The inventory is one of the most followed assets especially for companies whose inventories represent a significant portion of their assets.
For your information, General Motors (NYSE:GM) carries a large number of inventories in its balance sheets, which accounted for more than 15% of its current assets as of 2023.
As an investor myself, I will always pay attention to a company’s inventory.
Particularly, the inventory turnover ratio and days sales in inventory are some of the ratios that help analyze a company’s inventory management.
In this article, we will explore General Motors’ inventory numbers and the respective inventory breakdown.
Additionally, we also look at some inventory ratios related to sales and current assets.
Let’s look at more details starting with the table of contents below.
What Makes Up General Motors’ Inventories
GM Inventory Components ($ Millions)
|Raw Materials & Work In Progress
|Finished Goods & Service Parts
GM’s inventory consists of the following components:
- 1. Productive materials (raw materials), supplies, and work in process
- 2. Finished products (inclusive of service parts)
Productive materials or raw materials primarily consist of steel, aluminum, resins, copper, lead, and platinum group metals.
The company stated that it does not carry a substantial inventory of such raw materials over levels reasonably required to meet its production requirement.
Finished products are new vehicles in transit for deliveries and used vehicles returned from daily rental car companies and vehicles utilized by GM’s employees.
GM’s inventories are stated at the lower of cost or net realizable value and are reviewed periodically to determine if inventory quantities are more than expected usage or if they have become obsolete.
If there is a write-down in inventory, the charges will be reflected in operating expenses in the income statements.
GM’s total inventory reached a record figure of $18 billion as of 2Q 2023.
Although GM’s inventory was at its lowest levels during the pandemic, it had significantly grown in post-pandemic periods, especially in fiscal 2023.
Inventory Growth Rates
GM registered mainly an inventory decline before fiscal 2021.
However, in post-pandemic periods after fiscal 2021, GM registered mostly inventory growth.
GM’s inventory growth rates during the post-pandemic periods had all been in high double-digits, though the latest figure was only 6.2%, illustrating the company’s aggressive strategy of growing its inventory in the EV age.
Inventory By Components
GM’s total inventories are broken down into 2 components and they are (1) finished products and (2) productive materials (inclusive of work in progress).
GM’s finished product inventory is also made up of service parts such as vehicle accessories and replacement parts.
GM’s raw material inventory shot up to record figures in post-pandemic periods after fiscal 2021.
Similarly, GM’s finished product inventory levels also were in record figures right after the rise in raw material inventory.
Both components were worth tens of billions of dollars as of fiscal 2023.
Is GM anticipating something big with such a high level of inventory?
Inventory By Components In Percentage
Percentage-wise, GM’s raw material inventory had exceeded the finished product inventory in most periods during the post-pandemic age.
However, GM’s finished product inventory had been catching up and was higher than the raw material inventory in fiscal 2023.
As of 2Q 2023, GM carried more finished products than raw materials.
Inventory To Current Assets Ratio
GM’s inventory levels are certainly on the high side in post-pandemic periods, as reflected in the elevated inventory to current assets ratio in the post-pandemic age.
Inventory To Automotive Revenue Ratio
Similarly, the inventory to automotive revenue ratio shows that GM’s inventory levels have significantly risen after fiscal 2021.
The ratio had been consistently above 10% in post-pandemic age.
Inventory Turnover Ratio
The inventory turnover ratio formula is shown below:
Inventory Turnover Ratio = Cost of Automotive Sales / Closing Inventory
GM’s inventory turnover ratio has significantly deteriorated in fiscal 2023 compared to pre-pandemic periods.
The latest ratio came in at only 2.0X, which was considerably lower than those recorded in earlier years.
The lower ratio implies that GM’s total inventory is cleared at a slower rate.
Days Sales In Inventory
The days of sales in inventory are similar to the inventory turnover ratio except that it is in numbers of days.
Therefore, GM took about 45 days to clear its total inventory in one cycle.
The ratio has significantly risen in recent periods, illustrating GM’s longer inventory holding period.
Finished Goods Inventory Turnover Ratio
If we look at the finished goods inventory alone, the turnover ratio was much better at 5.0X.
However, this ratio dropped below 5.0X in recent quarters in fiscal 2023, illustrating GM’s slower rate at inventory clearing.
Finished Product Inventory Days
An industry standard that has been used by most automotive companies including Tesla in measuring inventory turnover is the inventory days on hand for finished products.
For your information, the finished product inventory refers to new and used vehicle inventories as well as service parts for General Motors.
The formula to calculate the inventory days is shown below:
Days of sales for finished products = (new car inventory / trailing deliveries ) X 261 working days
(Source: automotive news)
For a quarterly calculation, I have slightly modified the above equation.
Instead of 261 working days, I have used 65 days. I have also modified the new car inventory to finished products which include not only new vehicles but also used vehicles as well as service parts.
Therefore, GM’s inventory days for finished products were around 14 days as of fiscal 2023 and was much lower than that of the total inventory.
This ratio has significantly risen in recent periods, indicating the longer finished product inventory holding period.
GM’s total inventory has ballooned significantly to record figures in recent quarters.
All ratios indicate GM’s elevated inventory levels.
Is GM anticipating a big demand going forward?
References and Credits
1. All financial figures presented in this article were obtained and referenced from GM’s SEC filings, earnings reports, news releases, shareholder presentations, quarterly and annual reports, etc., which are available in GM Shareholder Information.
References and examples such as tables, charts, and diagrams are constantly reviewed and cross-checked to avoid errors.
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.
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