General Motors (NYSE: GM) is the largest automaker in the US. At a 16.9% market share, it holds a significant amount of the US consumer auto market, which generates $218 billion of retail sales in 2019. The company is also a part of Warren Buffett owned Berkshire Hathaway’s portfolio( ~5% stake).
As the coronavirus spreads across the world, it is not only contaminating people but also businesses and whole economies. The world economy has never seen a mass lockdown such as the one caused by the pandemic. This virus has also had a significant impact on the auto sector. As vehicle manufacturing is a complex process that involves a huge amount of human capital, the lockdowns and social distancing resulted in automakers having to shut down plant and production altogether. The virus did not only effect the manufacturing side of the business, but also the sales side as vehicle sales are mostly in-person transactions and not online. The sector slowdown may persist for a while as the economic and job losses suffered by people might result in reduced demand for a year or two because a vehicle is a one-time large purchase rather than a small consumable one.
Late this week, GM released their Q1 2020 numbers at an earnings call on Wednesday. The company reported that it had managed to generate a $294 million pre-tax profit despite the present economic scenario, translating to an EPS of $0.62 against projections of just $0.3 (Seeking Alpha). The company stated that factory and plant shutdowns cost the company $1.4 billion of losses in the first 3 months of the year. GM also announced it plans to reopen all production facilities on May 18 with strict health and safety provision in place. (Yahoo Finance)
The company’s Q1 profit dipped 87% from $2.2 billion in Q1 2019. GM reported cash burn of $903 million in Q1 and liquidity of $32 billion on it’s books. Sales in America generated profits of $2.2 billion while international business generated losses of $551 million. (CNBC)
The company have decided to cut capital costs by $6 billion for the year and announced plans to raise $4 billion through a new bond offering. GM also announced a new credit line agreement worth $2 billion (Motley Fool). Following the announcement, ratings agency Fitch downgraded the company’s rating to a BBB-minus, which is just one category above junk bond status. (MarketWatch)
The stock is currently trading 40% down YTD after going down as much as 56%. After the company reported it’s unexpected profit, the stock opened 6% in the green.