GM Reports a Loss of $806M in Q2, But Strong Demand for its Trucks Helped Offset the Impact of the Pandemic
U.S. automaker General Motors announced its second quarter earnings on Wednesday and it appears that the automaker has weathered the impact of the global coronavirus pandemic better than analysts had predicted. On an adjusted basis, the company lost just 50 cents a share while analysts expected the automaker to lose $1.77 a share.
Although the company's total vehicle sales are down 35.5% from a year ago in North America, the automaker posted a smaller-than-expected Q2 loss boosted by sales of higher margin full-size pickup trucks paired with aggressive cost-cutting measures that began last year helped lessen the impact of the pandemic.
GM reported a loss of $806 million in the second quarter and burned through some $7.8 billion in cash. However, the company said it still has cash on hand totaling $30.6 billion for any future setbacks.
Net revenue for the quarter was down 53% to $16.8 billion from $36.1 billion last year.
GM CEO and Chairman Mary Barra described the second quarter of 2020 as one of the most challenging in the company's history. Although she assured investors during a call Wednesday that the company is positioned for continued recovery for the rest of the year and beyond.
"We have a track record of making swift and strategic decisions to ensure our long-term success for the benefit of all our stakeholders. We will continue to drive the necessary change throughout the company to enable growth as we prepare to deliver a world with zero crashes, zero emissions and zero congestion," said GM CEO Mary Barra in a statement.
Going forward, GM expects to generate $7 billion to $9 billion in free cash flow during the second half of the year if the economy stabilizes, said Dhivya Suryadevara, GM's Chief Financial Officer.
GM's sales in China, which is the world's biggest auto market, declined by 5% in the second quarter. GM made a $169 million profit after losing money in the first quarter, when the coronavirus forced the shutdown of most business in China, including auto production. Suryadevara said demand in China for new SUVs and the Cadillac CT4 sedan is helping the company maintain its China sales for the remainder of the year.
"In the second quarter, we've seen a nice recovery" in China, Suryadevara said.
Demand for GM's Full-Size Trucks Remains Stable
GM's Q2 earnings also shows that the automaker is heavily reliant on profits from full-size trucks for the bulk of its profits. GM said that Chevrolet Silverado and GMC Sierra sales were strong during the quarter, leading to year-over-year U.S. market share growth, despite low inventories at many dealers due to the production shutdowns.
GM's full-size truck plants are now running on three shifts to meet demand. As a result, the company expects to post better financial numbers for the full year. GM said its boosting pickup truck production at its plant in Fort Wayne, Indiana, by 1,000 trucks a month.
This demand for trucks translated to higher than average transaction prices (ATP). GM said that with full-size pickup ATPs increased by $1,526 compared to the first quarter, meaning that customers are paying for higher-priced models. The automaker also said that launch plans for GM's new full-size SUVs also remained on schedule.
New models in the works are redesigned full-size SUVs, the GMC Hummer EV, Cadillac Lyriq crossover and Chevrolet Bolt EUV.
GM was also aided by historically low interest rates during the second quarter, making it an attractive time for customers to buy a new vehicle. GM is currently offering zero-percent financing over 72 months on many models. In March, GM was offering zero interest for 84 months amid falling sales, but ended that financing offer in June as sales somewhat recovered.
GM was forced to suspend vehicle production in April at the peak of the pandemic due to mandatory shelter in place orders. GM's North American factories were idle for 8 out of the 13 weeks in the second quarter.
GM's EV Plans
GM also announced today that its upcoming Hummer electric pickup will be unveiled later this year with production beginning in 2021. The company released a new teaser photo of the truck shortly after announcing its Q2 earnings. The automaker announced earlier this year that the Hummer nameplate is returning as a new, fully-electric brand under its GMC truck division.
GM is hoping its new electric Hummer pickup truck, as well as a new electric model from Cadillac will help it to gain some ground on Tesla. GM is also working on a full-size electric Chevrolet pickup truck with 400 miles of range.
California-based Tesla has become the world's most valuable car company over the past two months Despite the economic fallout of the coronavirus, Tesla stock has reached an all time high over the past several months, giving the company a market cap of over $275 billion.
GM's market cap is just over $37 billion respectively, but the automaker is also betting on its electric future. In March, GM announced it will invest $20 billion by 2025 to develop new electric models to take on Tesla. GM's goal is to sell 1 million electric vehicles annually in the U.S. and China by 2025.
"Thousands of GM scientists, engineers and designers are working to execute an historic reinvention of the company," said GM President Mark Reuss in March. "They are on the cusp of delivering a profitable EV business that can satisfy millions of customers." Around 60% of the company's employees are dedicated to working on GM's transformation, he said.
That transformation is still underway as planned, despite the disruption caused by the pandemic in the second quarter.
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