General Motors CFO: 'Self-help' plan to counter 30% of tariff expenses

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General Motors CFO: 'Self-help' plan to counter 30% of tariff expenses
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GM announced June 10 that it planned to invest $4 billion in 3 U.S. manufacturing sites over the next two years to prepare for changing production slated to begin in 2027.
The United Auto Workers union cited the production shifts as the beginnings of reversing labor offshoring and rebuilding the U.S. auto industry.
GM can mitigate further losses, Jacobson added, through a disciplined approach to vehicle inventory.
On the heels of announcing a $4 billion U.S. manufacturing investment, a top executive at General Motors said last week that the automaker's 'self-help' program ― aimed at mitigating nearly a third of the company's exposure to automotive tariffs ― is well underway.
The Detroit automaker announced earlier this year that it could offset 30% of tariff impacts through a three-pronged strategy ― increasing U.S. vehicle and parts production, a roughly $2 billion cost reduction, and holding fast to its pricing strategies.
'I don't think what the administration is doing (enacting tariffs) is trying to pick winners and losers, necessarily,' GM CFO and Executive Vice President Paul Jacobson said at the Deutsche Bank Global Auto Industry Conference. 'I think there's a clear policy agenda.'
President Donald Trump imposed 25% tariffs on imported vehicles and 25% tariffs on many auto parts imported into the U.S. earlier this year. GM said May 1 that tariff expenses are likely to eat up to $5 billion of previously expected profits this year.
Jacobson echoed earlier statements made by GM CEO Mary Barra, who said in May that with either tariffs or nontariff trade barriers, GM has not faced a level playing field with U.S. automakers globally.
'I know a lot of the fear from talking to investors was that the policies that are being enacted by the administration were going to create a significant run on capital,' Jacobson said. 'Four billion dollars is a lot of money, but I think we've been able to spread that in ways that are capitalizing on the next generation of vehicles coming in, to do it efficiently. Not building walls that we don't need to build where we can still plan stuff.'
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Big U.S. investment
GM said the evening of June 10 that it planned to invest $4 billion in three U.S. manufacturing sites over the next two years to prepare for changing production slated to begin in 2027. The move also brings production of two popular Chevrolet models to U.S. plants from Mexico.
The White House took credit for the decision, with White House spokesman Kush Desai providing a statement that read: 'No president has taken a stronger interest in reviving America's once-great auto industry than President Trump, and GM's investment announcement builds on trillions of dollars in other historic investment commitments to Make in America.'
The latest investment follows several large promises GM has made this year regarding U.S. production, including an $888 million investment announced May 27 in its New York propulsion assembly plant to produce a next generation V-8 engine, the automaker's largest investment ever in an engine plant. GM said April 23 it planned to expand transmission production at its Toledo (Ohio) Propulsions Systems plant, where it builds transmissions used in the Silverado and Sierra pickup trucks.
Michigan investment
One of the locations GM plans for major investment is in Michigan.
GM confirmed reports that it has no current plans to produce electric vehicles at its Michigan Orion Assembly plant. Instead, the company will produce gas-powered full-size SUVs and light duty pickups at Orion in early 2027.
'We had planned for that to be a big EV plant. We were thinking about rapid expansion of electric vehicles, and clearly we haven't seen that happen,' Jacobson told the Deutsche Bank audience. 'So as we look at that capacity, and we look at the landscape we are in, committing that to full-size truck production as well as incremental full-size SUV production is going to help create and satisfy the demand that we've already seen in the marketplace for our industry-leading products.'
The United Auto Workers union, however, views the investment as more than a business decision. The union is citing the production shifts as the beginning of a plan to reverse labor offshoring and rebuild the U.S. auto industry.
'In just the past two months, GM has announced five major investments in American auto plants. That's no coincidence. Skilled UAW members in Michigan, Kansas, Tennessee, and beyond are the reason GM turns a profit,' UAW Vice President Mike Booth said in a statement. 'It's great to see the company reinvest in the union workforce that makes it all possible. Our members show their American Spirit and pride in building the world-class vehicles and components that keep this industry strong — right here at home.'
Not cutting price tags
General Motors did not join fellow automakers that discounted certain models or advertised tariff-free pricing deals. This choice will aid the company in the long run, Jacobson said, by helping the vehicles GM sells to retain their value in the aftermarket and preserve vehicle profitability.
'I wouldn't say that we've been focused on pricing; we've been focused on discipline,' Jacobson said. 'Pricing is an outcome of that.'
GM can mitigate further losses, Jacobson added, through a disciplined approach to vehicle inventory. Rather than respond to the cyclical nature of the automotive sector, where car-buying tends to heat up and cool down at various times during the year, he said GM should avoid self-imposed processes that overreact to known changes.
'We would take inventories way up, we'd find that demand slowed, and we'd have to discount steeply to be able to do that,' Jacobson said. 'That leads to a significant decline, a rapid decline, in cash flows.'
Additionally, the company can further progress on cost-cutting, Jacobson added.
'We cracked open the COVID playbook,' he said. 'Recognizing, it's a very different environment. Back then, we could cut production, and we could cut costs because certainly nobody was leaving their house and certainly not going to dealerships to buy vehicles. Today, they are.'
Jacobson added that GM expects the second quarter to bear the brunt of tariff costs, as the company will need time to deploy more of its tariff-shielding strategies. Additionally, the surge in vehicle purchases in the first quarter fueled by tariff concerns has slowed, and the company is watching closely to see where vehicle demand will be as the year progresses.
'I think the question out of earnings is going to be, how far does it come down?' Jacobson said.
Jackie Charniga covers General Motors for the Free Press. Reach her at [e-mail].