Hit by the coronavirus crisis, General Motors is the latest of the Detroit Three automakers to have a rough quarter.
The automaker reported a net profit of just $294 million, down 86.7% from $2.1 billion for the first quarter a year ago. Its earnings before interest and taxes was $1.2 billion, down 45.9% percent. Net revenue was down 6.2% to $32.7 billion, and China operations lost $167 million.
There are a few factors to blame for GM's results. First, U.S. car demand has declined as most states have had stay-in-place orders in effect in an effort to mitigate the spread of coronavirus. In Michigan, car dealers could not even sell any cars for nearly three weeks. GM reported its U.S. customer deliveries in the quarter dropped 7% from the prior year period to 618,335 deliveries.
“The strength of this company has always been its people, and I am proud to stand with our best as we confront these challenges together — as one team — while we continue our transformation,” GM CEO Mary Barra said in a statement. “We have a track record of making swift, strategic and tough decisions to ensure our long-term viability and create value for all of our stakeholders.”
GM said it will start ramping up next week for a targeted restart of its factories in North America beginning May 18, as first reported by the Free Press on Tuesday. GM will begin a limited, cadenced and site-specific approach for a restart, it told its UAW members Tuesday and confirmed Wednesday in its earnings announcement.
More: GM tells UAW members its planned date to begin factory restarts
Auto analysts say GM’s results topped its cross-town rivals, but the automaker faces challenges in certain areas.
“With a tough first quarter over, GM now needs to focus on restarting plants, rebuilding inventory and selling vehicles. A stronger-than-expected close to April sales provides some optimism that May and beyond will be better for sales. GM needs to restock dealerships with pickup trucks,” said Michelle Krebs, executive analyst, Cox Automotive. “They have been the strongest segment throughout the COVID-19 crisis, and GM has the lowest supplies among its competitors. That’s where the sales and profits are.”
Earlier, FCA reported it lost $1.9 billion in the first quarter; Ford lost $2 billion.
Ford Motor Co. has not given a date for when it plans to restart U.S. production. On Tuesday, Fiat Chrysler Automobiles announced a restart for the week of May 18, with the exception of Belvidere Assembly in Illinois. The Detroit Three idled their assembly plants in March to protect workers from coronavirus.
Mexico’s president said he’s considering May 17 to begin possibly reopening the economy, according to Bloomberg. Mexico is key to a U.S. restart given the dependency the two countries have on auto parts production.
GM's team in Mexico has been working with the government there to ensure its auto parts suppliers and its own assembly operations in Mexico can restart on a similar time frame and be trained on GM's new safety protocols to protect workers from coronavirus, said GM CFO Dhivya Suryadevara on a call with the media.
More: Fiat Chrysler Automobiles loses $1.9B in first quarter, announces production restart date
More: Analyst says Ford needs to 'rip the Band-Aid off' after $2B loss: What he mean
Liquidity is key
Like most automakers, profits are driven by sales of SUV and pickups and despite a ripe environment for such vehicles to grow in popularity on low interest rates and cheap gas prices, the decline in demand is hurting that segment, too. Monday, Reuters reported that GM South Korea is cutting back on its export of SUVs, including the new Chevrolet Trailblazer, due to supply chain disruptions and weak U.S. auto sales.
To make it through this difficult period, GM withdrew its 2020 guidance, and suspended stock buybacks and quarterly dividends in the quarter, a $2 billion savings. GM has also said there will be employee pay deferrals and cuts and it would draw down $16 billion from its credit line to boost the cash in its war chest.
GM ended the quarter with $33.4 billion in automotive liquidity.
"Liquidity is the name of the game for not only the markets, but also auto companies, such as GM, during this shutdown," said David Kudla, chief investment strategist for Mainstay Capital Management. "If GM can provide a clear timeline to resume operations, along with details on product launches, they will surely bolster investor and consumer confidence."
For the quarter, GM's figures all exceeded expectations on Wall Street. Its adjusted earnings per share of 62 cents beating Wall Street's consensus estimate of 34 cents. A year-ago GM made $1.41 per share.
Tough Q2
GM said it remains on track to save $2 billion to $2.5 billion this year as part of its restructuring. That includes idling five plants in North America and cutting about 14,000 jobs. CFO Suryadevara has said the company does not have any additional cuts planned.
Suryadevara said GM is not providing a formal guidance at this time because there remains so much uncertainty in the economy. But she said GM did see indications of some bright spots.
“We did see some resiliency in a recovery of truck sales," Suryadevera said in a call with media. "From a demand standpoint, I would say that the early indicators of what we’re seeing in March and April is there are pockets, including trucks for example, where demand exists. Trucks are our strong suit and that’s something we’ll capitalize on in a restart.”
More: GM's truck sales finance push for self-driving cars; company shows $2.1 billion profit
GM is seeing increased consumer traffic on its Shop, Click, & Drive website, providing optimism that vehicle sales will rebound in the second quarter, Suryadevera said. She said GM is well positioned with its liquidity and will closely match production to regional demand, but she said, "Q2 will be tough.”
EVs continue as planned
Prior to the coronavirus crisis, GM said it would spend $7 billion this year to develop electric vehicles, self-driving cars and update its other product lineups.
"We have deferred some non-critical (capital expenditure) programs, mainly product refresh and minor changes," Suryadevera said.
For the second quarter, GM will spend $1.5 billion, she said, but declined to provide full-year expenditure saying, "We have to see how the economy unfolds."
But, she said GM's investments to develop EV and self-driving cars along with key products such as full-sized pickups and SUVs will continue as planned.
While GM China is mostly back up and running after its bout with the pandemic, the market remains uncertain.
In March and April there were early indications that the industry in China is improving, Suryadevera said.
“It appears to be a strong recovery and it’s something we’re watching very closely," she said.
GM sold 462,000 vehicles in China in the quarter, down from 814,000 a year earlier. China has been GM’s largest market by sales for years until the coronavirus hit. It is now second, behind the United States for the first quarter.
The Detroit automaker's pretax profit of $1.2 billion was a decline from $2.3 billion a year ago. Overall revenue of $32.7 billion was down from $34.9 billion in last year's quarter.
Pretax profits in North America were at $2.2 billion compared to $1.9 billion reported in the same period in 2019.
Contact Jamie L. LaReau at 313-222-2149 or jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter.
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