General Motors swung to a big loss but aggressive cost-cutting and a large cash hoard helped cushion the blow from the coronavirus pandemic and the automaker sees stronger sales ahead with its plants now back in production.
GM lost eight of 13 weeks of production in the second quarter due to virus-related shutdowns, contributing to its $806 million loss and a 47% drop in revenue to $16.8 billion. Excluding items, it lost 50 cents per share.
Vehicle sales in the U.S. fell 34% to 488,876, reflecting reduced demand, especially for GM’s profitable pickups and SUVs, and tight dealer inventories.
But analysts had expected a much bigger loss, of $1.77 per share.
“Clearly, the second quarter was a challenge, but we achieved near break-even EBIT-adjusted in North America,” GM CFO Dhivya Suryadevara said in a media call. “These results illustrate the resiliency and earnings power of the business as we make the critical investments necessary for our future.”
The company also credited its “significant austerity measures, including reductions in advertising and other discretionary spending, compensation deferments and certain employee furloughs. These austerity measures are expected to normalize as production and demand stabilize, with some of the austerity measures remaining permanent.”
Nearly all GM plants have returned to pre-pandemic shift levels and U.S. dealer stocks are growing again, according to the company.
GM burned through $8 billion in automotive operating cash during the quarter but Suryadevara said the second half of the year will be better and should allow GM to pay off the $16 billion revolving line of credit it took earlier this year to get through the pandemic.
“In the first half of the year we had a burn and in the second half, cash generation, so as we build the cash back up, we do expect to pay the revolver off,” he said. “But that is contingent on a continued market recovery.”
GM’s negative $9 billion of auto free cash flow was “far better than Morgan Stanley” had estimated at negative $13 billion free cash flow, wrote analyst Adam Jonas of Morgan Stanley in a research note.
Bill Pugliano/Getty Images