General Motors said net income declined in the second quarter amid slow sales and declining inventories, especially of its lucrative pickups and SUVs after the plant closed for eight weeks due to a coronavirus pandemic.
GM, the first of Detroit’s three automakers to release second-quarter report numbers, announced a net loss of $ 800 million, down 132% from the same time a year ago. Its profit before interest and tax adjustments was a loss of $ 500 million, down 118%. Net income fell 53 percent to $ 16.8 billion, but GM’s capital gains in China were $ 200 million for the quarter.
The most impressive was the burning of cash during the quarter. GM has spent $ 8 billion in automotive operating cash.
But during a conversation with the media, GM CEO Dhivya Suryadevara said the second half would be better, and that should allow GM to pay off the $ 16 billion credit line needed earlier this year to survive the pandemic.
“We expect to generate between $ 7 billion and $ 9 billion in cash in the second half of the year. In the first half of the year we had burns, and in the second half we received cash, so when we raise money, we expect to pay for the revolver, ”Suryadevara said. “But it depends on the constant recovery of the market.”
GM finished the quarter with $ 30.6 billion in automotive cash.
“We have the experience to make quick and strategic decisions to ensure our long-term success for the benefit of all our stakeholders,” GM CEO Mary Barra said in a statement. “We will continue to make the necessary changes throughout the company to grow as we prepare to provide a world with zero accidents, zero emissions and zero congestion.”
Ford Motor will release its profits on Thursday, and Fiat Chrysler on Friday.
About a year so far
In North America, GM said it lost $ 100 million in adjustable earnings before interest and taxes, compared to $ 300 million in profits because, according to GM’s chief executive, it was “entitled to breakeven.”
“Obviously, the second quarter was a challenge, but we achieved an almost break-even adjustment to EBIT in North America, despite losing 8 of 13 weeks of production,” said GM CFO Dhivya Suryadevara. “These results illustrate the sustainability and profitability of the business as we make the important investments necessary for our future.”
GM sales in the United States fell 34% to 488,876 cars sold in the quarter. This brought the US market share in the US by 16.85%, down from 16.97%, according to Cox Automotive.
But Cox’s report said Chevrolet and GMC could have sold more trucks if they had more vehicles. GM truck stocks were “extremely low due to the pandemic,” Cox Automotive wrote in a research note.
But in the second half of 2020, when GM increases production of its most profitable trucks, which could generate particularly high margins in North America’s GM regions, wrote a research note by Emmanuel Rosner, a U.S. automotive and automotive technology analyst at Deutsche Bank.
GM’s results beat Wall Street expectations. A consensus of analysts polled by FactSet predicted that GM would report losses of $ 2.9 billion for the quarter.
It has been a difficult year for the automotive industry. GM revoked its 2020 guidelines in the last quarter and suspended share buybacks and quarterly dividends, saving $ 2 billion. GM also announced pay delays and layoffs. He doubled his debt to $ 30 billion to stockpile his military chest.
“There is no doubt that automakers suffered a significant blow during the second quarter, but the active action on the balance sheet allowed these companies to bear the brunt of this halt without crippling them,” wrote David Kudla, chief investment strategist at Mainstay Capital Management, in a note on Tuesday. . “This is not only a testament to the last lesson learned, but also a strong leadership in the company.”
There are bright spots. GM sales in China fell 5.3% in the second quarter, an improvement over the first quarter, when sales fell 43%, Kudla said.
Also ahead are product releases, including the all-electric Hummer pickup, Cadillac Lyric and the new Bolt SUV. GM has promised at least 20 new EV products by 2023.
More: General Motors earned $ 294 million in first-quarter net income, down 87 percent
Cash is still king
Analysts say GM’s cash retention is more critical than ever when it is working to restore its vehicle inventory and recoup lost profits.
GM said it expects to spend $ 7 billion to $ 9 billion in the quarter, but that estimate was based on the rate of monthly U.S. sales falling to 8 million to 10 million units, which was done in April. The industry rebounded in May and June, but it did little to help the automaker, which landed right in the middle.
“Problems will keep stations open due to a shortage of any parts, absenteeism, or if states resign due to growing cases,” Morningstar analyst David Whiston told the Free Press on Tuesday. “The pace may help with some of these issues, but the virus is forcing things out of control of management if it gets worse.”
GM’s aggressive spending cuts over the past two years, which have included formwork plants and job cuts, have helped put the company in a good position to enter an unequal market. GM remains on track to achieve $ 6 billion in savings by 2020 from its cost-cutting measures.
In April, Suryadevara told investors that GM had also made “significant cuts” in its advertising, deferred compensation and “certain employee concerns.” GM’s fixed cash costs are about $ 2 billion a month, including taxes, interest and pensions.
More: GM suspends dividend, takes other measures to save money amid pandemic
The cost of sales
In the quarter, GM spent more to sell its cars. Cox Automotive said GM’s incentives spent nearly 17%, averaging $ 5,817 per car. But its average transaction price rose only 1% to $ 42,795.
GM’s luxury brand, Cadillac, was the only brand to cut incentive costs, according to Cox Automotive. Cadillac spent 12% less than a year ago, but it still had an average of $ 8,119 spent on the vehicle.
“It cost almost every automaker more money to sell vehicles in the quarter,” said Free Press Michelle Krebs, an analyst at Cox Automotive. “Most of the accelerated incentives; in particular, households have turned into a very effective 0%, 84-month financing to keep sales from falling.”
Cox Automotive surveys have shown that consumers are reluctant to buy and postpone their purchases. But big deals would make you buy them. However, manufacturers, including GM, do not need to keep up the stimulus pace due to tight stocks, Krebs said.
“We’ve seen automakers return to incentives as inventory has dwindled,” Krebs said. “As a result, prices are rising, so carmakers and dealers are getting better prices on car sales, albeit at a lower rate than they were before due to demand outpacing supply.”
Although GM’s sales fell 21.4% to 1,110,824 units in the first half of the year, Kudla said the Chevrolet Blazer SUV, which GM introduced last year, was a bright spot as its sales soared 68% in the quarter.
Rolling mounting lines
In the future, the next quarter will be aimed at replenishing trade stocks to meet consumer demand, said Kudla.
“To complete the replenishment, GM will need three shifts operating at important plants, such as the Wentzville collection plant, which makes medium-sized trucks,” Kudla said. “It could be difficult in the face of a pandemic.”
The Detroit trio has been shutting down its U.S. plants since late March because the spread of the pandemic has profoundly affected stock levels. They begin rebuilding plants in mid-May, but in areas where the pandemic continues to grow, GM is experiencing high absenteeism rates.
As the Free Press first reported, the problem prompted GM earlier this month to say it would stop its third shift at GM’s Wentville Assembly plant near St. Louis.
The plant was highly absent because of cases of coronavirus overstrain in the vicinity. However, GM and the local union agreed to hire temporary workers and transfer laid-off workers from other areas to keep the plant on all three shifts.
More: GM’s decision to keep the key truck plant amid coronavirus concerns
More: 1,250 workers face layoffs at GM’s Wentzville collection plant
Analysts say it is critical that GM continues to operate all of its plants at full capacity, moving forward to restore inventory levels.
“Stocks of genetically modified goods were low, and a pandemic occurred last year, so plants need to stay open,” said Whiston. “GM only records revenue on wholesale sales, so if they don’t produce, they don’t make money.”
And while GM ended the second quarter with a 74-day supply of inventory that sounds rich, don’t be fooled, Krebs said.
“This masks the severity of inventory problems,” Krebs said. “GM’s most profitable vehicles at GMC and Chevrolet have some of the lowest stocks, especially for pickups.”
Contact Jamie L. LaReau at 313-222-2149 or email@example.com. Follow her on Twitter @jlareauan. Read more at General Motors and subscribe to ours auto newsletter.
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