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General Motors Keeps Head Above Water, Cheering The Faithful With Q1 Liquidity Report

May 08, 2020 7:48 AM ETGeneral Motors Company (GM) Stock7 Comments
Doron Levin profile picture
Doron Levin


  • $33.4 billion in automotive cash and near-cash assets capture attention and favor of investors and analysts.
  • Mid-March shutdown spared most of the quarter's Q1 vehicle production. Impact on revenue and income likely to be more severe in Q2.
  • Fitch credit-rating downgrade to one notch above junk foreshadows continued pressure on solvency.
  • Some positive signs of rebounding retail vehicle demand.
  • This idea was discussed in more depth with members of my private investing community, Auto/Mobility Investors. Get started today »

General Motors Co.'s (NYSE:GM) decision to shut down its North American assembly plants on March 18 came quite late in the quarter, sparing the period from the worst financial effects of COVID-19, which likely will show up in the current quarter's results and whose impact won't be public until late July or early August.

GM Q1 earnings slideGM Q1 Earnings statement; Source: GM

Accordingly, GM still was able to eke out a $300 million profit for the quarter on a GAAP basis - down 86.7% from a year ago - and a $1.2 billion profit on an EBIT-adjusted basis, down 46%. Profitability hardly is the point at the moment. Liquidity remains the overarching concern as the company signals its intention to reopen its assembly plants on May 18.

GM, which books revenue as its vehicles leave the assembly plants, lost about 12 days of production in the first quarter. In the current quarter, production in April is nil and likewise so far in May, suggesting that Q2 results will be much uglier than for Q1. On the plus side, GM in Q2 will be ramping up assembly of its new line of full-size of SUVs, which generate disproportionate cash and profit. Chinese post-corona automotive demand is beginning to pick up, good news for GM's two joint ventures that reported double-digit growth in April.

2021 Cadillac Escalade reveal2021 Cadillac Escalade reveal; Source: GM

Drastic action

With deep economic uncertainty in North America, GM moved aggressively in March and April to reinforce its liquidity, suspending the dividend and share buybacks while lining up additional credit. On April 14, the company arranged a $1.95 billion credit facility for GM Financial, which lends to retail buyers and to dealers. On April 24 GM extended a $3.6 billion credit facility for an additional year. Additionally, the automaker indicated it has stretched out some capital expenditures, furloughed some salaried employees, partially deferred some salaries

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This article was written by

Doron Levin profile picture
I am a journalist based in Detroit, having spent almost my entire career writing about business and economic subjects for The Wall Street Journal, New York Times, Detroit Free Press and Bloomberg. I'm the author of two books and am an acknowledged expert on the world automotive industry.

Analyst’s Disclosure: I am/we are long GM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (7)

09 May 2020
Good commentary. Sums up GM's condition well.
It won't be long before GM is back to $40 a share.
Even if auto sales will be slow to take off after the economy opens back up, GM will have some autos that will be in top demand. Silverado and Sierra's lineups have been depleted and many dealerships have orders in for them. The all-new editions of large SUVs from Arlington will be in heavy demand for GM loyal SUV customers have been waiting for these new editions, and we all know the Corvette has a 2-year order backlog. These are all $50,000 plus autos, that bring in nice profit per auto sale.
European Opportunities profile picture
I think GM is the second best managed automotive company right after Toyota. Barra‘s achievements so far are impressing.
Agree. Acted quickly to preserve liquidity in a crisis. Divested unprofitable operations. Doubled down on highest margin products. Invested in self driving and EV technology and initiated a major retooling effort to build capacity ahead of the major demand ramp for EVs. Responded to a national crisis with ventilator and PPE production with commendable speed, along with the UAW. Maintains a low personal profile. IMHO the combination of engineering and business training is a powerful tool in the hands of a sensible CEO.
Reinstate the dividend in q4?
European Opportunities profile picture
I would prefer buybacks over dividends at those price levels
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