of the year.
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Known as the “Big Three” auto companies in the United States, Ford, General Motors, and Fiat Chrysler are often in stark competition with one another. But the companies reached a rare bit of accord recently—and the moment was equally bad for their stockholders.

Each of the car-making giants delivered some bad news with their second-quarter earnings in late July. The less-than-stellar numbers not only impacted the businesses’ bottom line these past three months, but their annual earnings estimations as well.

Ford seemed to be the deepest in trouble last quarter, reporting a net income loss of $1.1 billion compared to 2017’s second quarter. The company credits the 50% year-over-year plunge to a number of reasons, including increasing materials costs under new steel and aluminum tariffs.

But the growing expenditures weren’t the only issue plaguing the Big Three automaker, which also reportedly faced disruptions on the assembly line for its popular F-150 and struggled mightily in China, despite pouring money into raising its profile there. Ford is currently exploring a restructuring of its global efforts, though the company estimates the project could soak up an additional $11 billion over the next three to five years.

Still, Ford wasn’t the only one in the danger zone.

After forecasting a roughly $10 billion second quarter just this past June, Fiat Chrysler was forced to backtrack when reported numbers put that total much closer to $9 billion—a decrease of 14%. The company also adjusted its annual earnings estimations to reflect the smaller profits.

And GM saw its quarterly profits drop 13% year over year, with the dip translating to its stock prices as well. The company adjusted its original estimation of $6.62 per share to just $6 for 2018.

These two of the Big Three auto companies also noted international issues as the source of some of their problems. While Fiat Chrysler saw earnings increase in North America, the company experienced many difficulties—and profit losses—in China. GM faced trouble in South America, struggling with widespread economic turbulence there and particularly bad exchange rates in Argentina and Brazil.

But both also shared Ford’s domestic pain, with all three automakers specifically citing the increased cost of materials as a primary issue this quarter.

Still, the manufacturers aren’t sitting idle while another quarter goes by. As Ford is hard at work on its global restructuring project, Fiat Chrysler said it’s developing a contingency plan to cover increased steel and aluminum costs.

Meanwhile, GM has decided to address the source directly, submitting an official comment to the U.S. Department of Commerce warning of the potential negative impacts the tariffs may have.

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