General Motors Co annual report, FY2019

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General Motors Company — 2019 Form 10-K

Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019; it is not a standalone fourth-quarter filing. GM designs, manufactures and sells vehicles and parts, develops autonomous-vehicle technology through Cruise, and provides vehicle financing through GM Financial. The figures below are in U.S. dollars; amounts are in billions unless stated otherwise. European operations sold in 2017 are reported as discontinued operations.

Financial performance and liquidity

  • Revenue and earnings: Net sales and revenue were $137.2, down 6.7% from $147.0 in 2018. Income from continuing operations was $6.7 versus $8.1; diluted EPS from continuing operations was $4.57 versus $5.58. Adjusted diluted EPS was $4.82 versus $6.54, and adjusted EBIT was $8.4 versus $11.8.
  • Operating results: Operating income was $5.5, compared with $4.4. GMNA adjusted EBIT declined to $8.2 from $10.8, and its adjusted margin fell to 7.7% from 9.5%. GMI recorded an adjusted EBIT loss of $0.2, compared with income of $0.4. GM Financial adjusted EBT rose 11.1% to $2.1; Cruise’s adjusted EBIT loss widened to $1.0.
  • Cash flow and investment: Consolidated operating cash flow was $15.0 versus $15.3. Automotive operating cash flow fell to $7.4 from $11.7; automotive capital expenditures were $7.5. Management reported adjusted automotive free cash flow using adjustments for management actions, so it is not equivalent to unadjusted operating cash flow less capital expenditures.
  • Debt and liquidity: At year-end, automotive debt was $14.4 and GM Financial debt was $88.9. GM reported total available liquidity of $37.2, including $17.3 of automotive cash and marketable securities, Cruise funds restricted to Cruise, and available credit facilities. GM Financial separately reported available liquidity of $23.1. These liquidity figures are not interchangeable or additive without considering their restrictions and segment scope.
  • Balance sheet and shareholder returns: Total assets were $228.0, total equity $46.0, and cash and cash equivalents $19.1. The annual dividend declared was $1.52 per share; GM made no common-stock repurchases in 2019.

Changes versus 2018 and unusual items

  • A UAW strike from September 16 to October 25 disrupted North American production. GM estimated an unfavorable 2019 impact of $3.6 on continuing-operations pre-tax income and $5.4 on consolidated operating cash flow.
  • GM recorded $1.8 of pre-tax transformation charges in 2019, primarily related to accelerated depreciation, supplier costs and employee actions. The company reported $3.3 of savings since the transformation began and targeted $5.5–$6.0 of annual cash savings by the end of 2020.
  • A favorable Brazilian court decision generated a $1.4 pre-tax indirect-tax recovery, recorded in automotive cost of sales; realization depends on administrative approvals and eligible tax liabilities, and third parties may assert claims.
  • Automotive China joint-venture equity income fell to $1.1 from $2.0. GM’s China vehicle sales declined, and its market share fell to 12.2% from 13.7%. Worldwide GM wholesale vehicle sales declined to 4.209 million from 4.707 million.
  • In the fourth quarter, revenue was $30.8 and income from continuing operations was a loss of $0.2, versus revenue of $38.4 and income of $2.1 in fourth-quarter 2018. The filing attributes the 2019 results to multiple factors, including the strike and transformation-related charges.

Outlook, risks and contingencies

  • For 2020, GM forecast diluted EPS and adjusted diluted EPS of $5.75–$6.25. Management expected a roughly 20% adjusted effective tax rate, about $7.0 of capital expenditures, and continued weakness in U.S. and China industry sales. GM expected GMNA to sustain a strong adjusted EBIT margin, supported by product launches.
  • Management’s long-term plan targets 10% core adjusted EBIT margins and an average adjusted ROIC of at least 20%. The transformation program was expected to reduce annual cash costs by $5.5–$6.0 by the end of 2020; management said it was on track, while noting further restructuring could be required.
  • Key risks include cyclical vehicle demand, competitive pricing and incentives, dependence on higher-margin trucks and SUVs, China market and joint-venture risks, tariffs and material costs, labor disruption, supplier concentration, emissions and fuel-economy regulation, recalls and litigation, and the cost and adoption risks of electric and autonomous vehicles. The filing also identifies the novel coronavirus outbreak as a potential source of market, supply and operating disruption.
  • Notable exposures include possible Takata-related costs of about $1.2 if GM is required to repair certain U.S. vehicles; estimated reasonably possible losses above accruals in GM Korea wage cases; and up to approximately $0.8 of reasonably possible excess loss for indirect-tax matters. GM may also have to issue up to 30 million adjustment shares if allowed claims against the Motors Liquidation Company trust exceed the stated threshold.
  • GM’s defined-benefit pension plans remain underfunded. The U.S. pension underfunding was $5.4 at year-end, and changes in discount rates, asset returns and other assumptions could affect obligations and future funding. GM Financial also faces used-vehicle residual-value and credit-performance risks.

Important facts for investors to verify

  • Whether 2020 EPS guidance and the promised transformation savings were achieved, and how much depended on nonrecurring actions.
  • The cash and earnings effects of the UAW strike, labor-agreement costs and planned manufacturing investments.
  • Whether the Brazilian tax recovery is realized in full and whether related third-party claims reduce the benefit.
  • Trends in China sales, market share and joint-venture earnings, as well as used-vehicle prices and GM Financial credit losses.
  • Developments in recall, emissions, Takata, labor and other litigation exposures, and the funding status of pension plans.

Audit: The independent auditor issued an unqualified opinion on the 2019 financial statements and internal controls over financial reporting. The audit highlighted product warranty and recall reserves, sales-incentive estimates, and GM Financial lease residual values as critical audit matters.