GM hit by plant closings
Even though General Motors, GM, was able to reopen its American factories for the last half of the second quarter, the company still lost US$806 million from April through to June.
The Detroit automaker closed its plants on March 18, and they remained closed for two months due to the coronavirus. Production didn’t resume fast enough to stem the losses.
Like other automakers, GM counts revenue when vehicles are shipped from factories, so it had little money coming in for about seven weeks in April and May.
The company reported a loss of 50 cents per share, excluding one-time items. That was better than Wall Street expected, with analysts polled by FactSet predicting a US$1.77- per-share loss.
Revenue was cut in half to US$16.78 billion, but that also topped expectations.
GM burned through more than US$9 billion during the quarter, including nearly US$8 billion from operations and US$1.1 billion in capital spending. It lost money before taxes in all of its business units save for its financial arm. In its traditionally profitable North America wing, GM lost US$100 million.
The company raised borrowing on its revolving credit line to US$16 billion to get through the crisis, pushing automotive debt to over US$32 billion. It was US$13 billion a year ago.
Chief Financial Officer Dhivya Suryadevara said that if annual sales in the United States continue at a rate of 14 million and production isn’t disrupted, GM should generate US$7 billion to US$9 billion in cash during the second half of the year, offsetting a large part of the first-half cash burn. The company should be able to repay its revolving credit line by year’s end, she said.
Suryadevara also said that if the recovery continues from the pandemic, GM expects pretax earnings of US$4 billion to US$5 billion in the second half of the year.
“There’s a ton of uncertainty out there,” the CFO said.
Sales in the US, GM’s most lucrative market, fell 34 per cent for the quarter, even though executives said there is pent-up demand for vehicles, especially pickup trucks. GM has put many of its truck plants on three shifts as it tries to make up for lost production.