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GM Sales Revenue Sinks But Profit Looks Good

GM Sierra HD Denali. Source: GMC Webpage

Revenue growth is one of the factors to consider when buying a stock. It’s no exception for General Motors (NYSE:GM).

Moreover, revenue or sales have increasingly become more important for GM.

We have witnessed that GM totally suspended its dividends indefinitely when sales dived considerably in the 1st half of 2020, primarily due to the COVID-19 disruption.

In this article, we will explore and track the total net sales and revenue of General Motors (NYSE:GM) over several quarters to find out the growth as well as the profitability of the company.

Additionally, we will also look at GM’s revenue by business segments and by regions to find out how each revenue segment or region performs when it comes to growth rates and profitability.

Keep in mind that the following revenue and profitability discussions are based on the GAAP standard that GM disclosed in its financial statements.

Let’s get started!

GM’s Total Revenue Breakdown

The following snapshot shows GM’s revenue breakdown by segment.

GM Q3 2019 income statement

GM Q3 2019 income statement

As shown in the above snapshot, General Motors’ net sales and revenue comes primarily from 2 core segments:

  • 1. Automotive
  • 2. GM Financial

In general, GM’s core businesses consist of both automotive and GM Financial. These core businesses generate the bulk of sales for the company.

Other than manufacturing and selling cars, GM also involves in financial services which are highly profitable (you will see below) and that brings in a big chunk of profits to the company.

GM Automotive

GM’s automotive business are divided into GM North America (GMNA), GM International (GMI) and GM Corporate.

According to General Motors, GM International primarily meets the demands of customers outside North American with vehicles developed, manufactured and/or marketed under the Buick, Cadillac, Chevrolet, GMC and Holden brands.

The international operations also include GM’s presence in China with vehicles developed and marketed under the Baojun, Buick, Cadillac, Chevrolet and Wuling brands.

GM Corporate also falls under the automotive segment but its revenue contribution has been negligible. As a result, I have excluded the revenue from GM Corporate in some of the charts below.

The following snapshot shows GM revenue disaggregations which are extracted from the company financial report.

GM revenue disaggregation

GM revenue disaggregation

As you can see from the above snapshot, GM’s automotive revenue is derived primarily from sales of new vehicles, parts and accessories.

Besides, sales of used vehicles and services are also part of GM’s automotive revenue.

Revenue from China

GM does not derive any revenue from the automotive business in China.

Instead, GM recognizes the revenue from China through Equity Income in the income statements.

The reason is that GM does not own more than 50% of the equity in all the joint ventures in China.

From an accounting perspective, GM treated the automotive China joint ventures as associates rather than subsidiaries.

Here is a quote taken from the company’s financial report regarding non-consolidated affiliates (China Joint Ventures):

“Nonconsolidated affiliates are entities in which an equity ownership interest is maintained and for which the equity method of accounting is used due to our ability to exert significant influence over decisions relating to their operating and financial affairs.

Revenue and expenses of our joint ventures are not consolidated into our financial statements; rather, our proportionate share of the earnings of each joint venture is reflected as Equity income.”

To find out the number of vehicle deliveries as well as the equity income from China, you can visit this webpage: GM’s revenue streams from China.

GM Financial

As mentioned, GM Financial is one of the major business segments and it provides automotive financing services.

As shown in GM’s revenue disaggregations snapshot above, revenue from GM Financial is mainly made up of leased vehicle income, retail finance charge income and commercial finance charge income.

Gross Margin

There is no gross margin associated with GM’s total revenue as there is no cost of sales for GM Financial.

GM Financial is not a retail business where it sells any physical products.

Rather, it provides financial services such as loan and borrowing to both retail and commercial customers through its dealers’ network.

As shown in the snapshot below, GM discloses a lumped sum of operating expenses associated with GM Financial revenue. In other words, we can extract GM Financial operating income directly from the disclosed operating expenses.

GM Financial operating expenses

GM Financial operating expenses

While there is no gross margin associated with GM’s total revenue, we still can measure the gross margin for GM’s automotive business by deducting the cost of automotive sales from the respective automotive revenue.

Readers who are keen to know about GM’s automotive revenue and its respective gross margin, please visit this post: GM Automotive Revenue and Gross Margin.

GM’s Net Sales and Revenue (Yearly)

GM net sales and revenue by year

GM net sales and revenue by year

* Net sales & revenue figures are GAAP measures and are obtained from GM’s annual and quarterly financial reports.

Let’s first look at GM’s total net sales & revenue by year for the period from FY2015 to FY2021.

Between 2015 and 2021, GM’s annual revenue has been on a decline, with net sales reaching only $122.5 billion in FY2020.

Year over year, GM’s annual revenue had declined by more than 10% in FY2020 compared to the prior year.

GM’s peak revenue of $166 billion was reported in FY2016.

However, this record-high figure has neither been seen nor beaten again in subsequent years.

Year to date, GM’s total net sales reached $32.5 billion.

General Motors vs Ford Motors vs Tesla

GM vs Ford vs Tesla in net sales and revenue

GM vs Ford vs Tesla in net sales and revenue

* All companies’s net sales & revenue figures are GAAP measures and are obtained from their respective annual and quarterly financial reports.

To get an idea of how GM’s total revenues look compared to its competitors, the chart above shows the comparison among GM, Ford and Tesla.

On a yearly basis, GM reported about the same level of revenue as that of Ford between FY2015 and FY2020.

However, GM’s revenues are much higher than that of Tesla, at nearly 4X higher in FY2020.

One notable trend worth mentioning is that both GM and Ford’s annual net sales have been on a decline in the past 6 years.

In contrast, Tesla’s revenue has been on an increase and reached a record high in FY2020.

GM’s Net Sales & Revenue By Segment (Yearly)

GM annual net sales and revenue by segment

GM annual net sales and revenue by segment

* Net sales & revenue by segment figures are GAAP measures and are obtained from GM’s annual and quarterly financial reports.

From a segment perspective, GM’s automotive revenues are much higher than that of GM Financial, at roughly 8X higher in FY2020.

However, GM’s automotive revenues have been on a decline over the last 6 years whereas GM Financial’s revenue has been on a rise.

As of FY2020, GM’s automotive revenue reached $108.7 billion compared to only $13.8 billion for GM Financial.

GM Financial’s revenue had slightly declined by 5% in FY2020 from the prior year.

GM’s Net Sales & Revenue By Region (Yearly)

GM annual net sales and revenue by region

GM annual net sales and revenue by region

* Net sales & revenue by region figures are GAAP measures and are obtained from GM’s annual and quarterly financial reports.

There are only 2 regions as reported by GM and they are GM North America (GMNA) and GM International (GMI).

Between FY2015 and FY2020, GMNA has been GM’s largest revenue contributor, at more than $100 billion on a yearly basis.

However, that figure has dropped to only $96.7 billion as of FY2020.

A similar trend is observed for GMI where its annual revenue has been on a decline.

As of FY2020, GMI’s net sales and revenue totaled only $11.6 billion, down nearly 30% from FY2019.

In short, GMNA’s net sales and revenue were more than 8X higher than that of GMI in FY2020.

GM’s Net Sales and Revenue (Quarterly)

GM quarterly net sales and revenue

GM quarterly net sales and revenue

* Net sales & revenue by quarter figures are GAAP measures and are obtained from GM’s annual and quarterly financial reports.

As shown, GM’s quarterly net sales & revenue may have already topped out in FY2016 and has since been on a decline.

GM’s quarterly total revenue was the highest at nearly $45 billion in 4Q16.

However, GM’s revenue figures have since trended downward, hitting a new low at only $16.8 billion in Q2 2020, primarily driven by the negative impact of the COVID-19 pandemic.

While GM hit a bottom in 2020 Q2, its net sales and revenue bounced back considerably in 2020 Q3 to slightly more than $35 billion on a quarterly basis, representing a sequential growth rate of more than 100%!

For your information, we are seeing a V-shape recovery here.

According to GM’s 3Q 2020 press releases, the sales improvement has been driven mainly by strong sales of crossovers, full-size pickups and large SUV in the United States.

In other words, the pandemic has driven up demand for large vehicles, including SUV and trucks.

As of Q1 2021, GM’s net sales and revenue reached $32.5 billion, which was slightly lower compared to the same quarter a year ago.

GM’s Net Sales and Revenue (TTM)

GM TTM net sales and revenue

GM TTM net sales and revenue

* TTM figures came from the author’s own calculation and consist of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Quarterly net sales & revenue are GAAP measures and are obtained from GM’s annual and quarterly financial reports.

The TTM (trailing 12-month) plot is best used to show the long-term trend of GM’s net sales and revenue.

From a TTM perspective, GM’s net sales and revenue have actually declined as shown in the chart above.

As of 3Q 2020, GM’s net sales and revenue reached only $116 billion on a TTM basis, a new low for the company in the last 6 years.

While GM’s TTM sales have declined and reached a new low, we are seeing a strong quarter in Q3 2020.

GM’s unexpected recovery in 3Q 2020 is a testament to the company’s resilience, even during the age of the COVID-19.

If revenue recovery continued in subsequent quarters, GM will most likely reinstate its dividend payout and share buyback in no time.

Additionally, GM’s TTM net sales and revenue have actually trended higher in the 2nd half of FY2020 to $122 billion by 2020 Q4.

As of Q1 2021, GM’s TTM net sales and revenue remained at $122 billion, which was 9% lower compared to 1Q 2020.

GM’s Net Sales & Revenue By Segment (Quarterly)

GM quarterly net sales and revenue by segment

GM quarterly net sales and revenue by segment

* Net sales & revenue by segment figures are GAAP measures and are obtained from GM’s annual and quarterly financial reports.

As mentioned, GM’s automotive is the aggregate of all sales and revenues from GM North America, GM International, GM Europe and GM Corporate.

On the other hand, GM Financial is the captive finance arm of the company, whose primary roles are to provide retail and commercial lending products to retail customers as well as dealerships.

On a quarterly basis, GM’s automotive revenue makes up the bulk of the company’s net revenue, providing around 90% of sales.

The remaining revenue is contributed by GM Financial.

While GM’s automotive sector has been the company’s biggest revenue stream, its growth has been trending downward and reached a record low in 2Q 2020 at only $13.4 billion, a figure which was more than 50% lower compared to the result a year ago.

However, we are witnessing a V-shape recovery in GM’s automotive revenue in 2020 Q3 when automotive sales reached $32 billion in the same quarter, representing a quarterly growth rate of more than 100%.

Year over year, GM automotive sales remained flat in 3Q 2020.

As of 2021 1Q, GM’s automotive made a total of $29 billion in net sales and revenue.

On the other hand, GM Financial, the captive finance arm of GM, saw its quarterly revenue reaching $3.4 billion in Q1 2021 compared to $3.6 billion reported in the same quarter a year ago, representing a year over year decline of 4%.

On a long-term basis, GM Financial’s quarterly revenue remained flat at about $3.4 billion in FY2020.

On a side note, GM’s automotive revenues have been swinging wildly on a quarterly basis, illustrating the cyclicality and unpredictable nature of the company’s automotive business segment.

As such, consumers’ preference and demand for GM’s automotive products can change dramatically within just a few months and is highly dependent on the general economic condition.

In contrast, GM Financial’s revenue seems to be more stable and does not change as significantly as its automotive counterpart.

In fact, GM Financial revenue has actually increased over the course of the 6-year period, albeit rather slowly.

This behavior is sort of expected as financial products do not rely heavily on consumers’ preference and market cyclicality.

GM’s Net Sales & Revenue By Region (Quarterly)

GM quarterly net sales and revenue by region

GM quarterly net sales and revenue by region

* Net sales & revenue by region figures are GAAP measures and are obtained from GM’s annual and quarterly financial reports.

The chart above shows the further breakdown of GM’s automotive revenue into geographical regions such as GM North America (GMNA), GM International (GMI) and GM Europe (GME).

Without a doubt, GMNA has been the largest revenue contributor over the last 6 years, making up close to 80% of automotive revenue on average.

The 2nd spot goes to GMI at roughly 14% of automotive revenue on average.

The revenue from GME has ceased to exist after 2017 when the subsidiary was sold off in the same year.

In 2Q 2020, GM North America posted sales of only $11.6 billion which is a record low for the company.

The figure represents a year over year decline of 60%.

GMNA’s sales recovered tremendously in the subsequent quarter of Q3 2020, totaling more than $29 billion.

Year over year, GMNA’s sales in 3Q 2020 represent a growth of 4%.

GM attributed GMNA’s strong quarter in 3Q 2020 to surging demand for the company’s large vehicles, including crossover, SUV and trucks.

The recovery also occurred in GM International when the reported sales totaled $2.7 billion, representing a sequential growth rate of more than 60%!

However, GMI’s revenue declined by nearly 30% in Q3 2020 on a year-over-year basis.

As of 2021 Q1, GMNA and GMI reported net sales & revenue of $26 billion and $3 billion, respectively.

Again, GM North America and GMI automotive segments are highly cyclical and unpredictable as seen from the dramatic changes in revenue from these regions, indicating that GM operates in a very competitive environment.

An event as severe as the COVID-19 outbreak may make or break General Motors’ automotive business.

On a long-term basis, GMNA and GMI’s revenue remained flat in the last 6 years.

GM’s Net Sales & Revenue Quarterly Growth Rates

GM net sales and revenue quarterly growth rates

GM net sales and revenue quarterly growth rates

* Quarterly growth rates are calculated by the author using data obtained from GM’s annual and quarterly financial reports.

The plot above shows the sequential growth rate of GM’s quarterly revenue from 2015 to 2021.

Out of the 24 quarters shown in the chart, as many as 10 are in the red.

In addition, 2017 was probably the worst year when GM reported 3 out of 4 quarters of negative growth rates in the double-digit figures.

Part of the reason for the drop in revenue was attributed to the sales of the GM Europe subsidiary in 2017.

In addition, GM posted the worst drop in quarterly revenue in Q2 2020 when the sequential growth rate was at a staggering figure of -48.7%.

However, GM’s quarterly revenue surged by 111% in Q3 2020 to a record high in 2020, driven largely by strong sales of GM’s full-size pickups and large SUVs.

As of 2021 Q1, GM’s net sales and revenue declined 13.5% quarter over quarter.

All in all, 2020 was definitely a turbulent year for GM when the company grabbled with declining sales in the 1st half and later on, a strong recovery in the 2nd half of 2020.

GM Revenue Year Over Year (YoY) Growth Rate

GM net sales and revenue year over year growth rates

GM net sales and revenue year over year growth rates

* Year-on-year growth rates are calculated by the author using data obtained from GM’s annual and quarterly financial reports.

GM posted a flat growth rate on a year-on-year basis in 2021 1Q while having a strong recovery in the prior quarter at more than 20% year-on-year growth rate.

Prior to 2020, GM’s year-over-year growth rate has probably topped out in 2016 as seen from all the positive growth rates recorded in 2016.

Since then, revenue YoY growth has slumped and had the worst result in 2017 when most quarters posted negative numbers.

GM’s net sales and revenue YoY growth has also been vastly negative in 2019, as seen from all the negative numbers throughout 2019.

GM saw the worst revenue drop in Q2 2020 when YoY growth rate posted -50% as shown in the chart.

On average, GM’s net sales and revenue YoY growth rate is around -5%.

In other words, GM’s net sales and revenue year over year growth has been on a decline at an average rate of 5% in the past 6 years.

GM’s Operating Income (Quarterly)

GM operating income (quarterly)

GM operating income (quarterly)

* Operating income is a GAAP measure and is obtained from GM’s annual and quarterly financial reports.

With all the net sales and revenues that GM has been reporting, how do they translate to profitability?

To get a glimpse of what GM’s profitability is like, we look at the company’s operating income as shown in the chart above.

Operating profit or income is the profit measured after all costs and expenses of running the business, including costs of sales, research and development as well as SGA expenses, are deducted.

As such, operating income focuses on the strength of GM’s core business by excluding all non-core-related expenses.

In General Motors’ case, its core businesses are in the automotive and financial services.

Based on the chart, GM’s operating profit has grown quite significantly from 2015 to 2016.

The upward trend of GM’s profitability also corresponds to the strong revenue growth seen during the same years.

Between 2015 and 2016, GM’s quarterly operating income grew from $0.7 billion in 1Q15 to about $3 billion in 3Q16.

However, GM’s operating income growth stalled between 2019 and 2020.

In 2Q 2020 alone, GM lost more than $1.2 billion in operating income.

A V-shape recovery seen in 3Q 2020 has driven GM’s operating profitability to a new high in the same quarter.

In Q3 2020, GM’s operating profit surged to $4.4 billion, a record high for the company in the last 6 years.

As of 2021 1Q, GM’s operating income soared beyond $3 billion, one of the highest results reported by the company.

In other words, GM has swung from a record loss to a record profit in 2020.

GM’s profitability continued to surge going into 2021 when the company reported a record-beating result of $3.3 billion in operating profit in 1Q 2021.

GM’s Operating Margin (TTM)

GM operating margin (TTM)

GM operating margin (TTM)

* Operating margin is a GAAP measure and is calculated using data obtained from GM’s annual and quarterly financial reports.
* TTM operating margin is calculated using TTM operating income and TTM revenue on a trailing 12-month or 4-quarter basis.

The operating income alone may not tell us the whole picture.

In this aspect, we will look at GM’s operating margin in this discussion to find out the ratio of revenue that is converted into operating profit.

In other words, GM’s operating margin measures how much of that revenue is squeezed into profitability, after accounting for expenses such as costs of sales, R&D and SGA.

Keep in mind that the operating margin still leaves out other expenses such as interest costs and taxes.

That said, according to the chart, GM’s TTM operating margin has been on a decline and reached a low point of only 1% in 2Q 2020 before recovering to 3% in 3Q 2020.

The V-shape recovery in GM’s revenue in 3Q20 has successfully reversed the downtrend of the margin.

GM’s operating margin continued to improve in the 2nd half of 2020 and in the 1st quarter of 2021.

As of 1Q 2021, GM’s operating margin reached a whopping 7.6%, beating all prior records.

The 1Q 2021 strong margin was driven by a combination of factors, including better-than-expected recovery, the launch of full-size SUVs, strong pricing on full-size pickups and high used vehicle prices.

At this margin, GM managed to derive about $0.07 dollars of operating profit out of $1 dollar of revenue for the past 12-months.

To some companies, this margin may not mean anything, but it’s a record-beating result for GM.

GM’s Operating Income by Segment (Quarterly)

GM operating income by segment (quarterly)

GM operating income by segment (quarterly)

* Operating income by segment is a GAAP measure and is calculated using data obtained from GM’s annual and quarterly financial reports.
* Automotive operating income is inclusive of GM Cruise operating income.

In the chart above, I have further broken down GM’s operating income into two major segments: (1) GM automotive and (2)GM financial, on a quarterly basis.

Accordingly, GM automotive operating income has been wildly dramatic as depicted over the huge difference between the highest and lowest points.

For instance, GM made nearly $3 billion of operating income in some of the quarters in 2016.

Yet, operating income could drop to as low as $500 million in 1Q18 and even turned negative in 4Q19 and 2Q20.

GM automotive suffered nearly $1 billion and $1.4 billion in operating loss in 4Q19 and 2Q20, respectively.

In line with the sales recovery seen in Q3 2020, both GM’s automotive and GM Financial’s operating profits surged to a record high of $3.3 billion and $1.15 billion, respectively.

In the same chart, General Motors’ automotive and GM Financial’s operating profitability continued post 3Q 2020 quarter.

As of 2021 1Q, GM’s automotive and GM Financial posted an operating profit of $2.1 billion and $1.1 billion, respectively.

You may notice that GM Financial has never suffered a loss in operation, even during the height of the COVID-19 outbreak.

The worst that had ever happened to GM Financial was that its operating profit reduced to only $200 million in 2Q 2020, the lowest GM has ever reported in the last few years.

Again, the operating results have shown that GM’s automotive business is highly cyclical and wildly unpredictable.

A lot of factors can have an effect on GM’s automotive segment.

For example, a labor disruption which occurred in 4Q19 has disrupted GM’s productions and subsequently, impacted the company’s automotive segment.

In this case, GM’s automotive segment lost over $1 billion in operating profit for the first time in 4Q19 since 2015.

Similarly, GM suffered an even greater loss in 2Q 2020 of close to $1.4 billion due to the automotive industry being negatively impacted by the COVID-19 outbreak.

In this case, GM was forced to shutter a few of its production plants, and thus, leading to fewer cars being produced.

In contrast, GM Financial’s operating profits have been more predictable and stable.

In fact, GM Financial’s profitability has been on a significant rise in the last 6 years, with the last 3 consecutive quarters reporting an operating profit that totaled more than $1 billion per quarter.

While GM automotive suffered a huge operating loss in 4Q 2019 and 2Q 2020, GM Financial has actually made an operating profit of nearly $500 million and $180 million in each of this quarter respectively, illustrating that the financial arm of the company has been pretty resilient to various market conditions.

In a time of strong demand as seen in 3Q 2020, GM Financial’s operating profit surged past the $1 billion levels for the 1st time since 2015.

In short, GM Financial makes money in both good and bad times, no matter what the market conditions are.

GM’s Operating Margin by Segment (TTM)

GM operating margin by segment (TTM)

GM operating margin by segment (TTM)

* Operating margin by segment is a GAAP measure and is calculated using data obtained from GM’s annual and quarterly financial reports.
* TTM operating margin by segment is calculated using TTM operating income by segment and TTM revenue by segment on a trailing 12-month or 4-quarter basis.
* Automotive operating margin is inclusive of GM Cruise operating margin.

In this discussion, we will find out which GM’s business segment, whether GM automotive or GM Financial, is more profitable from an operating margin perspective.

In the prior discussion, we have seen that GM automotive’s operating income is 2X-5X the size of GM Financial on an absolute value basis.

While a larger operating profit may seem like a good thing, it does not necessarily mean that the business is more profitable.

The operating margin chart above shows the ratios at which GM squeezes the profits out of their respective revenues.

According to the chart, it’s very obvious that GM Financial is more profitable as shown by the higher operating margin which averages more than 10%.

On the other hand, GM automotive operating margin has been mostly in the low single-digit, indicating that it is a low profitability business.

The worst thing is that GM’s automotive operating margin has been slowly declining and even turned negative in 2Q 2020.

Fortunately, the downtrend in GM’s automotive operating margin reversed in 3Q 2020 and inched higher to 2.0%, due largely to the strong recovery in the same quarter.

GM’s automotive operating margin continued to improve in subsequent quarters and reached slightly more than 5% as of 2021 1Q.

The opposite trend is observed for GM Financial’s operating margin.

Since 2017, GM Financial’s operating margin has been trending upward from 10% reported in 2Q 2018 to 25% reported in Q1 2021.

As of 2021 1Q, GM Financial’s operating margin reached as much as 25%, a new record for the company.

On a long-term basis, GM Financial’s operating margin has been steadily improving while GM automotive has been worsening from a TTM standpoint.

While GM’s operating margin soared beyond 5% in 1Q 2021, it was actually in line with its historical highs.

All in all, from the operating margin perspective, GM Financial is way more profitable than GM automotive.

According to the 1Q 2021 result, GM Financial was at least 5X more profitable than GM automotive.

Conclusion

GM’s net sales and revenue by year have been on a decline between FY2015 and FY2020.

Year over year, GM’s annual net sales and revenue declined by 10% in FY2020 compared to FY2019.

The same downtrend is seen in GM’s TTM plot in which its TTM net sales and revenue reached a record low at $120 billion as of Q1 2021.

While GM’s revenue has been on a record low, it’s the opposite in terms of its operating profit.

GM made record operating profits in the last 3 consecutive quarters, with the latest one totaling $3.3 billion.

From a sector perspective, both GM automotive and GM Financial generated an operating profit of $2.1 billion and $1.1 billion, respectively, in 1Q 2021, driven primarily by surging demand for the company’s large vehicles, including heavy trucks and SUVs.

Additionally, the operating margin analysis shows that GM Financial is profoundly more profitable than the automotive segment, at about 5X higher profit according to the results in 1Q21.

References and Credits

1. Financial figures in all charts above were obtained and referenced from GM’s quarterly and annual statements available in General Motors Investor Relations.

2. GMC Sierra HD Denali image is used under creative commons license and sourced from the following websites: GMC Sierra.

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