General Motors Company — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; this is an annual filing, not a standalone fourth-quarter report. Unless noted, amounts are U.S. dollars. The European Opel/Vauxhall businesses and European financing operations were sold in 2017 and are presented as discontinued operations; comparative periods were recast where applicable.
Business context
GM designs, manufactures and sells vehicles and parts, and provides vehicle financing through GM Financial. Continuing operations are reported in GM North America (GMNA), GM International (GMI), GM Financial and Corporate. GM sold Opel/Vauxhall to PSA Group on July 31, 2017, and its European financing subsidiaries on October 31, 2017.
Key financial metrics
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Total net sales and revenue | $145.6 billion | $149.2 billion |
| Operating income | $10.0 billion | $10.0 billion |
| Income from continuing operations | $330 million | $9.3 billion |
| Net income (loss) attributable to stockholders | $(3.9) billion | $9.4 billion |
| Diluted EPS, reported | $(2.60) | $6.00 |
| Diluted EPS, adjusted (non-GAAP) | $6.62 | $6.12 |
| EBIT-adjusted (non-GAAP) | $12.8 billion | $12.8 billion |
| Automotive cash provided by operating activities | $13.9 billion | $14.5 billion |
| Adjusted automotive free cash flow (non-GAAP) | $4.5 billion | $6.9 billion |
| Cash and cash equivalents; marketable securities | $15.5 billion; $8.3 billion | $12.6 billion; $11.8 billion |
| Automotive debt; GM Financial debt | $13.5 billion; $80.7 billion | $10.6 billion; $64.6 billion |
| Total equity | $36.2 billion | $44.1 billion |
GMNA reported $11.9 billion of adjusted EBIT and a 10.7% adjusted margin, compared with $12.4 billion and 10.4% in 2016. GMI reported $1.3 billion and a 5.9% margin, versus $767 million and 3.7%. GM Financial adjusted pretax income was $1.2 billion, up 57%; revenue rose 35% to $12.2 billion, while provision for loan losses increased to $757 million from $644 million.
Changes versus the prior year and unusual items
- Revenue declined 2.4%, largely reflecting lower GMNA wholesale volume; GM Financial revenue growth partially offset the decline. GMNA wholesale sales fell 11.3% to 3.5 million vehicles.
- Adjusted EBIT was essentially flat. Lower vehicle volume was offset by favorable cost performance, pricing and mix. Global retail market share fell to 10.2% from 10.8%; U.S. share increased slightly to 17.1% from 17.0%.
- Reported results were sharply affected by tax and divestiture charges. GM recorded $7.3 billion of tax expense related to U.S. tax reform and a $2.3 billion deferred-tax valuation allowance related to the European sale. The European transaction produced a total $6.2 billion after-tax charge, including $3.9 billion in discontinued operations.
- Despite the reported continuing-operations income of $330 million, adjusted diluted EPS increased to $6.62 from $6.12, reflecting the exclusion of specified tax, restructuring and other adjustments. These non-GAAP measures are not substitutes for GAAP results.
- Automotive available liquidity was $33.6 billion, including $19.6 billion of cash and marketable securities and $14.1 billion available under credit facilities. GM returned $6.7 billion to shareholders in 2017 through dividends and repurchases. The board’s target cash balance is $18 billion.
Outlook, commentary and risks
- For 2018, management expected reported and adjusted diluted EPS in the mid-$6 range; core adjusted EBIT and core adjusted automotive free cash flow were expected to be in line with 2017. Management forecast an adjusted effective tax rate similar to 2017’s 21.1%.
- GM targeted a 10% GMNA adjusted EBIT margin in 2018, assuming continued strong U.S. industry sales, favorable truck and crossover mix, product launches and cost savings. Management said approximately $5.5 billion of a $6.5 billion cumulative annual cost-savings goal through 2018 had been realized.
- Management expected U.S. used-car prices to decline a further 5%–6% in 2018 as off-lease supply increased, posing risk to GM Financial lease residual values. Its retail finance penetration in North America rose to about 37% from 33%.
- GM retained $6.8 billion of net underfunded European pension liabilities after the sale. It also agreed to indemnify PSA Group for specified claims, including emissions and product liabilities; the potential overall loss was not estimable.
- Key risks include vehicle-market cyclicality, competitive pricing and incentives, dependence on higher-margin trucks and crossovers, China competition and joint-venture exposure, currency and trade-policy volatility, supplier disruptions, emissions and fuel-economy regulation, cybersecurity, recalls and litigation, pension funding, and execution of restructuring and electric/autonomous vehicle investments.
- Takata: GM recorded no provision for the disputed U.S. GMT900 vehicles, but estimated a reasonably possible impact of approximately $1.0 billion if repairs are ultimately required. GM also reported international Takata recalls and possible additional exposure.
- Other contingencies include ignition-switch litigation and the Deferred Prosecution Agreement; reasonably possible excess losses of approximately $592 million for certain GM Korea hourly wage claims and $185 million for salaried claims; and up to approximately $1.0 billion of possible indirect-tax losses above accruals. A Brazilian indirect-tax ruling could yield up to $1.4 billion in retrospective recovery, but GM had recorded none and could not assess the likelihood.
- GM announced more than 20 planned zero-emission vehicle launches globally by 2023 and expected a commercial autonomous-vehicle launch at scale in dense urban environments in 2019. These are plans, not assured outcomes.
Most important facts for investors to verify
- Whether the 2017 GAAP loss and low continuing-operations income are understood in light of the large tax and European divestiture charges, and how adjusted measures reconcile to GAAP.
- Whether 2018 EPS, GMNA margin and core cash-flow expectations were achieved, including the assumptions behind “in line with 2017.”
- Trends in vehicle volumes, pricing, incentives and product mix, particularly U.S. truck/crossover demand and global market share.
- GM Financial’s expanding lease portfolio, used-vehicle values, credit-loss provisions, funding access and growing debt.
- Liquidity and capital allocation after repurchases and dividends, alongside pension funding, capital spending and automotive debt obligations.
- Developments in Takata, ignition-switch and other product matters, GM Korea wage litigation, PSA indemnities, and contingent adjustment shares tied to Motors Liquidation Company claims.