Cleveland, Ohio – General Motors (GM) posted higher earnings before taxes last year than in did in 2019, despite losing a quarter of sales and production to the COVID-19 pandemic. Higher income taxes and interest expenses from drawing down most of its credit lines bit into those strong operating results, but the automaker still managed to earn $6.4 billion in the worst automotive market in more than a decade.
“GM’s 2020 performance was remarkable by any measure, and even more so in a year when a global pandemic caused companies around the world – including GM – to temporarily suspend manufacturing operations to keep employees safe. Our dealers also took extraordinary steps to protect our customers, such as providing seamless online shopping, purchasing, and delivery solutions,” GM Chairman and CEO Mary Barra said.
At the beginning of the crisis, GM and other automakers went into financial crisis mode and drew down credit lines, effectively maxing out their credit cards and holding the proceeds in cash rather than risk losing credit lines if economic conditions worsened. That decision pushed interest expenses on those loans up 40% to $1.1 billion, a $300 million swing that entirely explains lower overall earnings compared to 2019.
Other cash-saving activities included delaying some plant improvements and slashing selling, general, and administrative (SG&A) expenses by $1.4 billion by running fewer advertisements, paying out less in incentives, and spending less to ship cars to dealers (because of lower sales demand).
Some key takeaways from the strong financial performance include:
- Higher electric vehicle (EV)/autonomous vehicle (AV) spending. GM put hundreds of millions of dollars last year into EV production in Detroit, Tennessee, and Ohio. And, as it cut spending at some facilities, it increased investments into green products.
- Lower capital expenditures overall. GM spent $5.2 billion in capital expenditures (plant upgrades) last year, down sharply from $7.5 billion in 2019. Some of this was to conserve cash during COVID-19, some was lucky timing (truck/SUV plant upgrades took place in 2018 and 2019, so they didn't need more new equipment), and some was because they couldn't get equipment for upgrades. So, the fact that GM increased EV/AV spending last year shows where their priorities are.
- Chip shortage. The entire auto industry is dealing with shortages of computer chips, and GM has already had to shutter three North American plants because they can't get semiconductors in the volumes they need. The company says this problem should work itself out in the coming months, but it's estimating that the shortages will lower 2021 profits by as much as $2 billion.
- Taking market share from Ford. Ford posted a small loss for 2020, mainly because of the same timing issues that benefitted GM. Ford was launching the new F-150 last year, and that means dropping truck sales as they burned through inventory of outgoing model year pickups and a slow ramp-up of new models. So, at a time when overall sales were being hammered by COVID-19, Ford also had a shortage of its best-selling, most profitable vehicles. GM was the big beneficiary of Ford's problems, gaining market share in pickups and SUVs that Ford couldn't produce. Expect some of that to change this year as Ford gets F-150s out in high volumes, boosting share and profitability.
About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and Today's eMobility and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 19 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.