Source: Bloomberg Markets

Date: 9 August 2018

Ford Calls Rising Steel, Aluminum Prices ‘Significant Headwind’

Rising steel and aluminum prices, driven up by President Donald Trump’s tariffs on those commodities, are a substantial drag on Ford Motor Co.’s business, though a top executive said the company doesn’t plan to pass higher costs on to consumers.

“The escalation of steel and aluminum prices is really significant,” Jim Farley, Ford’s president of global markets, said after a factory ceremony near Detroit to commemorate building the 10 millionth Mustang muscle car. “It’s a significant headwind for us. It’s something that puts pressure on our own costs.”

Ford began the year by warning that rising costs for raw materials like steel and aluminum, coupled with unfavorable exchange rates, would add $1.6 billion to its costs this year. After President Trump levied tariffs on foreign steel and aluminum, General Motors Co. joined the fray in blaming its forecast for lower profit in part on expensive commodities. Last month, Ford lowered its profit projection for this year to further below last year’s result.

Farley said the company isn’t passing along the higher costs to its customers in the form of higher prices for its cars and trucks.

“This is something that we have to deal with and absorb as a company,” Farley told reporters. “It’s not something we’ll be passing on.”

Source: Financial Post

Date: 9 August 2018

Trump’s steel tariffs hitting autoparts makers, as Magna cuts sales targets

The steel tariffs imposed by U.S. President Donald Trump are hitting autoparts manufacturers, with Magna International Inc. lowering its sales targets for 2018 and warning the levies will affect its earnings for the second half of the year.

“As far as what’s going on with all of the tariff activity, it’s certainly in flux,” Magna’s CEO Don Walker told analysts on an earnings call. “Internally, it’s extremely complicated to get arms around everything.”

Walker said the company’s estimated exposure to the tariffs imposed by the U.S. is $60 million on an annualized basis, with $30 million expected through the remainder of 2018.

The uncertainty surrounding tariffs on both Canadian and Chinese steel, as well as a strengthening U.S. dollar and headwinds related to its GETRAG transmissions business, prompted Magna to lower its end-of-year outlook for income, sales and other key targets.

Canada’s largest automotive parts maker now expects net income to be in the range of $2.3 billion to $2.5 billion, down from a previous estimate of between $2.4 billion and $2.6 billion. Total sales estimates were also lowered, and are now expected be in the range of $40.3 billion to $42.5 billion, as opposed to between $40.9 billion and $43.1 billion.

Magna’s stock closed almost eight per cent down yesterday.

The highly integrated North American auto industry has been grappling with uncertainty as a result of the hefty steel and aluminum tariffs, which were imposed by the Trump administration in May, as well questions about NAFTA renegotiations.

Walker said the quicker Canada, the U.S. and Mexico can reach an agreement on NAFTA, the better for all three countries.

“The longer this goes on, and I think everybody is aware of this, the worse it is for NAFTA, including the U.S.,” Walker told analysts.

“There are some pretty tough issues there and I would hope that we do see something in the net few months…. I think eventually we have to get it resolved, or else it’s going to be a big lose for everybody.”

Magna is not the only Canadian autoparts maker that is grappling with trade uncertainty.

The chief executive officer of Linamar, the second-largest automotive parts manufacturer, told analysts on a conference call on Tuesday that while the impact of the steel and aluminum tariffs have been minimal on the company, others are beginning to feel the pain.

“Certainly companies are starting to feel the impact of the metal tariffs,” Linda Hasenfratz said.

“Several automakers have cited higher costs and warned of escalating impact from such. Pain is slowly building and will ultimately take its toll.”

At the same time, Hasenfratz said that it was positive that NAFTA discussions have resumed. She said that on the automotive rules of origin, which have been a point of contention throughout negotiations, the parties are “close to a deal … that is workable.”

“A 70 per cent regional North American content (rule) that has been proposed by the Mexicans can be done I believe with minimal disruption,” she said.

Both Linamar and Magna have production facilities located in the NAFTA region, as well as in China.

Magna reported $626 million in net income during the three-month period ending June 30, or $1.77 diluted earnings per share. Sales increased by 12 per cent to $10.28 billion, a record second-quarter performance for the company.

“As for what happens with the tariffs long-term, it’s anybody’s best guess,” Walker said. “I would hope that eventually we will get to the point where we have got the agreement on NAFTA, in which case I think everything between Canada, the U.S. and Mexico … at that point gets resolved.”

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