General Motors Co quarterly report, Q3 FY2020

General Motors Company — Form 10-Q Summary

Reporting period: Quarter and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods unless noted. Amounts are U.S. dollars. GM designs, manufactures and sells vehicles and parts, operates autonomous-vehicle business Cruise, and provides automotive financing through GM Financial.

Financial results and position

Metric	Q3 2020	Q3 2019	Nine months 2020	Nine months 2019
Total revenue	$35.5B	$35.5B	$85.0B	$106.4B
Operating income	$4.4B	$2.3B	$3.9B	$6.0B
Net income attributable to common stockholders	$4.0B	$2.3B	$3.4B	$6.8B
Diluted GAAP EPS	$2.78	$1.60	$2.40	$4.74
EBIT-adjusted (non-GAAP)	$5.3B	$3.0B	$6.0B	$8.3B
EPS-diluted-adjusted (non-GAAP)	$2.83	$1.72	$2.96	$4.77

Q3 operating margin was approximately 12.5% of revenue, versus 6.5% a year earlier. GMNA reported Q3 EBIT-adjusted of $4.4B and a 15.0% adjusted margin, compared with $3.0B and 10.8%. GM Financial EBT-adjusted was $1.2B, up from $0.7B. In the first nine months, GMNA EBIT-adjusted was $6.5B, while GMI reported an adjusted loss of $0.8B and Cruise an adjusted loss of $0.6B.

Cash flow: Consolidated operating cash flow was $10.0B for the nine months, down from $11.5B. Investing used $16.8B and financing provided $14.2B. Automotive operating cash flow was $2.3B, versus $6.6B; automotive capital expenditures were $3.3B, versus $4.8B.
Liquidity: At September 30, cash and cash equivalents were $26.9B and marketable debt securities were $10.0B. Automotive total available liquidity, including available credit facilities and Cruise funds, was $39.8B; GM Financial separately reported available liquidity of $28.1B.
Debt: Automotive debt was $28.7B and GM Financial debt was $88.8B. The latter principally supports the finance and leasing business, including securitizations; it should not be treated as equivalent to automotive corporate debt.
Balance sheet: Total assets were $239.7B, total liabilities $191.7B and total equity $48.0B. Automotive cash, cash equivalents and marketable securities, net of specified amounts, were $30.2B.
Shareholder returns: No common dividend was declared for Q3; the nine-month declared dividend was $0.38 per share. The company suspended common dividends and share repurchases while managing pandemic-related liquidity.

Material changes and drivers

Q3 revenue was essentially flat, but reported net income and adjusted EBIT rose substantially. GM cited stronger North American mix and pricing, cost savings and lower warranty-related costs; GM Financial also benefited from lease-termination gains, lower interest expense and a lower loan-loss provision.
Nine-month revenue fell 20.2%, chiefly reflecting lower vehicle volumes during pandemic-related production suspensions and demand disruption. Wholesale vehicle sales declined 27.8%, from 3.26 million to 2.35 million. Automotive revenue fell 21.9%.
Nine-month adjusted EBIT declined to $6.0B from $8.3B, and adjusted EPS to $2.96 from $4.77. Results benefited from cost reductions but were pressured by lower volumes, reduced China equity income and the absence of prior-year Brazilian indirect-tax recoveries. GM recorded $1.4B of those recoveries in 2019.
GM Financial’s nine-month loan-loss provision increased to $824M from $504M, reflecting expected pandemic-related credit losses and adoption of the CECL accounting standard. Its allowance for loan losses was $2.0B at quarter-end, including the impact of the $801M CECL adoption increase.
In Q3, GM issued $500M of GM Financial preferred stock, classified as noncontrolling interests, with a 5.70% dividend rate when declared. The company also adopted CECL on January 1, reducing opening retained earnings by $660M after tax.

Outlook, risks and unusual items

GM gave no specific consolidated earnings or EPS forecast in the supplied filing text. It described the duration and severity of COVID-19 effects, future demand, production and liquidity impacts as uncertain. Management expected global manufacturing to remain resumed after restarting by May 2020, subject to health and operating conditions.
Management targeted 10% core EBIT-adjusted margins and expected its 2018 transformation program to deliver $5.5B–$6.0B of annual cash savings by the end of 2020. It also said capital expenditures would exceed $7B annually through at least 2023, reflecting rescheduled spending and accelerated electric-vehicle investment.
Management expected to repay the remaining automotive revolving-credit borrowings by the end of 2020, subject to the pandemic’s effect on liquidity. It stated current liquidity was sufficient for requirements, while emphasizing substantial cash needs and uncertainty.
GM reported total available liquidity of $39.8B at September 30, including $7.6B of available credit facilities. It borrowed $15.9B on revolving facilities during the period, repaid $5.2B in September and a further $3.9B in October. April credit-facility terms restrict share repurchases while specified borrowings remain outstanding and restrict common dividends if specified borrowings exceed $5B.
GM Financial’s used-vehicle price recovery supported lease-termination gains of $0.7B in Q3 and $0.9B for the nine months. Management expected used-vehicle prices to rise by low-single digits for full-year 2020 versus 2019, but forecast possible mid-single-digit declines in 2021. Weaker prices could increase depreciation, impairments or off-lease vehicle losses.
Key contingencies include recalls and ignition-switch litigation, Takata inflator exposure, GM Korea wage and subcontract-worker claims, indirect-tax disputes and emissions matters. Accrued litigation liabilities were $1.2B. GM estimated reasonably possible losses above accruals of up to $750M for indirect-tax matters, approximately $170M for certain GM Korea salaried-worker claims, approximately $110M for additional subcontract-worker claims, and approximately $1.2B if required to repair certain Takata-related vehicles in the U.S.
The proposed ignition-switch economic-loss class settlement provided for a $120M fund, with GM to contribute approximately $70M and pay up to $35M in plaintiffs’ legal fees and costs. Final fairness approval was pending at the filing date. GM said potential losses in certain other matters could exceed recorded accruals and could be material.
Credit agencies maintained investment-grade corporate ratings as of October 19, 2020, but several outlooks were negative; Fitch had lowered GM to BBB-. GM stated it remained compliant with applicable loan covenants.

Important facts for investors to verify

Whether pandemic-related demand, supply, labor or production disruptions materially change subsequent-quarter results and liquidity needs.
Whether GM repaid the remaining revolving-credit balances as expected, and how that affects available liquidity, dividend restrictions and capital allocation.
Whether vehicle volumes, pricing and North American mix sustain Q3 profitability as cost austerity measures normalize.
How actual credit losses compare with GM Financial’s CECL allowance and economic forecasts, and whether used-vehicle prices support its lease residual assumptions.
The final outcome and cash cost of the ignition-switch settlement and other material litigation, recall, tax and labor contingencies.
Progress toward the stated transformation savings, electric-vehicle investment plans and capital-expenditure outlook.