How the trade war in China is hurting GM

Sarah Smith
Segment Producer/Booker

General Motors (GM) reported better-than-expected second-quarter earnings Thursday. The American automaker cited strong North American sales of its pickup trucks and SUVs, helping to drive the company’s profit higher despite slower sales growth in China.

General Motors posted adjusted earnings of $1.64 a share, beating analyst’s estimates of $1.45. Revenue was in line with estimates, posting $36.060 billion, slightly higher than the $35.995 billion expected, according to Bloomberg.

The sharp drop of 12% in vehicle sales in China, currently the largest auto market in the world, is due in part to the ongoing trade war between the U.S. and China.

“China accounted for 44% of their total vehicle sales last year,” Garett Nelson, CFRA’s Senior Equity Research Analyst, told Yahoo Finance.

Earlier this summer, the U.S. denied requests from General Motors and Volvo (VOLV-B.ST), which asked for a relief on the 25% U.S. tariffs on their Chinese-made crossover vehicles.

Shares of the automaker initially climbed following the strong earnings beat, but lost the majority of its gains by the end of the day. The market as a whole declined after President Donald Trump’s announcement on Twitter that as of September 1st, the U.S. would impose an additional 10% tariffs on the $300 billion dollars of goods being imported from China. The impact of those tariffs would hit the auto industry particularly hard.

This is the GMC logo on the front grill of a 2019 Terrain AWD Denali automobile on display at the 2019 Pittsburgh International Auto Show in Pittsburgh Thursday, Feb. 14, 2019. (AP Photo/Gene J. Puskar)

“The China market remains extremely weak and these tariffs aren’t going to help that market one bit,” Nelson said.

Despite coming tariffs, Nelson doesn’t foresee CFRA adjusting its Sell position on shares of General Motors.

“If you look at all the markets they’re in, China, the U.S., and everywhere else, they’ve lost market share in every single market so far this year, except South America,” said Nelson. “Historically it’s just not a great time to buy auto manufacturer equities this late in the cycle. The best time to buy auto equities is always early in the cycle.”

Sarah Smith is a Segment Producer/Booker at Yahoo Finance. Follow her on Twitter @sarahasmith

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