Much like the rest of the world, the automotive industry is in a wait-and-see mode regarding the Iran conflict.
General Motors CEO Mary Barra is one of those people watching closely. During the company’s first-quarter earnings call, it said the war in Iran has raised costs, so it has responded by reducing spending in other areas while continuing its search for “efficiencies” across the business.
“The number one thing that we’re watching (before they make more changes to guidance) is what happens with the Iranian conflict,” Barra said. “Obviously, rising oil prices affect a lot more… not just from logistics but other commodity costs. If the conflict ends in a shorter period of time, we will see a return to normal levels. Tell how high oil prices will go before we start talking about what demand is.”
On Friday, May 1, President Donald Trump declared the Iran War “terminated,” the Associated Press reported. This hopefully means an end to aggression on both sides. But the war has been declared hot and cold numerous times over the past two months, so most people will still wait and see to make sure the bombs have officially stopped dropping.
Automakers await more clarity on Iran conflict
On Friday, May 1, the White House argued that the Iran war already ended when the temporary ceasefire was agreed to in April, the Associated Press reported. President Trump, therefore, sees no need for Congressional approval, though he has reportedly told aides to prepare for an extended blockade of Iran, as the Wall Street Journal indicated.
The war has a tremendous impact not just on GM, but on every original equipment manufacturer worldwide due to the oil price shock and supply chain issues.
“Ford and GM both reported earnings this week, and the most significant incremental cost headwind vs 4Q earnings was higher commodity prices, mainly aluminum,” Bank of America analyst Elexander Perry said in a research note this week.
GM estimates that commodity inflation caused the company to face an incremental $500 million headwind.
BofA sees GM’s hedging strategy working in the near-term.
“For GM, we think the commodity inflation is driven by steel, aluminum, copper, and PGMs (platinum group metals like palladium, iridium, etc), but GM called out its hedging programs have helped this year, especially in aluminum,” Perry said.
President Trump puts more pressure on Ford after doubling aluminum tariffs
While the president launched the first batch of aluminum tariffs over a year ago, on Monday, April 6, the government officially increased them to an ad valorem rate of 50% for goods made almost entirely of aluminum, steel, or copper. This includes coils and aluminum sheets, like the ones carmakers use for the bodies of their vehicles.
Both auto industry execs and the White House have said they’ve been in constant contact since before the first batch of auto tariffs went into effect, but the latest attempts to soften their tariff burdens have fallen on deaf ears, according to the Journal.
“In recent weeks, Ford has petitioned the Trump administration for assistance, asking officials for relief from the duties at least until Novelis’ Oswego plant returns to full service,” the Journal reported, citing “people with knowledge of the conversations.”
Ford previously said it doesn’t expect to return the mill at Novelis to operations until “somewhere in the middle of the year, the range between May and September.” It did not immediately return a request for comment for this story.
According to the report, the “administration hasn’t budged,” leaving Ford in a billion-dollar hole from which it can’t escape. Trump officials say the administration has already given the automotive industry a break by allowing companies to recoup some of the costs they paid for automotive parts subject to the 25% tariff.
Related: GM gets key update from Deutsche Bank ahead of earnings
