It could have been worse, but it should have been better. That’s how most investors are interpreting Tuesday morning’s quarterly report from General Motors (NYSE:GM) anyway. GM stock was off by more than 6% in early trading on Tuesday, with the market equally rattled by the company’s revenue miss and its dialed-back 2018 outlook.

They’re right to be concerned. While GM arguably did better than the overall industry, the GM earnings report also pointed to a couple of hints that pricing power was waning despite a robust economy; competition is plentiful, and almost anyone interested in a new car already has a relatively new one.

Then of course, investors are still trying to digest the likely impact of new import tariffs, which thus far have been seen as problematic.

GM Earnings Recap

For the quarter ending in June, carmaker General Motors turned $36.8 billion worth of revenue into an operating profit of $1.81-per-share. The adjusted bottom line was shy of the year-ago comparison of $1.89, while sales fell from Q2-2017’s $37 billion. Perhaps worse, the GM earnings report came up short of expectations … at least partially. Although profits topped analysts’ expectations for earnings of $1.78-per-share, the pros were calling for revenue of $37.0 billion again.

Adjusted EBIT slumped from $3.7 billion to $3.2 billion, and adjusted EBIT margins fell 1.3 points to 8.7%. Meanwhile, automobile-based operating cash flow fell $1.2 billion to $4 billion for the quarter, though on an adjusted basis automotive free cash flow of $2.6 billion was only lower by $200 million year-over-year.

The profitability measures were sapped not by any one dramatically increased expense, but broadly, across the board. Total cost of sales edged higher, from $29.5 billion to $30.1 billion, which isn’t much. In an industry where margins usually aren’t all that wide, however, every penny counts (and even slightly lowered revenue can take a big toll).

Still, management put on its requisite bullish game-face. CEO Mary Barra commented on the second-quarter numbers, “We faced significant external challenges, but delivered solid results this quarter. The fundamentals of our business are strong and we remain focused on our plan.”

CFO Chuck Stevens echoed the idea, explaining “Our operating performance was impacted by significant headwinds from commodity costs and currency devaluations in South America. For the rest of the year we will focus on flawlessly executing our full-size truck launches and continue managing the business with discipline in a more challenging environment.”

Drilling Down

A superficial glance at the GM earnings report doesn’t raise questions. A second look does.

Case in point: Total vehicle deliveries of 758,000 for Q2 was up 4.6% year-over-year for the United States, though U.S. revenue was only slightly higher, and North America’s net income fell from $3.5 billion to $2.7 billion. Yet, dealers are doing a better job of selling these automobiles than they were a year ago. GM’s car lots are now only sitting on 83 days worth of supply now, versus 105 days worth of vehicles as of the second quarter of 2017.

The wrong mix of vehicles? Possibly, though not likely. While lower-margin car sales in the United States fell from 157,000 units to 126,000, higher-margin truck sales ramped up from 217,000 to 261,000. Unit sales of crossover vehicles — also more profitable than sedans — improved from 123,000 units to 141,000.

Conversely, unit sales in Asia, the Middle East and Africa fell from 1,014 million a year ago to only 986,000 units for the three months ending in June. But, net revenue was off to the tune of 15% year-over-year for Q2.

The absence of its Opel/Vauxhall gets some, though not all, of the blame. Broadly speaking, General Motors may be finding it doesn’t have the pricing power it had as recently as a year ago, turning a small industry headwind into a more serious problem.

Other numbers suggest the same. Although GM sold a lot more trucks last quarter, the average transaction price on a light pickup was only 0.7% higher year-over-year.

And, that figure may not have been enough to offset the average $5,196 worth of incentives GM offered carbuyers to choose its vehicles over other brands in June. That price break was not only notably higher than Q2 incentives offered by rivals like Ford (NYSE:F), Toyota (NYSE:TM) and Honda (NYSE:HMC), it was a hefty 17% higher than the incentive GM was offering in June of last year.

Looking Ahead

The company isn’t looking for things to get much better anytime soon. General Motors pared back its full-year profit outlook from a range of $6.30 to $6.60-per-share for 2018 to only $6-per-share. At the same time, GM expects automobile-driven free cash flow of $4 billion for 2018, down from a prior forecast of $5 billion, on higher costs. Investors, along with the financial media, largely chalked up the weakening outlook to newly imposed tariffs despite the fact Stevens plainly said, “We’re not expecting (tariffs) to impact the U.S. industry in 2018.”

Either way, in adding “What happens beyond 2018, there’s a lot of uncertainty in this space at this point in time,” the CFO may have cast just enough doubt on an already wobbly scenario to alarm increasingly nervous investors.

Ford will post its quarterly results after Tuesday’s closing bell rings, either confirming or questioning some of the implications of the GM earnings report.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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