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How Much Debt Does GM Have?

GM Cruise Origin. Source: GM earnings release.

In general, GM’s total debt consists of both current and long-term portions and are divided into Automotive and GM Financial.

The following snapshot shows the current and long term liabilities in the balance sheet extracted from the 1Q 2020 quarterly filings.

GM total liabilities Q1 2020

GM total liabilities Q1 2020

Automotive Debt

GM automotive debt mainly consists of unsecured debts. Most of the debts are revolving credit facilities and senior unsecured notes in which the company issued as bonds to fund the core operation and to repay maturing debt.

Here is a snapshot of GM automotive debt extracted from the quarterly filings dated March 31 2020:

GM automotive debt

GM automotive debt

GM Financial Debt

GM Financial is a subsidiary that provides financing services to retail customers and dealership. GM Financial debt contributes more than 80% of the total debt to the company. In 2Q 2019, GM Financial debt is divided between secured and unsecured debt, with unsecured debt slightly more than secured debt.

Secured debt consists of revolving credit facilities and securitization notes payable. Most of it was issued by Variable Interest Entities (VIE) and is repayable only from proceeds related to the underlying pledged asset. Unsecured debt consists of senior notes, credit facilities and other debt instruments.

Here is a snapshot of GM Financial debt extracted from the quarterly filings dated March 31 2020:

GM Financial debt

GM Financial debt

Important Notes to Readers

Before discussing further, I would like to stress that the data shown in the following charts came from only short and long-term debt obligations. The data did not include other liabilities that involve contractual obligations such as purchase obligations, post-retirement benefits and operating leases. However, the long-term debt portion does include finance lease obligations.

To further illustrate, GM has a series of minimum commitments under contractual obligation, including purchase obligations, post-retirement benefits and operating leases which contributes quite a huge sum of liabilities to the company.

Here is a snapshot of GM contractual obligations extracted from the statement dated March 31 2020:

GM contractual obligations

GM contractual obligations Q1 2020

As seen from the snapshot above, GM automotive debt ($30 billion) and GM Financial debt ($96 billion) alone made up about 80% of the company total contractual commitments as of March 31 2020. The mentioned amount has not even included the respective interest payments.

Also, the combined automotive and automotive financing debt (GM Financial) that will come due throughout 2020 will be $37 billion, and this amount has yet to include the interest expenses.

Nevertheless, the rest of the contractual commitments consist of future interest payments, finance and operating leases, post-retirement benefits and future purchase obligations. All these liabilities made up about 20% of the company’s total contractual commitments.

Chart of General Motors’ Total Debt

GM total debt

GM total debt

The chart above shows the trend of GM’s total debt for the previous 5 years from 2015 to 2020.

As seen from the chart, GM’s total debt has been on an increasing trend over the past 5 years. In 1Q 2015, total debt was only $48 billion, but the amount reached a record high in 1Q 2019 at $107 billion. After that, GM total debt remained elevated at this amount for the subsequent quarters in 2019 before declining slightly to $103 billion in Q4 2019.

However, GM’s total debt reached a staggering $126.5 billion in 1Q 2020, representing a year on year increase of about 19% or 23% when measured sequentially.

General Motors’ Total Debt Breakdown

GM total debt breakdown

GM total debt breakdown

To further illustrate how GM’s total debt has grown so much in such a short amount of time, I have created the chart above to show the breakdown of General Motors’ debts.

The chart above shows GM’s total debts breakdown into two components: GM Automotive and GM Financial.

From the chart, it can be seen that GM Financial contributed the most debt to the company. As of 1Q 2020, GM Financial’s debt of $96.2 billion took up more than 80% of the company total debt. Besides, the growth in total debt has also been mainly caused by the growth of GM Financial’s debt.

For perspective, GM Financial carried only $40 billion of debt in 1Q15 but the amount has grown close to $100 billion in 1Q20. The growth rate of GM Financial debt between 2015 and 2020 was more than 200% for the 5 years.

In contrast, GM Automotive debt has certainly grown at a slower rate compared to GM Financial over the same period. However, GM automotive has racked up an enormous amount of debt in 1Q 2020, causing total debt to jump from $14 billion recorded in 4Q 2019 to as much as $30 billion in 1Q 2020. The sequential and year over year increase in automotive debt was more than 100% in 1Q 2020 compared to the corresponding quarters respectively.

What has triggered GM to accumulate such a huge amount of debt in a single quarter? My best guess would be the recent COVID-19 pandemic which has ravaged badly the automotive industry. General Motors has probably resorted to debt to shore up its liquidity or cash position in view of the coming bad business environment.

While GM automotive was the segment that borrowed the most in 1Q 2020, GM Financial was still the biggest contributor in total debt, making up more than 76% of total debt in the same quarter.

Effect of Operating Lease on GM Total Debt

As of 1Q 2020, GM’s operating lease total liability was only $1.47 billion. As such, its effect on the total debt was negligible.

Effect of GM’s Surging Debts

GM’s surging debts in 1Q 2020 has caused the company to suspend share repurchase and the dividends on common shares as shown in the following excerpt extracted from the 1Q 2020 quarterly filings.

  • As part of the extension of the three-year, $4.0 billion facility, we have agreed not to execute any share repurchases until we no longer have outstanding borrowings under the revolving credit facilities, except for the three-year, $3.0 billion facility. In addition, we are restricted from paying dividends on our common shares if outstanding borrowings under the revolving credit facilities exceed $5.0 billion, with the exception of the three-year, $3.0 billion facility.

Has GM Used Debts In The Right Way?

With debts accumulating from quarter to quarter, how did GM use them? Has the company used debt in the right direction? Let’s take a look.

GM could use the debt to expand the business such as buying up assets and paying down old debts. Other than that, GM could enrich its shareholders through shares buyback and dividends or both using debts. The latter practice is highly not encouraged as the company does not have the needed funds for stock repurchase and dividends. Instead, the company is using borrowed capital to fund the stock repurchase and dividends.

For General Motors, I believe the company has been using debts in the right direction which is to expand the business through assets acquisition. Although the company has been paying dividend continuously since 2014 and partially buying back its shares, it has been self-sufficient when it comes to dividend payments. Over the past 5 years, GM has been generating enough operating and free cash flow to fund its dividends payout as seen from this article: GM Dividend Analysis.

As seen from the following chart, GM’s total debt and long-term assets have been trending in the same direction. While total debts have been increasing from 2015 to 2020, so have total long-term assets.

GM total debt vs long-term assets

GM total debt vs long-term assets

Based on the chart, there is a close correlation between GM’s total debts and assets. In short, GM has been using debts to expand the business by acquiring valuable assets that are expected to generate more revenue.

GM’s Total Debt vs Revenue Growth

GM total debt vs revenue growth

GM total debt vs revenue growth

As seen from the previous chart, GM’s long-term assets have been increasing over the years, along with total debt. With the growing assets, we should expect the company’s sales or revenue to grow along with the expanding assets.

However, the chart above seems to show a different story, with both plots heading in the opposite direction.

While GM’s total debt has grown over the years and reached a new high in 1Q 2020, the company’s total revenue seems to be declining and reached a new low in the same quarter.

What’s wrong with GM?

Chart of General Motors’ Interest Expenses

GM interest expenses

GM interest expenses

The last chart above shows the annual interest expenses incurred by the company as a result of debt over the previous 5 years from 2015 to 2019.

From the chart above, GM’s interest expenses have been on an increasing trend over the years. In 2015, GM incurred roughly $1.9 billion in interest expense. However, the interest expense increased to $4.4 billion in 2019, which was more than 2X the amount in 2015.

The increasing interest expenses have been a result of the company’s increasing indebtedness.

Conclusion

GM total debts, both current and long-term, have increased tremendously since 2015. The number was only $48 billion in 1Q15. However, total debts have increased to $127 billion in 1Q20, a record high for the company.

GM Financial, a subsidiary of GM, contributed the most debt to the company. The contribution of debt from GM Financial made up around 76% of total debt as of 1Q 2020. Other than a large proportion, GM Financial also contributed to the most growth in debt, which was a little over 100% from 2015 to 2020.

Similarly, GM automotive debt grew significantly higher in 1Q 2020 to $30 billion, representing a year over year and sequential growth rate of more than 100%.

From the correlation between assets and debts, GM has used debts to expand its business through assets acquisition. In return, these assets are expected to generate more revenue for the company in the future. However, we saw that this has not been the case. GM’s revenue has actually declined and hit a new low in 1Q 2020 even though total debts and assets have both grown substantially during the same period.

Due to the increasing indebtedness, GM’s interest expenses have also been increasing over the years from only $1.88 billion in 2015 to $4.4 billion in 2019.

References and Credits

1. Financial figures in all charts and images were obtained and referenced from GM Earnings Releases.

2. Featured images in this article are used under creative commons license and sourced from the following websites: GM Earnings Release and 2020 Outlook.

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