Update NAFTA, Don’t Scrap It, GM Chief Advises Trump

Posted January 16, 2018 8:46 p.m. EST
Updated January 16, 2018 8:49 p.m. EST

DETROIT — General Motors’ chief executive urged the Trump administration on Tuesday not to scrap the North American Free Trade Agreement and said any changes in the pact should account for the effect on U.S. automakers and workers.

“There could be unintended consequences, changes made, that would directly impact jobs in the United States,” GM CEO Mary T. Barra said at an investor conference on the sidelines of the Detroit auto show. “NAFTA needs to be modified,” she added, but she rejected the idea that “we need to walk away from it.”

As part of a push to create U.S. jobs, President Donald Trump has said that NAFTA should be renegotiated and has at times suggested that the United States could withdraw from the agreement or tax vehicles imported from Mexico, where GM makes certain small cars, sport-utility vehicles and pickup trucks.

Saying she favored steps to modernize the agreement, Barra added, “We are completely aligned with the administration on job preservation.” She said GM had had discussions with officials from the United States, Mexico and Canada “to make sure everybody understands the complexity” of how the pact affects automakers and the flow of parts and vehicles across borders within North America.

Fiat Chrysler Automobiles announced last week that it was moving production of its heavy-duty pickup trucks from Mexico to Michigan. On Monday, Sergio Marchionne, the company’s chief executive, said that the move eased any concerns that the company could be hurt by a border tax or other possible changes to NAFTA.

Negotiations over the future of NAFTA have been tense. The next round is to begin Jan. 23 in Montreal.

At the investor conference, sponsored by Deutsche Bank, GM said that it expected 2017 earnings to come in at the high end of its forecast of $6 to $6.50 a share, and it projected its 2018 earnings at roughly the same level. The company, which earned $6.12 per share in 2016, predicted “further acceleration” in 2019.

Still, the company’s chief financial officer, Chuck Stevens, acknowledged “headwinds” in the form of pricing pressure in the U.S. and Chinese markets and high costs related to the introduction of a new generation of full-size pickups. Overall, new-vehicle sales in the United States are also expected to decline modestly this year.

Stevens also said that GM would take a $7 billion noncash charge against earnings in the fourth quarter of 2017. That reflects the decline in value of certain tax credits the company has on its balance sheet — a result of the recently enacted tax law, which lowered corporate rates.

GM is also losing money or making very little on the cars it sells. With U.S. consumers flocking to roomier models like trucks and SUVs, sales of cars like the Chevrolet Malibu and Impala have plunged. GM slashed production at many of its car plants last year.

While struggling to keep its car lines profitable, GM is generating a substantial profit on truck sales and making more SUVs and trucks to take advantage of the trend. The 2019 Chevy Silverado, showcased this week at the Detroit show, will be available in eight variations, said Dan Ammann, the automaker’s president. GM also plans to introduce new medium-duty pickup trucks, a lucrative business it exited several years ago.

“We see a ton more opportunity” in trucks, Ammann said.

Ford and Fiat Chrysler are following the same strategy. Ford has unveiled a new midsize truck, resurrecting the Ranger name, at the Detroit show. Fiat Chrysler is adding a new Ram 1500 truck and expanding its line of Jeeps.

At the same conference, Ford Motor offer a less upbeat outlook. The company said preliminary results showed it earned $1.95 per share in 2017, up from $1.15 the year before. But for 2018, company officials said its adjusted earnings would fall to $1.45 to $1.70 per share, compared with an adjusted 2017 figure of $1.78.

Ford’s chief financial officer, Robert L. Shanks, blamed rising commodity prices and unfavorable exchange rates as well as higher spending on self-driving vehicles and lower industry sales in the United States. “We are not satisfied with our performance,” he said.

Ford said it was not taking any charges stemming from the tax legislation.

Ford has kicked off a cost-cutting drive under Jim Hackett, who was tapped last year to be chief executive to reinvigorate the company. As part of its new direction, Ford is spending billions in an effort to introduce 40 electrified vehicles by 2022, including 16 fully electric models. It also hopes to begin producing a driverless car for taxi fleets, rider services and delivery companies by 2021.