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Analysis of GM Sales Revenue and Profitability

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 (Quarterly)

GM total net sales and revenue (quarterly)

GM total net sales and revenue (quarterly)

The chart above represents GM’s quarterly net sales and revenue in the past 5 years from 2015 to 2020.

As shown, GM’s total revenue may have already topped out in 2016 and has since been on a decline.

Quarterly total revenue was the highest at nearly $45 billion in 4Q16.

However, total revenue has since trended downward, hitting a new low of only $16.8 billion in Q2 2020, primarily driven by the COVID-19 pandemic disruption.

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 Americans to buy up large vehicles, including SUV and trucks.

While GM may have recovered from a pandemic downturn in 2020 3Q, its revenue growth still remains flat over the last 5 years.

In the long run, GM’s revenue or sales have actually declined considerably on a quarterly basis in 2020 compared to the results 5 years ago.

GM’s Net Sales and Revenue (TTM)

GM total net sales and revenue (ttm)

GM total net sales and revenue (ttm)

From a trailing 12-months (TTM) perspective, GM’s net sales and revenue have actually declined as reflected 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 5 years.

The quarterly chart in the prior discussion may not clearly show the downtrend.

The current TTM chart clearly shows that GM’s sales are on a decline since 2015 and reached its lowest during 2020.

While GM’s TTM sales may have been declining over the last 5 years, 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.

Chart of GM’s Revenue By Segment

GM total net sales and revenue by segment

GM total net sales and revenue by segment

The chart above shows GM’s quarterly revenue breakdown into two major business segments: (1)Automotive and (2)GM Financial.

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

In the above chart, automotive revenue makes up the bulk of GM’s net revenue, averaging around 90% of sales to GM’s coffers. The remaining revenue is contributed by GM Financial.

Although automotive revenue contributes the biggest portion of sales to GM, its revenue 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.

On the other hand, GM Financial, the financial arm of GM, saw its quarterly revenue remained flat at $3.4 billion in Q3 2020 compared to the prior quarter.

Year over year, GM Financial revenue declined slightly by 8% in Q3 2020 compared to the same quarter a year ago.

On a long-term basis, GM Financial revenue remained flat at slightly below $5 billion.

On a side note, GM’s automotive revenue seems to be changing wildly in the last 5 years, illustrating the cyclicality and unpredictable market condition of its automotive business segment.

The results show that consumers’ preference over GM’s automotive products can change dramatically within a few months and is highly dependent on the general economic condition.

In contrast, GM Financial 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 5-year period, albeit rather slowly.

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

Chart of GM’s Revenue By Region

GM total net sales and revenue by region

GM total net sales and revenue by region

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 5 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.

The extraordinary GMNA revenue of nearly $30 billion reported in Q3 2020 represents a year-on-year growth rate of 4%.

GM attributed the 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.

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 5 years.

GM’s Revenue Quarterly Growth Rate (QoQ)

GM revenue QoQ growth rates

GM revenue QoQ growth rates

The plot above shows the sequential growth rate of GM’s quarterly revenue from 2015 to 2020.

Out of the 22 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.

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 revenue YoY growth rates

GM revenue YoY growth rates

GM posted a flat growth rate on a year on year basis in 2020 3Q even though the sequential growth rate surged more than 100% in the same quarter.

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 showed the worst result in 2017 when most quarters posted negative numbers.

Total 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 revenue YoY growth rate is around -5%. In other words, quarterly revenue year over year growth has slightly declined on average of 5% in the past 5 years.

Chart of GM’s Quarterly Operating Income

GM total operating income (quarterly)

GM total operating income (quarterly)

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

In this matter, I have created the chart above that illustrates GM quarterly operating profit from 2015 to 2020.

Operating profit or income is the profit measured after all costs and expenses of running the business, including 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 businesses.

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 5 years.

In other words, GM operated from a record loss to a record profit in a matter of 2 quarters in 2020.

Chart of GM’s Operating Margin

GM operating margin (ttm)

GM operating margin (ttm)

The operating income may not tell us the whole picture.

As such, we will look at GM’s operating margin in this discussion to find out the percentage of revenue that is converted to 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.

According to the chart above, GM’s operating margin has been on a decline in the last 5 years and reached a low point of only 1% as of 2Q20 before recovering to 3% in 3Q20 on a TTM basis.

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

From a TTM perspective, the numbers tell us that only 3% of GM’s sales or revenue were converted to operating profits in the past 12 months.

In other words, GM derived only $0.03 dollars in operating income out of $1 dollar of revenue for the past 12-months, according to the GAAP accounting standard.

Is that bad or good? From the number alone, it looks pretty awful as the declining figures suggest the company’s contracting profitability.

However, this figure needs to be compared with the industry average to arrive at a conclusion.

GM’s Operating Income by Segment

GM operating income by segment

GM operating income by segment

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 profit surged to a record high of $3.3 billion and $1.15 billion, respectively.

In the same chart, never has General Motors reached this level of profitability in 3Q 2020 over the past 5 years.

While GM may have achieved record profitability in 2020 Q3, the dramatic changes in the automotive income between 2015 and 2020 have again, shown that GM’s automotive business is highly cyclical and wildly unpredictable.

There are just too many factors that could affect the company’s ability to squeeze profit out of revenues.

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

As such, GM 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 disruption in the automotive industry brought on by the COVID-19 outbreak.

In contrast, GM Financial’s operating income has been more predictable and has, in fact, increased significantly in the last 5 years.

While GM suffered a huge operating loss in 4Q 2019 and 2Q 2020 respectively in the automotive segment, 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 rising demand as seen in 3Q 2020, GM Financial’s operating profit surged past the $1 billion thresholds 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

GM operating margin by segment

GM operating margin by segment

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.

We have seen that GM automotive’s profitability 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 investors which GM’s business segment squeezes more profits out of their revenues.

According to the chart, it’s very obvious that GM Financial is the clear winner when it comes to profitability as reflected from its higher operating margin which averages more than 10% on a trailing 12-month (TTM) basis.

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 decline in GM’s automotive operating margin reversed in 3Q 2020 and inched closer to 2.0%, due largely to the strong sales in the same quarter.

You may notice that the trend of both plots is heading in the opposite direction.

Since 2017, GM Financial’s TTM operating margin has been trending upward from 10% to slightly above 14% as of Q3 2020.

In contrast, GM’s automotive operating margin was seen heading lower towards the low single-digit region by Q3 2020.

As of Q3 2020, GM posted an automotive operating margin of only 1.3% on a TTM basis despite having strong sales in the same quarter.

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

From the operating margin perspective, GM Financial is way more profitable than GM automotive.

In short, GM Financial is 10X more profitable than GM automotive, according to the operating margin figures in 3Q 2020.

Conclusion

GM’s total revenue or net revenue has been flat in the last 5 years, indicating that the demand for its product has also been flat without a significant breakthrough.

The worst quarter was seen in 2Q20 when quarterly revenue declined nearly 50% on a year on year and sequential basis.

However, GM’s total revenue bounced back in 3Q20, despite experiencing a severe decline in the prior quarter.

In terms of profitability, GM Financial was seen holding up and still generated an operating profit of $180 million in 2Q20 compared to a loss of $1.4 billion in the automotive sector in 2Q20.

Both GM automotive and GM Financial made record-high revenues and profitability in 3Q20, driven primarily by surging demand for the company’s large vehicles, including heavy trucks and SUVs in the age of a pandemic.

Additionally, the operating margin analysis shows that GM Financial is profoundly more profitable than the automotive segment, at more than 10X higher profits according to the results in 3Q20.

References and Credits

1. Financial figures in all charts above were obtained and referenced from financial 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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