The markets were buoyed by the news that President Donald Trump announced a 90-day pause on reciprocal tariffs for most countries, with a decision to implement a 10% base tariff on most goods. However, this pause did not apply to the 25% duty on vehicle imports, leaving the automotive industry unaffected by the relief.
The situation is anticipated to become more challenging for the automotive sector, with an expected additional 25% tariff on automotive parts set to be enforced the following month. This poses a concern for General Motors (GM) investors, as the company might need to reconsider its recent strategy of aggressively buying back shares.
### Share Buybacks
General Motors has been actively engaged in share repurchases, with the company announcing $16 billion in buybacks between 2023 and 2025. This strategy has considerably influenced its stock trading, given GM’s market capitalization of $45 billion. The impact of these significant buybacks is evident in the stock’s performance.
Recently, GM approved a $0.03 per share increase in its dividend, representing a 25% increase. Additionally, it authorized a new $6 billion share repurchase plan, launching an accelerated program to execute $2 billion of this authorization soon.
### Turbulent Tariffs
Among domestic automakers, General Motors is notably vulnerable to Trump’s tariff plan. Despite the announcement of a 90-day pause on reciprocal tariffs for most countries, the automotive tariffs remain unaffected.
The challenge for GM arises from its production strategy. Although it manufactures more than half of the vehicles sold in the U.S. domestically, only about a third of these involve American parts. According to JPMorgan analyst Ryan Brinkman, GM imports approximately $56 billion worth of vehicles annually from Mexico and Canada. After accounting for content originating within the U.S., this may translate to around $38 billion being subject to a $10 billion tariff at a 25% rate. For parts, GM’s share of the $92 billion imported by the industry is estimated to be $4 billion, resulting in a total tariff exposure of $14 billion before mitigation strategies are considered.
Due to GM’s reliance on imports and parts, Brinkman lowered his price target for GM by $11, bringing it down to $53 per share. At the time, GM shares were trading around $44.
### What It All Means
The potential impact of these tariffs is significant and could pose substantial challenges for General Motors. The company may have to choose between halting share buybacks to conserve cash or proceeding with its accelerated repurchase program. GM’s management has indicated they are exploring various options to mitigate the impact of tariffs.
For investors, the pause in reciprocal tariffs underscores the unpredictable nature of tariff developments. While the immediate tariff implications may be severe, it’s advisable to avoid hasty reactions. In the long term, General Motors is expected to continue providing substantial value to shareholders through strategic share buybacks.
