Detroit — General Motors Co. burned $7.8 billion in the second quarter navigating the coronavirus pandemic, but the Detroit automaker still beat Wall Street expectations and is hopeful it can pay down debt and generate cash going forward.
GM reported a second-quarter net income loss of $758 million on revenue of $16.8 billion in the second quarter, even as it declined to provide guidance for the rest of the year. CFO Dhivya Suryadevara said the automaker expects its operating profit to be in the range of $4 to $5 billion — provided U.S. vehicle sales run at a 14-million-unit rate in the second half of the year, production is not interrupted, there are no significant supplier disruptions, and GM is able to rebuild inventory to 600,000 units by year end.
“Keep in mind this is a scenario, not a guidance, and these factors are inherently difficult to predict given the volatility in demand and production timing, as well as levels,” she said. “We’re confident in the fundamentals of the business and in the normal environment we would expect the cash flow generation potential of the company to be strong.”
The Detroit automaker, despite a fluid economy, has aggressive plans to get back on track starting in August by halting salary cuts it made at the start of the virus’ U.S. surge, paying back by year’s end a $16 billion revolving line of credit and generating $7 to $9 billion in cash. But the volatile U.S. economy could affect GM’s goals as some states battle surges in coronavirus cases.
“While we can’t predict the trajectory of the virus and its ultimate impact on public health and the economy, we have put all appropriate measures in place to position the company for recovery in the third and fourth quarters and beyond,” GM CEO Mary Barra said on a Wednesday call with investors.
The pandemic forced GM and its rivals to close plants for half of the second quarter, which runs April through June. Plants reopened in mid-May. With some dealers in desperate need of inventory, automakers have pushed to resume full production even as they battle high absenteeism amid the continuing pandemic.
With state economies shut down for much of the second quarter, GM’s sales dipped 34% year over year, but demand for its profit-rich trucks remained “resilient,” GM said. GM’s retail market share for full-size pickups increased to 36.1% from 35% in the second quarter. The increase happened despite low inventory levels. GM had 120,000 trucks as of July 25, which compares with 270,000 in stock last June and 87,000 at GM’s lowest point.
GM is upping its production levels of the light-duty trucks at the Fort Wayne, Indiana, plant starting in September, which will allow the automaker to push out an additional 1,000 full-size pickups a month. Barra said the production increase will add 200 jobs at the plant.
As of July 25, GM’s overall inventory was lean at 480,000 units, which compares with 810,000 units at the end of the second quarter last year. But the Detroit automaker said that through July 25, landed U.S. dealer stock has grown by 9%, and total vehicles in-transit was up 6%, since June.
In the second quarter, the GM North American market lost $100 million in the quarter. GM International reported a loss of $270 million.
Credit Suisse’s Dan Levy and AJ Denham wrote in a Wednesday note: “For a quarter in which GMNA volume was down 60%+ (far greater than any downside test anyone could have conceived), GM still managed to be nearly breakeven in GMNA. We consider this a quite impressive accomplishment, and speaks to the structural improvements in the business today vs. prior years…reinforcing our case that GM merits a multiple re-rating.”
GM said it still made progress on its cost savings initiatives during the quarter. Since 2018, the automaker has cut costs by $3.8 billion. The company expects to hit its target of $4 to $4.5 billion, with another $0.2 billion achieved in the second quarter.
“When you look at these results, we believe this demonstrates the actions we’ve taken over the past few years to be more resilient to reduce our fixed costs, and to lower our break even point, and really improve our earnings power so we can invest in our future,” Suryadevara said.
GM consumed $7.8 billion to make it through the quarter. GM’s liquidity at the end of June was $30.6 billion.
To help get through the downturn caused by the pandemic, GM instituted salary cuts in late March. The deferrals will end Aug. 1, and GM will pay back employees in October with 6% interest. Senior executives took a 30% salary cut. The executives will also have the 20% restored, but the remaining 10% cut will stay in place.
GM is still working through absenteeism issues at plants especially in areas where coronavirus cases have surged. High levels of absent workers nearly pushed the automaker to suspend the third shift at the Wentzville, Missouri truck plant. Instead the Detroit automaker came up with a plan to keep all three shifts operating that could include transferring workers from other locations like the Spring Hill, Tennessee, plant that just lost a shift because of lack of demand for its product.
“The bottom line is that our safety protocols are working, and we have been in constant communication with our team members to ensure that they’re being followed, so far that’s allowed us to keep the three-shift pattern going to meet the very strong demand we are seeing,” Suryadevara said.
The automaker still is pushing forward on its electric vehicles plans, releasing Wednesday a teaser video for the fall 2020 unveiling of the GMC Hummer EV. GM will unveil its new Cadillac crossover Lyriq on Aug. 6.
Ford Motor Co. will release its earnings Thursday and Fiat Chrysler Automobiles NV on Friday.
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