John Hinrichs, Ford’s head of global operations, said the Trump administration’s metal tariffs have made U.S. steel prices the most expensive in the world thanks to the President’s trade war with China, reported The Detroit News.
“U.S. steel costs are more than anywhere else in the world,” Hinrichs said Monday at a Michigan Assembly plant marking the start of Ranger pickup production. Hinrichs said Ford officials have been communicating with the Trump administration about the tariffs: “The government knows our position about where we need to be in order to be competitive globally. We tell them that we need to have competitive costs in our market to be able to compete around the world.”
Ford CEO Jim Hackett called on President Trump last month to resolve trade disputes, warning that the second-largest American automaker could experience severe financial damage. He said the steel and aluminum tariffs were projected to cost Ford roughly $1 billion because it sources most of its metals from U.S. companies.
Ford, General Motors Co., and Fiat Chrysler Automobiles have all readjusted full-year earnings outlooks in the second quarter due to soaring costs of domestic sourced metals.
“Domestic hot-rolled coil — the benchmark price for American-made steel — has gained 28% in 2018 as the Trump administration implemented tariffs on imports. The levies helped push prices to about $920 a metric ton earlier this year, the highest in a decade. U.S. steel currently costs about $260 more per short ton than steel in China, which accounts for more than half of global demand,” said Bloomberg.
President Trump has called American companies “babies” for complaining about the tariffs. He accused Harley-Davidson, which just reported its biggest revenue drop in more than 8 years, using them as an excuse to move some operations to Europe and Asia.
Rising steel and aluminum prices make Ford less competitive in global markets, which have not been the Trump administration’s only policy that has damaged the company. In August, the automaker abandoned plans to sell a new model called the Focus Active in America. Ford cited a 25% tax on vehicles imported from China, where the car would have been built.
Ford also reduced American exports to China because President Xi Jinping has played a tit-for-tat game with President Trump, matching his 40% tariff on imported vehicles.
Ford’s sales in China have declined in 14 of the last 15 months and collapsed 43% in September.
Whether the Trump administration stops the trade war based on feedback from Ford officials remains an open question.
Hinrichs concluded his speech on Monday by saying: “We encourage all countries — but especially the U.S. and China — to work together…We think it’s in the global economy’s interest to do so.”
As for Ford, expect massive layoffs and possible restructuring in the near term. One look at Ford’s bonds shows that they they are now offering junk-bond spreads. As we discussed in August in “Is Ford’s Downgrade The “Spark” That Crashes The Bond Market“, a should Ford become a “fallen angel” after its recent downgrade by Moody’s from Baa3 to Baa2 – meaning one more downgrade would push it to junk status – it would rock the US high yield market.
Ford’s equity looks even worse, down -32% YTD and trading in the low 8-handle. A buying opportunity or a complete bust? We’ll find out shortly.