GM Reports Earnings

July 30, 2020

General Motors Co. reported solid second-quarter earnings, despite significant impacts to production and wholesales as a result of the COVID-19 pandemic. The results reflect actions GM has taken over the past few years to be more resilient.

Second-quarter 2020 results:

• EPS-diluted of $(0.56), and EPS-diluted-adjusted of $(0.50)

  • EPS-diluted-adjusted includes a $0.08 gain from PSA revaluations
  • Income of $(0.8) billion, and EBIT-adjusted of $(0.5) billion
  • Revenue of $16.8 billion
  • Automotive liquidity of $30.6 billion
  • Automotive operating cash flow of $(8.0) billion, and adjusted automotive free cash flow of $(9.0) billion
  • GM North America EBIT-adjusted near breakeven at $(0.1) billion
  • GM Financial EBT-adjusted of $0.2 billion

 

Second-quarter adjusted auto free cash flow was a loss of $9 billion, down $11.6 billion year over year. The difference was largely due to the financial impact of the pandemic and managed working capital unwind, partially offset by lower capital expenditures. The quarter benefitted from a $500-million dividend from GM’s China operations and a $400-million dividend from GM Financial. Total automotive liquidity at the end of the quarter remained strong at $30.6 billion.

“Clearly, the second quarter was a challenge, but we achieved near breakeven EBIT-adj. in North America, despite losing eight of 13 weeks of production,” CFO Dhivya Suryadevara, said. “These results illustrate the resiliency and earnings power of the business as we make the critical investments necessary for our future.”

The Federal Trade Commission reported that Volkswagen and Porsche repaid a total of more than $9.5 billion since 2016 to car buyers stemming from the companies’ deceptive “clean diesel” advertising of VWs and Audis fitted with illegal emission defeat devices.

Given a choice between returning their vehicle to VW or Porsche in exchange for compensation, or having the car modified to comply with clean-air rules, more than 86 percent of those who concluded the claims process chose to return their car through a buyback or early lease termination, the FTC noted in a Final Status Report filed with the U.S. District Court for the Northern District of California. 

“Most important, the FTC orders and related private class settlements provided redress sufficient to compensate consumers fully,” the FTC said in its July 27 final summary report.

VW's clean diesel Golf TDI
VW's clean diesel Golf TDI won World Car of the Year 2009

The FTC’s final report to the court marks the end of the largest consumer redress program in U.S. history, set up in 2016 and 2017 to compensate purchasers and lessees of more than 550,000 deceptively marketed “clean diesel” VW and Audi cars. In a complaint filed in federal court in March 2016, the FTC alleged that Volkswagen’s seven-year ad campaign was based on false claims that the cars were low-emission, environmentally friendly, met emissions standards, and would maintain a high resale value. In reality, however, the cars were fitted with illegal emission defeat devices designed to mask high emissions during government tests.

The FTC orders settling the case, approved in conjunction with class action plaintiffs, required payments to consumers that included compensation for their vehicles’ full retail value, plus all other losses they suffered because of the deception, such as time spent shopping for new vehicles, sales taxes and registration fees, and the additional amount consumers paid for a low-emissions vehicle feature. 

In addition to the FTC order on consumer redress, the Department of Justice and the Environmental Protection Agency obtained court orders providing billions more for environmental relief. In the final report, the FTC reported to the court that despite the large volume of claims, Volkswagen had “successfully managed the settlement administration process effectively,” working together with a court-appointed independent claims supervisor tasked with monitoring compliance. 

Asbury Automotive Group Inc. reported net income for the second quarter 2020 of $49.6 million ($2.57 per diluted share) and adjusted net income (a non-GAAP measure) of $48.7 million ($2.52 per diluted share). This compares to net income of $54.9 million ($2.84 per diluted share) and adjusted net income of $45.9 million ($2.38 per diluted share) in the prior year quarter.

Net income for the second quarter 2020 was adjusted for a $1.2 million ($0.05 per diluted share) legal settlement gain. Net income for the second quarter 2019 was adjusted for an $11.7 million ($0.45 per diluted share) gain on a dealership divestiture and a $0.3 million ($0.01 per diluted share) gain on the sale of real estate.

“We delivered a very strong quarter and proved out the resilience and the flexibility of our business model by delivering a record operating margin of 5.7 percent and a record low SG&A as a percentage of gross profit of 62.7 percent in an 11.3 million SAAR environment,” said David Hult, Asbury’s president. “Our focus on gross profit combined with our cost restructuring efforts allowed us to remain pro-active and committed to long-term growth by moving forward with acquiring 12 Park Place luxury franchises in the Dallas Fort Worth Market under more favorable terms than the prior agreement. This acquisition will add approximately $1.7 billion in expected annualized revenues and transform our total portfolio to 49 percent luxury stores.”

Second Quarter 2020 Highlights

  • New gross profit per vehicle up 33 percent to $1,924
  • Used retail gross profit per vehicle up 10 percent to $1,717
  • 20 percent of used sales transacted online
  • SG&A as a percentage of gross profit decreased 530 basis points to 62.7 percent
  • Income from operations as percentage of revenue increased 90 basis points to 5.7 percent
  • Adjusted EPS increased 6 percent
  • Entered into a definitive agreement to acquire Park Place Dealerships, one of the country’s largest and most prominent luxury dealer groups
  • Ended the quarter with total liquidity of $747 million and a net leverage ratio of 1.5x

New-vehicle retail sales in July are expected to be down from a year ago, according to a joint forecast developed by J.D. Power and LMC Automotive. Retail sales are projected to reach 1,133,300 units, a 4.0 percent decrease compared with the J.D. Power pre-virus forecast and a 9.5 percent decrease compared with July 2019. Reporting the same numbers without controlling for the number of selling days translates to a decrease of 5.9 percent from a year ago. (Note: July 2020 contains one additional selling day than July 2019.)

“July represents a slight pause in the overall recovery, with retail sales down 4-5 percent compared with the J.D. Power pre-virus forecast for the second consecutive month,”  said Thomas King, president of the data and analytics division at J.D. Power.

Among the top 100 U.S. markets, just eight of them are expected to post year-over-year sales gains. Notable markets among those expected to show gains include Detroit, Buffalo and Milwaukee.

“One factor contributing to the pause in recovery in July is inventory constraints for many vehicles,” King said.

This month, 41 percent of all vehicles sold will spend fewer than 20 days on dealer lots, up from 35 percent a year ago.

Incentive spending continues to fall from the record levels of April but remains up slightly from a year ago. Spending is on pace to reach $4,236 in July, an increase of $166 from July 2019. Reporting spending expressed as a percentage of the average vehicle MSRP is 10.3 percent, nearly flat from last year.

The shift in consumer demand toward more expensive trucks/SUVs continues to support record transaction prices in July. For the fourth consecutive month, trucks/SUVs are on pace to account for 76 percent of retail sales. As a result, transaction prices are expected to rise by 5.9 percent to $35,151, the highest ever for the month of July and second-highest level ever.

Tekion, a technology company, has announced the launch of its Zero-Contact Digital Sales and Service. These proprietary applications are part of Tekion’s Automotive Retail Cloud, a  cloud-native retail operating platform that connects all aspects of the automotive retail journey.

“Tekion’s Zero-Contact products enable dealers and manufacturers to sell and service vehicles in the most simple, secure and contact-free way while providing great experiences to their customers,” said Jay Vijayan, founder and CEO of Tekion.

Zero-Contact Digital Sales facilitates vehicle sales from anywhere. Dealers interact with consumers securely online to collaborate and work payments in real-time. Consumers can choose how to shop and buy based on vehicle selection or budget. They can digitally sign and send documentation, place a deposit online and receive their new vehicle at their door. Zero-Contact Service features two contactless options. The first option, Premium Concierge, empowers dealers to offer their customers vehicle service 100 percent remotely with zero contact. The second option, Secure Key Lounge, is a personalized in-store self-check-in, key drop and pick up experience.

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