General Motors Company — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unless otherwise noted, financial amounts are in U.S. dollars; statements present amounts in millions. GM designs, manufactures and sells vehicles and parts globally, and provides automotive financing through GM Financial.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $16.8 billion | $36.1 billion | $49.5 billion | $70.9 billion |
| Operating income (loss) | $(1.2) billion | $2.5 billion | $(557) million | $3.7 billion |
| Net income (loss) attributable to stockholders | $(758) million | $2.4 billion | $(464) million | $4.6 billion |
| Net income (loss) attributable to common stockholders | $(806) million | $2.4 billion | $(559) million | $4.5 billion |
| Diluted EPS | $(0.56) | $1.66 | $(0.39) | $3.13 |
| EBIT (loss)-adjusted, non-GAAP | $(536) million | $3.0 billion | $714 million | $5.3 billion |
| EPS-diluted-adjusted, non-GAAP | $(0.50) | $1.64 | $0.13 | $3.04 |
Q2 revenue fell 53.5% year over year, largely reflecting lower vehicle volumes during pandemic-related production suspensions. Six-month revenue declined 30.2%. Q2 GMNA adjusted EBIT was a $101 million loss, with a negative 0.9% adjusted margin, versus $3.0 billion of adjusted EBIT and a 10.7% margin a year earlier. GMI recorded a $270 million Q2 adjusted EBIT loss and a $821 million six-month adjusted EBIT loss. GM Financial reported Q2 adjusted EBT of $226 million, down 57.8%, and six-month adjusted EBT of $456 million, down 49.1%.
- Cash flow: Six-month consolidated operating cash flow was $(1.3) billion versus $5.0 billion in 2019; investing cash flow was $(12.3) billion and financing cash flow was $23.7 billion. Automotive operating cash flow was $(7.7) billion and capital expenditures were $2.3 billion. GM Financial operating cash flow was $4.1 billion.
- Liquidity: At June 30, cash and cash equivalents were $28.2 billion and marketable debt securities were $9.3 billion. GM reported total available liquidity of $32.8 billion, including $2.3 billion available under credit facilities, compared with $37.2 billion at year-end 2019. GM Financial separately reported $24.0 billion of available liquidity.
- Debt: Automotive debt was $34.9 billion, up from $14.4 billion at December 31, 2019; GM Financial debt was $92.3 billion, up from $88.9 billion. GM’s Q2 filing describes substantial pandemic-related borrowing to bolster liquidity.
- Balance sheet: Total assets were $237.5 billion, total liabilities $194.0 billion, and total equity $43.5 billion at June 30, 2020. Common dividends declared were zero for Q2; six-month dividends declared were $0.38 per share.
Material changes versus prior periods
- COVID-19 disrupted production and demand: North American manufacturing began resuming in May, while China JV production had resumed by April. Six-month wholesale sales fell 37.6% to 1.387 million vehicles; Q2 wholesale sales fell 62.7% to 421,000.
- GM Financial’s provision for loan losses rose to $793 million for the first half from $354 million. Its allowance for loan losses reached $2.1 billion, compared with $944 million at year-end, including the impact of adopting CECL.
- GM adopted the current expected credit loss standard on January 1, 2020, recording a $660 million after-tax reduction to opening retained earnings and an $801 million increase in GM Financial’s loan-loss allowance.
- Six-month automotive adjusted EBIT fell to $679 million from $4.9 billion; GM Financial adjusted EBT fell to $456 million from $895 million. China JV equity income was $2 million versus $611 million in the first half of 2019.
- GM’s first-half results included $581 million of GMI restructuring charges and a $236 million tax valuation allowance charge related to Australia and New Zealand. The prior-year period included $1.2 billion of Brazilian indirect-tax recoveries and $1.2 billion of transformation charges.
Outlook, management commentary and risks
- Management expected COVID-19 to materially affect results for the rest of 2020 and anticipated a significant contraction in 2020 North American industry volumes. The filing does not provide a clear consolidated full-year earnings or revenue forecast.
- Management said GM had sufficient liquidity for current requirements, while noting substantial cash needs and uncertainty around the pandemic, economic recovery and access to capital markets. The company suspended its common dividend and implemented cost controls, including reduced advertising and third-party spending, deferred compensation and delayed non-critical projects.
- GM borrowed $15.9 billion under revolving credit facilities, issued $4.0 billion of senior unsecured notes at a weighted-average 6.11% rate, and added a $2.0 billion 364-day revolving facility. Borrowings trigger restrictions on share repurchases and may restrict common dividends if specified thresholds are exceeded.
- GM’s transformation program was on track for $5.5–$6.0 billion of annual cash savings by year-end 2020. The company expected approximately $400 million of additional GMI restructuring charges and approximately $200 million of net cash outflows, including expected Thailand facility-sale proceeds, substantially complete by year-end.
- GM Financial expected used-vehicle prices to decline 6%–8% in 2020 versus 2019 and anticipated higher depreciation expense in the second half. Further price declines could increase depreciation or cause impairment; stronger prices could improve lease-vehicle sale gains.
- Significant exposures include the pandemic and potential renewed production disruptions, lower vehicle demand, customer loan defaults, used-vehicle residual values, supply and labor interruptions, China market and currency risks, and regulatory, product liability and litigation matters. GM estimated a possible $1.2 billion impact if required to repair U.S. vehicles potentially affected by Takata inflators; no provision was recorded for those vehicles. Other disclosed matters include indirect-tax exposures of up to approximately $700 million above accruals and unresolved labor claims in Korea.
- GM reported all four rating agencies still rated its corporate credit investment grade as of July 15, 2020, but several had negative outlooks or credit-watch status. Disclosure controls were concluded effective at June 30, 2020.
Investor verification points
- Track production recovery, vehicle demand, wholesale volumes, market share and the effect of incentives on revenue and margins.
- Verify the pace of cash consumption, available liquidity, revolving-credit repayment and debt maturities, as well as compliance with dividend and repurchase restrictions.
- Monitor GM Financial credit performance, loan-loss provisions, delinquencies, repossessions and used-vehicle prices against management’s forecast.
- Assess whether restructuring savings and cost actions offset lower volumes, and whether expected charges and cash outflows remain on schedule.
- Follow the outcome and potential financial impact of Takata, recall-related settlements, Korean labor cases, indirect-tax matters and other contingencies.
- Distinguish GAAP results from management’s non-GAAP adjusted measures when comparing periods; the filing notes those measures may not be comparable across companies.