General Motors Company — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. GM designs and sells vehicles and parts globally and provides vehicle financing through GM Financial. The quarter was materially affected by COVID-19, including manufacturing suspensions and weaker vehicle demand.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $32.7 billion | $34.9 billion |
| Operating income | $657 million | $1.244 billion |
| Net income attributable to stockholders | $294 million | $2.157 billion |
| Diluted EPS | $0.17 | $1.48 |
| Adjusted diluted EPS (non-GAAP) | $0.62 | $1.41 |
| Consolidated operating cash flow | $1.561 billion | $(81) million |
| Capital expenditures | $1.224 billion | $2.014 billion |
GMNA EBIT-adjusted was $2.194 billion, with an 8.5% margin, versus $1.896 billion and 6.9% a year earlier. GMI reported an adjusted EBIT loss of $551 million; GM Financial adjusted EBT was $230 million, down 36%. GM reported a 55.5% GAAP effective tax rate, versus 6.0%; its adjusted rate was 17.1%.
At March 31, cash and cash equivalents were $38.506 billion and marketable debt securities were $7.620 billion. Automotive liquidity, as defined by GM, was $35.8 billion, including $1.4 billion available under credit facilities. GM Financial reported $23.9 billion of available liquidity. Automotive debt carrying value rose to $30.3 billion from $14.4 billion at year-end, primarily reflecting $15.9 billion drawn on revolving facilities. GM Financial debt was $96.2 billion, up from $88.9 billion.
Material changes versus Q1 2019
- Revenue fell 6.2%, primarily reflecting lower vehicle volumes. Wholesale vehicle sales declined 11.8% to 966,000 units.
- GAAP net income attributable to stockholders fell to $294 million from $2.157 billion. The comparison includes a $857 million Brazilian indirect-tax recovery in Q1 2019; Q1 2020 also included a $417 million loss on PSA warrants, versus a $139 million gain a year earlier.
- GM Financial’s loan-loss provision increased to $466 million from $175 million, reflecting expected credit deterioration related to COVID-19 and adoption of the CECL accounting standard. Its allowance for loan losses was $1.966 billion at quarter-end.
- Automotive China joint ventures swung to a $167 million equity loss from $376 million of equity income. Their combined net sales fell to $4.321 billion from $10.146 billion.
- Consolidated cash and cash equivalents increased from $19.069 billion at year-end, supported substantially by new borrowing. Automotive operating cash flow was $0.3 billion, compared with a $2.2 billion outflow; automotive capital expenditures were $1.2 billion.
Outlook, management commentary, and risks
- GM estimated COVID-19 reduced Q1 adjusted EBIT by approximately $1.4 billion and expected a material effect on results for the remainder of 2020. It suspended 2020 guidance in March, citing uncertainty about the pandemic, economic recovery, demand, and operating restrictions.
- Most global manufacturing was suspended during March. GM expected a gradual restart of critical North American manufacturing beginning in May; China JV production had resumed. GM described liquidity as sufficient into Q4 2020 even without a North American restart, while noting uncertainty and substantial ongoing cash needs. Estimated ongoing cash costs were approximately $2.0 billion per month, excluding managed working-capital changes.
- Management announced cost controls, including reduced advertising and other third-party spending, deferred salaried compensation, and delays to non-critical projects. GM also expected lower capital expenditures than previously forecast for the remainder of 2020.
- Used-vehicle forecasts shifted to a projected 7%–10% price decline in 2020 versus 2019, compared with GM Financial’s prior expectation of a 3%–4% decline. Further price deterioration could impair leased-vehicle assets and pressure residual values.
- GM recognized $489 million of GMI restructuring charges for actions involving Holden operations in Australia and New Zealand and facilities and sales operations in Thailand. It expected approximately $400 million of additional charges and $300 million of additional net cash outflows in 2020.
- A proposed ignition-switch economic-loss class settlement provided for a $120 million fund, with GM to contribute $70 million and the GUC Trust $50 million; GM could also owe up to $35 million in plaintiffs’ legal fees and costs. Court approval and related conditions remained relevant.
- Other disclosed exposures include estimated reasonably possible losses above accruals of approximately $580 million and $160 million for two GM Korea wage matters, $110 million for certain subcontract-worker claims, up to $700 million for indirect-tax matters, and approximately $1.2 billion if certain Takata-related repairs are ultimately required. These are estimates of possible exposure, not recorded liabilities in those amounts.
- In April 2020, GM agreed not to repurchase shares while specified revolving-facility borrowings remained outstanding and faced dividend restrictions if specified borrowings exceeded $5 billion. The filing reports common dividends declared of $0.38 per share in Q1.
Important facts for investors to verify
- How long production interruptions and depressed vehicle demand persisted, and the resulting effect on liquidity, earnings, and cash flow.
- Whether credit losses, delinquencies, and used-vehicle prices exceeded GM Financial’s updated assumptions, potentially increasing provisions or causing lease-portfolio impairment.
- The timing and conditions for restoring cash generation, reducing pandemic-related borrowing, and meeting debt maturities and other cash commitments.
- The status and final cost of the ignition-switch settlement, GM Korea wage litigation, Takata matters, and other legal and tax contingencies.
- Whether restructuring savings and planned actions were achieved, and whether additional impairments or charges followed.