GM Cruise Origin. Source: GM earnings release.
Debt can help a company to grow but also can totally topple the firm when it can no longer afford to service the debt.
It’s no exception for General Motors and debt has become an even more important metric for investors to look at as the company’s debt has been reaching new highs.
As of fiscal 2022 Q4, General Motors or GM’s total debt has reached as much as $115 billion USD, a record high since 2021, and even exceeded the company’s market capitalization.
Therefore, is there a cause for concern for GM’s growing debt levels which have topped a new high as of 2022?
Let’s take a look.
In this article, we will look at GM’s several debt metrics which include the total debt, net debt, debt breakdown, etc.
Apart from the debt metrics, we also dive into a few ratios, including the debt-to-assets ratio and debt-to-revenue ratio to discover if GM’s leverage has been getting worse.
Let’s get started!
General Motors’ Debt Topics
1. Total Debt
2. Total Debt Breakdown
3. GM Financial’s Debt Breakdown
4. Net Debt
5. Debt Vs Assets
6. Debt Vs Revenue Growth
7. Total Debt To Revenue Ratio
8. Conclusion
9. References and Credits
10. Disclosure
GM’s Total Debt
General Motors total debt
As seen in the chart above, GM’s total debt has been on a rise since 2015 and reached a massive $115 billion as of 2022 Q4.
While the $115 billion total debt was a record high since 2021, it was actually lower compared to the peak recorded during the onset of the COVID-19 crisis in 2020.
In early 2020, GM boosted its liquidity by drawing more debt from credit facilities as reflected in the bump seen in the chart.
While GM drew a significant amount of debt during the COVID crisis, it repaid the debt in subsequent years which explains the significant decline in the total debt in post-pandemic periods.
GM’s Total Debt Breakdown
General Motors debt breakdown
The chart above shows GM’s total debts breakdown into 2 major categories by subsidiary or segment and they are automotive and GM Financial.
GM automotive is the business that takes care of the automotive sector, including the design, manufacturing and distribution of GM’s automotive products such as new vehicles and parts.
On the other hand, GM Financial is the business segment that provides financial services such as loans and credit facilities to both retail and commercial customers as well as dealers.
All said, according to the chart above, it can be seen that GM Financial contributes the most debt to the company, at roughly 84% of the total as of 4Q 2022.
The rest of the total debt is represented by the portion from Automotive, at roughly 16% as of Q4 2022.
On a long-term basis, GM Financial’s debt has been steadily climbing, at a much faster rate than that of Automotive as seen in the chart.
Since 2015, GM Financial’s debt has increased from $39 billion reported in 2015 to $97 billion reported in 2022, up 149% over the last 8 years.
In contrast, GM’s automotive debt has grown by only 100% since 2015, a much slower rate compared to that of GM Financial over the same period.
As of fiscal 2022 4Q, GM’s automotive debt came in at $18 billion compared to the $9 billion reported 8 years ago.
On a side note, the bump which we saw in the total debt in prior discussions was caused by the huge growth in Automotive debt as reflected in the current chart.
In contrast, GM Financial’s debt had remained roughly flat and even declined during the COVID crisis.
GM Financial’s Debt Breakdown
GM Financial debt breakdown
Not all debt in GM Financial is created equal.
In this case, we look at GM Financial’s debt breakdown which is divided into secured and unsecured portions as shown in the chart above.
According to GM, secured debt is debt that is backed by assets and payable only from proceeds related to the underlying pledged assets.
Here is a quote extracted from GM’s Q3 2021 filings regarding 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 and is therefore paid back through cash generated from these underlying assets.
In short, 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.
As the name implies, these debts are unsecured and therefore, are not backed by any assets.
Since no assets are used to back and pay off these debts, the debt payments need to come from cash produced by GM’s business operations.
In other words, unsecured debts are not safe and the company will be in a dire situation if the business operations failed to produce enough cash to service these debts.
As seen in the chart, GM Financial’s unsecured debt has been growing as opposed to secured debt and has even exceeded the portion of the secured debt since fiscal 2018.
As of fiscal 2022 4Q, GM Financial’s unsecured debt topped $55 billion USD, a record high for the company and more than 30% higher than secured debt.
In short, GM Financial’s growing unsecured debt portion is a worrying trend.
GM’s Net Debt
General Motors net debt
GM’s net debt is calculated by taking the difference between total cash on hand and total debt.
The total debt comes only from the automotive and GM Financial’s unsecured portions which we have briefly covered in prior discussions.
All told, GM’s net debt has been rising as seen in the chart above and this is even after accounting for the company’s total cash position.
As of fiscal 2022 4Q, GM’s net debt topped $38 billion USD, a new high for the company since 2021.
GM’s growing net debt should be coming from the growing unsecured debt contributed by GM Financial as the Automotive portion has remained relatively stable.
Also, GM’s growing net debt is a worrying trend for the company as these debts are mostly unsecured and therefore, are not backed by income-generating assets.
In short, GM’s business operations need to produce enough cash to service these debts.
GM’s Debt Vs Assets
GM debt vs assets
According to the chart, GM’s total assets have been growing and the trend is in line with that of the growing total debt.
As GM has not been issuing equity to raise capital and has even bought back its share, that means GM may have been partially using debt to grow its asset base as seen in the chart above.
Since fiscal 2015, GM’s total assets and total debt have been pretty much in line and are growing.
Therefore, GM may have been using debt to fund its expansion instead of equity.
Of course, GM has been a profitable company and the growing retained earnings also did contribute to the growing assets.
However, compared with equity, raising capital through debt is riskier as debt can bring down a company when it is unable to service the interest portion.
GM’s Debt Vs Revenue Growth
GM debt vs revenue
The chart above tells an even more worrying trend for General Motors.
As shown, GM’s TTM revenue has been on a decline since 2015 while total debt has been increasing.
The good news is that GM seems to have reversed the revenue downtrend since 2020 and the TTM revenue has been on a rise thereafter.
Similarly, GM’s total debt also has been on a steady rise but the growth of revenue had outpaced that of the total debt in recent years.
Therefore, if the recent run of GM’s revenue can continue into the future and the total debt can remain under control, GM should be fine.
GM’s Debt To Revenue Ratio
GM debt to revenue ratio
This chart is the same as the prior one except the current one is measured in ratio.
As seen, the total debt-to-revenue ratio has been rising and reached 0.7X as of 2022 Q4.
A declining ratio is what we need to see.
The good news is that GM’s ratio for both total debt and net debt has been heading for a decline after topping 1.1X and 0.4X, respectively, in 2020.
The downtrend of both ratios is in line with GM’s revenue growth reported in recent years coupled with the moderating debt.
Again, if these ratios can continue to decline in the future, GM’s $115 billion debt should not be a concern.
Conclusion
As of 2022 Q4, GM’s total debt reached $115 billion, and this figure has been on a rise but the growth has moderately slowed in recent years.
While total debt has been growing, GM’s revenue downtrend seems to have reversed in 2021 and has since been on the rise.
Therefore, this is a bright spot for General Motors as revenue has risen while total debt growth has slowed.
In addition, GM Automotive’s debt also has remained relatively stable after coming down from its peak in 2020.
An area that should be watched for would be the unsecured debt that comes from GM Financial.
In the last 8 years, GM Financial’s unsecured debt has risen much faster than secured debt and has also exceeded that of the secured debt since 2017.
The growing unsecured debt also has caused a rise in GM’s net debt.
Therefore, this is a lowlight that investors should probably keep an eye on.
All in all, investors should not be concerned with GM’s $115 billion debt as of Q4 2022.
References and Credits
1. All financial figures in this article were obtained and referenced from GM’s quarterly and annual filings which can be obtained 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.
Disclosure
The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
If you find the information in this article helpful, please consider sharing it on social media and also provide a link back to this article from any website so that more articles like this one can be created in the future.
Thank you!
