With factories sitting idle, GM profit slumps 88 per cent
Automaker plans to reopen most factories starting May 18
DETROIT— General Motors’ first-quarter net income fell 88 per cent, but it still managed to make $247 million (U.S.) despite the arrival of the global coronavirus pandemic.
U.S. automakers suspended production in much of the world in late March. For GM, that clipped revenue for the quarter by six per cent, to $32.7 billion, but that’s not as bad as industry analysts had been expecting.
The company essentially has been without revenue since early March, meaning that the second quarter almost certainly will be worse.
However, GM plans to reopen most of its U.S. and Canadian factories starting May 18, and chief financial officer Dhivya Suryadevara said there are signs that demand for cars and trucks exists despite the pandemic.
On a conference call with reporters
Wednesday, Suryadevara said demand has been stronger in some pockets of the U.S. where truck sales are high and cases of the coronavirus are relatively low. North America is by far GM’s most profitable market.
“There are bright spots within the industry,” Suryadevara said. “Obviously, trucks are our strong suit, and that’s something we’re going to capitalize on.”
GM has suspended its fullyear financial guidance, and Suryadevara conceded the second quarter will be tough. She said she can’t predict consumer demand for certain, but believes that customers are moving to online sales. GM’s sales website has had a 40 per cent increase in traffic since the pandemic began, she said. Many states have forced auto dealers to close showrooms.
About 85 per cent of U.S. dealers are selling vehicles online with about 3,500 participating, she said. About 90 per cent of them are offering home delivery of new vehicles.
During the past two months, GM cancelled its quarterly dividend for the first time in six years, suspended share buybacks and drew $16 billion from credit lines to prepare for the pandemic.
Suryadevara said GM entered the crisis from a strong position as it shed unprofitable businesses and restructured to cut costs. The company burned through $900 million in cash from January through March, reflecting the normal seasonal spending plus $600 million in costs due to the virus, she said.
GM, she said, made $1.2 billion before taxes, but that was cut by $1.4 billion due to the pandemic. In North America, GM made $2.2 billion before taxes, which was $300 million higher than a year ago.
With the increased borrowing, GM had $33 billion available at the end of March, she said, adding that reopening factories will help with cash flow and liquidity.