GM Cruise Origin. Source: GM earnings release.
Debt can be beneficial for a company’s growth, but it can also lead to its downfall if the company becomes unable to repay the debt.
It’s no exception for General Motors (NYSE: GM).
General Motors’ total debt hit a record US$119B in Q3 of fiscal 2023, the highest in four years.
This number even exceeded the company’s market capitalization, which totaled only US$40B as of Nov 2023.
Therefore, is there a cause for concern for GM’s debt levels?
In this article, we will answer this question by examining several debt statistics of General Motors.
These statistics include debt figures, available cash, net debt, leverage, payments due, total liquidity, and credit rating.
Let’s examine further details, beginning with the table of contents below.
Table Of Contents
Debt
A1. Total Debt
A2. Debt Breakdown
A3. GM Financial Debt
A4. Total Debt (Only Unsecured Portions)
Cash
B1. Available Cash
Net Debt
Debt Vs Revenue
D1. Total Debt Vs Revenue
D2. Total Debt To Revenue Ratio
Debt Schedules, Liquidity And Credit Rating
E1. Debt Due
E2. Sources Of Liquidity
E3. Credit Rating
Summary And Reference
S1. Conclusion
S2. References and Credits
S3. Disclosure
Total Debt
General Motors total debt
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GM’s total debt has significantly increased since 2015 and reached a record figure of US$119B as of Q3 2023.
Compared to the figure measured a year ago, GM’s latest debt level was up 5%.
Of this amount, nearly US$39 billion is current debt due within a year.
Despite having a record debt figure in 2023, it was lower than the peak figure recorded during the onset of the COVID-19 crisis in 2020.
In fiscal 2020, GM’s total debt increased to US$127 billion due to higher borrowings amid the COVID-19 pandemic to improve liquidity.
In subsequent years, General Motors has repaid nearly all of the debt it incurred during the COVID-19 pandemic.
Debt Breakdown
General Motors debt breakdown
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GM’s debt is split into two categories: Automotive and GM Financial.
The automotive segment designs, manufactures, and distributes new vehicles, parts, and accessories, while GM Financial provides loans and credit facilities to retail and commercial customers and dealerships.
Most of GM’s debt comes from GM Financial, which accounts for roughly 87% of the total as of 3Q 2023.
As of 3Q 2023, GM Financial’s debt hit US$103 billion, a record figure up 10% over the same quarter a year ago.
On the other hand, Automotive’s debt of US$16 billion recorded in 3Q 2023 was down 16% over the same quarter a year ago.
It seems that GM Financial has accrued debt at a much faster pace than Automotive.
On a side note, a much bigger bump was seen in the plot of Automotive compared to GM Financial during 2020, illustrating that the increase in total debt during the COVID-19 pandemic was coming from GM’s Automotive.
GM Financial Debt
GM Financial debt
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GM Financial’s debt is classified into two categories: secured and unsecured debt.
Secured debt is backed by assets and payable only from proceeds related to the underlying pledged assets, according to GM’s annual reports.
Here is a quote that illustrates GM Financial’s secured debt:
-
Secured debt consists of revolving credit facilities and securitization notes payable.
Most of the secured debt was issued by Variable Interest Entities (VIEs) and is repayable only from proceeds related to the underlying pledged assets.
In other words, GM Financial’s secured debt is backed by income-producing assets such as finance receivables and leasing-related assets. It is, therefore, paid back through cash generated from these underlying assets.
As a result, GM Financial’s secured debt is safe as the underlying assets can probably cover much of the liability of the secured debt.
On the other hand, GM Financial’s unsecured debt consists of senior notes, credit facilities, and other unsecured debt.
Unsecured debt is unsecured and, therefore, not backed by any assets.
Since any assets do not back these debts, they must be paid off using the cash generated by GM’s business operations.
Investors should be concerned with unsecured debt because GM will be in trouble if it fails to service these debts.
As presented in the chart above, GM Financial’s unsecured debt appears to be much higher than secured debt.
Total Debt (Only Unsecured Portions)
general-motors-total-debt-only-unsecured-portions
(click image to expand)
After adjusting GM’s total debt for secured portions, it is left with debt from the automotive and unsecured parts, as presented in the chart above.
GM’s total unsecured debt totaled roughly US$74B as of 3Q 2023, and this is the debt portion that investors should be concerned with.
However, GM’s unsecured debt appears to be much smaller than the total debt.
At only $74 billion, GM’s debt leverage has become much less.
For example, GM’s debt-to-equity ratio was only 0.95X as of 3Q 2023, which was relatively modest.
A detailed discussion of GM’s debt leverage can be found in this article – GM Debt To Equity Ratio.
Available Cash
general-motors-available-cash
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GM had nearly US$39 billion of available cash as of 3Q 2023, up 17% over the same quarter a year ago.
GM’s available cash consists of cash and cash equivalents, marketable securities, and restricted cash.
Of the US$39 billion of cash, about US$25 billion or 64% was cash and cash equivalents, while marketable securities made up US$9.7 billion or 25% of the total.
A detailed discussion of GM’s cash flow can be found in this article – GM Cash Flow And Cash On Hand.
Total Debt Less Cash
General Motors net debt
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After adjusting for the available cash, GM’s net debt, defined as total debt (only unsecured portions) less cash, came in at only US$35 billion as of 3Q 2023.
Despite having almost $40 billion in cash, GM still owed creditors up to $35 billion.
The amount owed is much larger if we consider GM’s total debt without excluding secured debt.
In this case, GM’s net debt would be as much as US$80 billion.
Total Debt Vs Revenue
GM debt vs revenue
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General Motors has successfully reversed the downward trend of its revenue since 2020, as presented in the chart above.
Since fiscal 2020, GM’s revenue has been on an upward trend, implying improving business prospects and sales in post-pandemic periods.
Similarly, GM’s total debt has been steadily rising, but recent revenue growth has made the debt increase appear tolerable.
Total Debt To Revenue Ratio
GM debt to revenue ratio
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A declining debt-to-revenue ratio is what we need.
The excellent news is that the debt-to-revenue ratios for both total debt and net debt of GM have been declining after exceeding 1.1X and 0.4X in 2020, primarily driven by the soaring revenue during the post-pandemic periods.
GM’s shareholders can find comfort in the decreasing ratio despite seeing an increasing debt level.
Debt Due
General Motors debt due data are obtained from the 2022 annual report dated 31 Dec 2022.
| Fiscal Year | Debt Due In Million Of USD | ||
|---|---|---|---|
| Automotive | GM Financial | Total | |
| 2023 | $1,961 | $36,912 | $38,873 |
| 2024 | $118 | $21,144 | $21,262 |
| 2025 | $2,597 | $15,340 | $17,937 |
| 2026 | $61 | $7,817 | $7,878 |
| 2027 | $1,805 | $6,505 | $8,310 |
| Thereafter | $11,827 | $10,130 | $21,957 |
The table above depicts GM’s debt due between fiscal 2023 and 2027.
GM’s debt due is separated into two categories: Automotive and GM Financial.
GM Financial’s portion appears to account for the majority of the debt due.
That said, GM’s debt due in 2023 totaled US$39 billion, while that in fiscal 2024 totaled US$21 billion.
Between 2025 and 2027, the average amount of GM’s debt due totaled US$11 billion annually.
Can General Motors afford the payments due?
We will find out in the following discussion.
Sources Of Liquidity
GM’s liquidity data are obtained from the 3Q 2023 quarterly report dated 30 Sept 2023.
| Sources Of Liquidity | USD In Billions | |
|---|---|---|
| Committed Capacity | Available Capacity | |
| Automotive | ||
| Cash & Cash Equivalents | – | $19.6 |
| Marketable Securities | – | $9.5 |
| Credit Facilities | $13.5 | $12.9 |
| Operating Cash Flow | – | $12.1 (Estimated) |
| Total Automotive | – | $54.1 |
| GM Financial | ||
| Cash & Cash Equivalents | – | $4.1 |
| Total Borrowing Capacity | – | $24.7 |
| Operating Cash Flow | – | $7.0 (Estimated) |
| Total GM Financial | – | $35.8 |
| Total Liquidity | ||
| Total | – | $90.0 |
Automotive’s sources of liquidity include cash and cash equivalents, marketable securities, credit facilities, and cash provided by operating activities.
Similarly, GM Financial’s sources of liquidity include cash and cash equivalents, credit facilities, and cash provided by operating activities.
Cumulatively, GM had US$90 billion in available liquidity as of 3Q 2023, which is more than enough to cover all debt due through 2026.
A noteworthy point is that GM had enough liquidity to cover all debt due from 2023 to 2025, even without the cash flow from operations.
The following quote illustrates GM’s liquidity in the 3Q 2023 quarterly report:
- “We believe our current levels of cash, cash equivalents, marketable debt securities, available borrowing capacity under our revolving credit facilities, and other liquidity actions currently available to us are sufficient to meet our liquidity requirements.”
In short, GM has sufficient liquidity to meet all debt obligations through at least fiscal 2025.
Credit Rating
GM’s credit rating as of 16 Oct 2023.
| Rating Agencies | Types Of Indebtedness | Outlook | ||
|---|---|---|---|---|
| Corporate | Revolving Credit Facilities | Senior Unsecured | ||
| DBRS | BBB (High) | BBB (High) | N.A. | Stable |
| Fitch | BBB | BBB- | BBB | Stable |
| Moody’s | Investment Grade | Baa2 | Baa2 | Stable |
| Standard & Poor’s | BBB | BBB | BBB | Stable |
According to the latest quarterly report, all four credit rating agencies rate GM’s corporate credit at investment grade.
In March 2023, Moody’s upgraded GM’s senior unsecured notes to Baa2 from Baa3.
In September 2023, Fitch upgraded GM’s Corporate and Senior Unsecured ratings to BBB from BBB- and changed the outlook to Stable from Positive.
DBRS credit rating definitions can be found here – DBRS.
Fitch credit rating definitions can be found here – Fitch.
Moody’s credit rating definitions can be found here – Moody’s.
Standard & Poor’s credit rating definitions can be found here – Hargreaves Lansdown.
Conclusion
Although GM’s debt reached US$120B as of 2023, the unsecured portion totaled only US$74B, a far lower number than the total debt.
Moreover, when looking solely at the unsecured debt, GM’s debt-to-equity ratio remains reasonable.
After adjusting for cash, GM’s net debt came in at only $35B, also a much smaller figure compared to the total debt.
Therefore, GM’s debt leverage is considerably small when considering only the unsecured debt.
Apart from that, GM’s business prospect also has become much better during the post-pandemic periods, as seen in the rising revenue.
In addition, GM’s latest liquidity is far higher than the debt amount due.
For example, GM’s total liquidity of US$90 billion, measured as of 3Q 2023, is sufficient to cover the debt due through 2026.
As of October 16, 2023, GM’s corporate debt has obtained an investment-grade credit rating from four major credit agencies, and its senior unsecured debt has received the same from three major credit agencies.
Is General Motors $120 billion debt a cause for concern?
In my opinion and based on the discussions, there should not be any concern for GM’s $120 billion debt as of 3Q 2023.
References and Credits
1. All financial figures presented in this article were obtained and referenced from General Motors’ earning releases, shareholders letters, investor presentations, quarterly and annual reports, etc., which are available in GM Earnings Releases.
2. Featured images in this article are used under a Creative Commons license and sourced from the following websites: GM Earnings Release and 2020 Outlook.
Disclosure
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