The surge in inflation that started late this summer is on pace to cost General Motors another $400 million this year and, if prices for key goods don’t retreat soon, cut up to $1.5 billion from the automotive giant’s earnings in 2027, CFO Paul Jacobson said Oct. 20.
Speaking after the leaders of Detroit-based GM reported third-quarter profits of more than $3.3 billion on sales of $50.0 billion and raised their full-year forecasts, Jacobson said the war in and near Iran has caused commodity and logistics costs to rise faster than his team had expected three months ago. GM’s prices for hot-rolled coil steel and copper, he said, have jumped between 10% and 15% since July.
That will translate into an extra $400 million in costs for this calendar year, he added, growing the collective impact of price hikes in commodities, shipping and semiconductors to roughly $2 billion for the full year.
Unless relief comes soon, the higher commodity prices are on pace to more than double the negative impact Jacobson and his team had been projecting.
“It’s too early to try to predict where commodity prices will land in 2027,” Jacobson told analysts. “However, if we were to simply annualize the recent incremental commodity inflation since July, it would translate into an additional $1 billion to $1.5 billion of EBIT-adjusted headwind for 2027, which would result in a total headwind for 2027 of roughly $2 billion.”
Comments early this week from one key steel supplier suggest the GM team shouldn’t expect much slack on that front. Cleveland-Cliffs Inc. Celso Goncalves told analysts that the company’s shipments to the auto industry last quarter were the highest in three years. Cleveland-Cliffs’ average net price per ton rose nearly 5% during the quarter and Goncalves said that trend looks durable.
“We expect a similar level of improvement from Q3 to Q4 as we continue to see improvements in pricing and work through our backlogs,” he said Oct. 19. “Index pricing in the U.S. has increased by roughly $40 per ton each month for most of this year, and we do not see any signals in our order book pointing to a slowdown of this pace.”
If the additional commodity price pressures eventually grow to the $1.5 billion at the top of Jacobson’s forecasted range, they’ll equate to about 10% of GM’s adjusted pre-interest and -tax earnings, which are on pace to be between $14.5 billion and $15.5 billion this year. That requires a response so that the company can show bottom-line growth versus 2026.
Chair and CEO Mary Barra told analysts the recent spike hasn’t given her team enough time to line up details about where to offset the added costs. But, she said, “we obviously have work to do and we plan to do it.”
“There’s a lot of opportunity, we believe, especially as we continue to implement and leverage AI to improve the business and make it more efficient,” Barra said. “We’re going to go to work and we’ll have more to say when we give full-year 2027 guidance at the end of the fourth quarter.”
Shares of GM (Ticker: GM) fell nearly 7% to $77.09 on heavy volume after the earnings report and conference call. Over the past six months, they are now down slightly and the company’s market capitalization has fallen to about $67.6 billion.
