General Motors Company — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Amounts are U.S. dollars; financial amounts are in millions unless stated otherwise. Comparisons are with the corresponding 2018 period, except balance-sheet comparisons, which are with December 31, 2018.
Business context and results
GM designs, manufactures and sells vehicles and parts worldwide, provides financing through GM Financial, and is investing in autonomous-vehicle technology through Cruise. Its reportable segments are GM North America (GMNA), GM International (GMI), Cruise and GM Financial.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $35,473 | $35,791 | $106,411 | $108,650 |
| Operating income | $2,304 | $1,610 | $6,035 | $3,616 |
| Income before tax | $2,582 | $2,630 | $7,791 | $7,091 |
| Net income attributable to GM stockholders | $2,351 | $2,534 | $6,926 | $5,970 |
| Diluted GAAP EPS | $1.60 | $1.75 | $4.74 | $4.13 |
| EBIT-adjusted | $2,966 | $3,153 | $8,288 | $8,955 |
| EPS-diluted-adjusted | $1.72 | $1.87 | $4.77 | $5.11 |
Revenue declined 0.9% in Q3 and 2.1% year to date, while operating income increased. Q3 GAAP net income attributable to stockholders fell 7%; adjusted EPS fell 8%. Year-to-date GAAP EPS rose, but adjusted EPS declined. GM’s non-GAAP adjusted measures exclude specified items and should be considered alongside GAAP results.
Segments, cash flow, debt and liquidity
- Q3 segment performance: GMNA adjusted EBIT was $3,023, with a 10.8% adjusted margin, versus $2,825 and 10.2% a year earlier. GMI recorded an adjusted loss of $65, versus adjusted income of $139. Cruise’s adjusted loss widened to $251 from $214. GM Financial adjusted pretax income increased to $711 from $498.
- Year-to-date segments: GMNA adjusted EBIT was $7,941; GMI recorded an adjusted loss of $82; Cruise an adjusted loss of $699; and GM Financial adjusted pretax income of $1,606. China JV equity income fell to $893 from $1,674.
- Cash flow: Consolidated cash provided by operating activities was $11,548 for the first nine months, versus $9,226 in 2018. Automotive operating cash flow was $6.6 billion versus $5.4 billion; automotive capital expenditures were $4.8 billion versus $6.5 billion. Using GM’s stated adjusted-free-cash-flow method, disclosed figures imply approximately $2.4 billion for the period, including a $0.6 billion management-action adjustment.
- Cash and liquidity: Cash and cash equivalents were $20,051 at September 30, compared with $20,844 at year-end 2018. Cash, cash equivalents and restricted cash totaled $22,899. GM reported $40.0 billion of total available liquidity for Automotive and Cruise, including $23.5 billion of available liquidity and $16.5 billion under credit facilities. GM Financial separately reported $26.2 billion of available liquidity.
- Debt: Automotive debt including finance leases was $15,338; GM Financial debt was $89,128. GM Financial debt primarily funds receivables and leased vehicles, and much of its secured debt is payable only from pledged assets. The filing does not present these balances as a single comparable measure of operating-company debt.
- Balance sheet: Total assets were $231,529 and total equity was $48,771. Inventories rose to $11,797 from $9,816 at year-end. Current liabilities were $84,252, including $2,890 of automotive and $31,884 of GM Financial short-term/current debt.
Material changes, outlook and management commentary
- UAW strike and agreement: The strike began September 16 and halted or disrupted most North American vehicle production and parts distribution. GM estimated a $1.3 billion adverse effect on Q3 GMNA adjusted EBIT, partly offset by approximately $0.3 billion of timing items, and a $0.4 billion adverse effect on operating cash flow. GM expected a material Q4 impact. A four-year labor agreement was ratified October 25, after quarter-end; it includes employee payments and wage increases, approximately $7.7 billion in manufacturing investments, and facility closures and product allocations.
- 2019 guidance: GM forecast diluted GAAP EPS of $4.28–$4.69 and adjusted diluted EPS of $4.50–$4.80, including its estimated strike impact. Expected adjusted effective tax rate was 12%–14%. Management reiterated a target of 10% core adjusted EBIT margins and anticipated $5.5–$6.0 billion in annual cash savings from transformation activities by the end of 2020; it also discussed a revised cost-savings target of $4.0–$4.5 billion.
- Transformation costs: GM recorded $1.5 billion of restructuring and other charges in the first nine months, with cumulative charges of $2.9 billion. It expected another $100–$300 million in Q4 2019 and approximately $900 million of additional cash outflows, substantially complete by the end of 2020.
- Brazil tax recoveries: Favorable court decisions generated $123 million of Q3 and approximately $1.36 billion of year-to-date pretax recoveries, recorded as reductions to automotive cost of sales. Realization depends on administrative approvals and eligible tax liabilities; GM expects third-party claims and is defending against them.
- Markets and operating pressures: GM cited weaker industry conditions, competitive and pricing pressure, foreign-exchange volatility, higher material and warranty costs, emissions regulation, trade and political uncertainty, and potential labor or supplier disruptions. China vehicle sales and JV income declined; GM expected continued pricing pressure and a challenging market.
- Other items and contingencies: A $332 million Q3 loss on GM’s Lyft investment contributed to lower non-operating income; the investment’s September 30 fair value was $679 million. GM estimated up to $1.2 billion of reasonably possible exposure if U.S. Takata inflator repairs are ultimately required. It also disclosed estimated reasonably possible losses above accruals for Korean wage matters and indirect-tax matters, among other litigation. GM stated that the risk factors in its 2018 Form 10-K had no material changes.
- Accounting change: GM expected January 2020 adoption of the credit-loss standard to increase its allowance by $700–$900 million and reduce retained earnings after tax by $500–$700 million.
Most important facts for investors to verify
- Actual Q4 and full-year effects of the UAW strike, including production recovery, labor-agreement costs and the accuracy of 2019 EPS guidance.
- Whether transformation savings are achieved on schedule and how restructuring charges, cash outflows and the stated savings targets reconcile.
- Durability of GMNA margins amid warranty costs, pricing, product mix and material-cost pressures; and the trajectory of GMI, China JV income and Cruise spending.
- Timing and collectability of Brazilian tax recoveries, including potential third-party claims and remaining court or administrative steps.
- Developments in Takata, ignition-switch, Korean labor, indirect-tax and other legal matters, and whether potential losses exceed recorded accruals.
- GM Financial credit performance, used-vehicle residual values, funding access and the impact of the expected CECL allowance increase.