Most investors are keen to find out the growth of a company through revenue growth. The reason is that revenue directly correlates with the demand of the company products. In addition, from accounting perspective, it’s harder to manipulate revenue compared to other variables in the income statement.
With that said, in this article, we will look at the total net sales and revenue of General Motors (NYSE: GM) to find out the growth of the company.
Before we start, let’s take a look at the income statement of the company to get a glimpse of what GM total revenue consists of.
As shown in the above snapshot, General Motors or GM total net sales and revenue mainly comes from the following two major segments:
- 1. Automotive revenue
- 2. GM Financial
In terms of reportable segments, automotive revenue can be further broken down to GM North America (GMNA), GM International (GMI) and GM Corporate. GM International is a business segment that is made up of GM International Operations (GMIO) and GM South America (GMSA).
GM Cruise is actually another business segment which falls under the automotive segment but its revenue contribution has been negligible. As a result, I have excluded the discussion of GM Cruise revenue in this article.
The following snapshot shows GM revenue disaggregations which is extracted from the company financial report.
As you can see from the above snapshot, GM 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 total automotive revenue.
Revenue from China
GM does not derive any revenue from the automotive business in China. Instead, GM accounted the business operation in China through Equity Income in the income statements. The reason is that GM does not own more than 50% of equity in all the joint ventures in China. As such, GM recognizes the automotive China joint ventures as associates instead of subsidiaries.
Here is a quote taken from the company 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.”
GM Financial is a business segment that provides automotive financing services. As shown in the GM revenue disaggregations snapshot, revenue from GM Financial is mainly made up of leased vehicle income, retail finance charge income and commercial finance charge income.
There is no gross margin associated with GM total revenue as GM does not disclose any cost of sales for GM Financial. GM Financial is not a retail business where it sells any physical products. Instead, it provides financial services such as loan and borrowing to both retail and commercial customers. As such, GM discloses a lumped sum of operating expenses associated with the revenue derived from GM Financial as shown in the following snapshot.
Nevertheless, there is cost of sales associated with GM automotive revenue. The reason being that this business segment is a retail business that sells physical products. In other words, GM automotive segment is delivering automotive products such as vehicles and parts. Readers who are interested in GM automotive revenue and its respective gross margin, please visit this post: GM Automotive Revenue and Gross Margin.
Looks like we are all set and let’s move on to GM total revenue chart below.
Chart of GM Total Revenue
The chart above represents GM quarterly revenue in the past 5 years from 2015 to 2019.
The trend of the plot shows that GM revenue growth may have peaked in 2016 and has slightly declined since 2017. Total revenue has reached its highest point at nearly $45 billion in 4Q16. Since then, revenue has been decreasing, hitting a low of $35 billion in the latest quarter of Q3 2019.
2017 has been a low point for GM as the company has sold off its money-losing subsidiary GM Europe (GME) to PSA Group. Starting 2Q17, GME has been classified as discontinued operation in its financial report and thereby its results had not been consolidated in all the financial statements until the deal was completed by the end of 2017.
There was a slight drop in revenue starting 2Q17 which was mainly due to the GME business segment being reported as discontinued operation pending a sale.
The reality is that GM made about $35 billion of quarterly sales back in 1Q 2015 and it made the same amount 5 years later in 3Q 2019.
In short, GM quarterly revenue growth has been stagnant over the past 5 years and has shown sign of declining in recent years.
Chart of GM Revenue Breakdown
The chart above shows the quarterly revenue breakdown into two major business segments: (1)Automotive revenue and (2) GM Financial revenue.
As mentioned in prior paragraphs, automotive revenue consists of revenues from GM North America, GM International, GM Europe and GM Corporate which will be discussed in the next chart.
For the chart above, automotive revenue made up the bulk of the revenue, contributing more than 90% of sales to GM coffers. Since automotive revenue is the major revenue contributor, any impact to this business segment would definitely affect the revenue growth of the whole company.
Although automotive revenue contributes most of sales to GM, its growth has been flat and has shown sign of decline starting 2017. In Q1 2015, GM quarterly automotive revenue was around $34 billion but the growth has been negative since then. As seen from the chart, GM automotive revenue has declined to roughly $32 billion in Q3 2019.
As for GM Financial, although the revenue contributed by this business segment may not be meaningful compared to automotive revenue, its growth has been consistently rising as shown in the plot above. You can see that in the latest quarter of Q3 2019, GM Financial revenue had risen to nearly $4 billion from about $1 billion 5 years ago.
Chart of GM Revenue By Region
The chart above shows the further breakdown of GM automotive revenue into geographical regions such as GM North America (GMNA), GM International (GMI), GM Europe (GME) and GM Corporate. For comparison purpose, GM Financial revenue is included to show how other revenue segments stacked up against that of GM Financial.
Without any doubt, GMNA is the largest revenue contributor to GM automotive revenue, making up close to 80% of automotive revenue. Since GMNA is the biggest revenue generator among all the geographical regions, the trend seen in GMNA revenue growth is similar to that of automotive revenue and total revenue.
The high proportion of GMNA revenue with respect to automotive sales shows how important the North America automotive market is to GM in driving the growth of the company not only in the past but also into the future.
Unfortunately, the long-term trend of GMNA revenue growth has been mostly flat over the shown period and has probably reached its peak in 2016. Since 2017, GMNA quarterly revenue has fluctuated between the range of $25 billion and $30 billion.
Take note that the revenue for GME has ceased to exist after 4Q17 when GM has completed the sale of its European subsidiary in 4Q17.
In addition, GMI revenue growth has been trending lower in recent years, signaling that international growth of automotive sales may have come to an end. As seen from the chart, GMI revenue has reached it peak value of more than $5 billion per quarter in 2017 before steadily declining to roughly $4 billion per quarter in 2019.
GM Revenue By Region (Only GMI, GME and GM Financial)
To illustrate the revenue by region more precisely, I have included only the GMI, GME and GM Financial revenue in the chart above.
As discussed in the previous paragraphs, GM International revenue has been stagnating since 2015 and may have already reached the highest point at nearly $6 billion per quarter in 2017 before heading down to less than $4 billion in Q3 2019.
Although international automotive sales has slumped, the impact to GM revenue has been minimal. The reason being that international revenue contributes only a little more than 10% of revenue to GM total sales in its latest quarter of 3Q 2019.
On the contrary, GM Financial revenue has been heading upward since 2015 and is getting close to $4 billion in sales in the latest quarter of 3Q 2019. Although GM Financial revenue growth is still trending higher, the momentum has struggled lately. In 3Q 2019, the sequential growth rate of GM Financial revenue is only 3% whereas the year over year growth rate is a mere 5%.
As for GM Europe, the subsidiary was sold off in 2017. As such, the revenue contribution from this business segment has ceased to exist starting 2018.
GM Revenue Quarterly (QoQ) Growth Rate
The plot above shows the sequential growth rate of GM quarterly revenue from 2015 to 2019.
Out of the 18 quarters shown in the chart, about 8 of them are having negative growth rate. In addition, 2017 was the year with the worst quarterly growth rate when 3 out of 4 quarters were having negative growth rate. Part of the reason for drop in revenue growth was the sales of GME subsidiary in 2017.
I did a calculation of the average growth rate of all the quarters shown in the chart. The result shows that the average sequential growth rate for total revenue is 0% from 2015 to 2019. That means revenue has been stagnant sequentially in average for the past 5 years.
GM Revenue Year Over Year (YoY) Growth Rate
The chart above shows the year over year growth of GM quarterly total revenue from 2015 to 2019.
Year over year growth rate for revenue has probably topped out in 2016 as seen with all positive growth rate during that period. Since then revenue yoy growth has slumped and showed the worst growth rate in 2017 when most quarters were having negative numbers. The worst was that 2017 saw double digit yoy revenue decline in most of the quarters. Revenue growth recovered slightly in 2018 but was still far behind the results in 2016.
Total revenue growth had also been vastly negative during 2019, as seen from all the quarterly yoy negative growth rate during 2019.
From a spreadsheet calculation which I did not show here, the average yoy growth of GM revenue of all the quarters shown in the chart above is -1%. In other words, quarterly revenue year over year growth has slightly declined for the past 15 quarters.
Chart of GM Quarterly Operating Income
With all the revenue that we have been discussing, how does it translate to operating profit or income?
I have created the chart above that illustrate GM quarterly operating income from 2015 to 2019.
Operating income is the profit made after all the costs and expenses of running the business such as depreciation, payroll, inventory write-off, impairment charges, restructuring cost, selling, general and administrative expenses are deducted.
Operating income is calculated before any other non-core business related income and expenses such as interest incomes and expenses, sales of asset and taxes are measured in the income statement. As such, operating income purely focuses on the strength of the core business by excluding all non-core business related items.
From the analysis of the operating income plot above, investors can find out what the operating profit is and most importantly, how much revenue is translated to operating profit.
Consistent with revenue, GM operating profit has grown quite significantly during 2015 and 2016 as seen from the plot above where the plot has consistently trended higher. In 2015 and 2016, operating income grew from roughly $0.7 billion in 1Q15 to about $3 billion in 3Q16.
Since then, operating income has steadily gone downhill and reached the lowest value at $0.5 billion in 1Q18 before recovering to $2.5 billion in 3Q19.
In addition, GM operating income has swung dramatically over the shown period. For example, operating income took a deep dive from 4Q17 to 1Q18, dropping as much as $2 billion in that quarter alone. On the contrary, during the same period, sales has only declined by about $1 billion.
The severe drop in operating income in 1Q18 is most likely due to a one-time cost such as an impairment or restructuring charge that may have bumped up the operating expenses.
You may have noticed that the quarterly operating profit has improved remarkably starting 2018, rising from a mere $0.5 billion in 1Q18 to a massive $2.5 billion of sales in 3Q19. This improvement may have been caused by the restructuring initiatives that GM has been carrying out since 2017.
The main purpose of the restructuring initiatives is to cut cost and improve profit. Here is a paragraph extracted from General Motors 2Q 2019 quarterly report regarding restructuring initiatives:
Note 15. Restructuring and Other Initiatives
“We have executed various restructuring and other initiatives and we may execute additional initiatives in the future, if necessary, to streamline manufacturing capacity and reduce other costs to improve the utilization of remaining facilities. To the extent these programs involve voluntary separations, a liability is generally recorded at the time offers to employees are accepted.”
With that said, the restructuring initiatives seems to be working. In 2Q 2019, GM managed to shaved off roughly $2 billion of automotive cost of sales compared to the quarter a year ago. As a result, operating income shot up to $2.5 billion in 2Q19 which is a 66% year over year growth.
Here is a snapshot of the reduction in automotive cost of sales in 2Q19:
As seen from the snapshot above, GM made about the same amount of sales in 2Q19 compared to the quarter a year ago. But the operating income has increase by 66% which was mainly due to the reduction in automotive costs of sales of about $2 billion.
Similarly, GM managed to successfully cut its automotive cost of sales and SGA expenses by more than $1 billion in Q3 2019. The restructuring has resulted in a 44% jump in operating income in Q3 2019 from a year ago.
The following snapshot shows the reduction in automotive cost of sales and SGA expenses in 3Q19:
GM Operating Income by Segment
I have further broken down the total operating income into two major segments: (1) GM automotive and (2)GM financial.
The purpose of the plots above is to show investors which business segment makes the most profit out of its respective revenue.
The trend of automotive operating income in the chart above is pretty much consistent with the trend of revenue plot in 2015 and 2016 when revenue was on an upward trend. You can see that automotive operating income has topped out in 2016 and started to decline from 2017 all the way to 2018.
Fortunately, automotive operating income recovered in 2019 especially in Q2 and Q3 when its respective values were consistently higher than the quarters a year ago. In contrast, revenue plot is showing an opposite trend in 2019 with most quarters showing flat or even negative growth rates.
On the other hand, GM Financial operating income has been trending upward over the shown period and has reached a record figure of more than $0.5 billion in Q3 2019.
In terms of operating margin, GM Financial has been leading the race. For example, in 1Q15, GM automotive revenue contributed about 95% of revenue to the company but its respective operating profit made up only 75% of total operating income. Compare that to GM Financial, it contributed only 5% of revenue but its operating income made up about 25% of total operating income.
Fast forward to 1Q19, similar trend is observed in GM Financial when it had contributed about 25% of total operating income even though its sales was only 5% of total revenue.
In addition, GM Financial operating income in 1Q18 has even exceeded that of GM automotive by more than 2X!
Overall, GM Financial operating income does not drastically change compared to automotive operating income. As such, GM Financial profit is more stable whereas the automotive segment operating profit can vary by a very large percentage, indicating that the automotive business segment has a lot of risks and uncertainties.
In summary, GM total revenue comes from two major revenue segments which are automotive and GM Financial.
GM automotive revenue can be further divided into individual segments based on geographical areas such as GMNA, GMI, GME and GM Corporate.
GM does not get any revenue recognition from its China automotive joint ventures. Instead, equity income is recognized.
GM sold off its subsidiary GME in 2017 and revenue recognition from GME has stopped since 2Q17.
GM total revenue has flattened out since 2015 and has shown sign of declining in recent years. Average sequential growth of total revenue is 0% from 2015 to 2019. Average Year over year growth of total revenue is -1% from 2016 to 2019.
Largest contributor to total revenue has been from GM North America automotive revenue. It is making up around 80% of total revenue in Q3 2019.
GM Financial has the highest operating margin as shown in its contribution of about 25% to total operating income out of just 5% of total sales.
References and Credits
1. Financial figures in all charts above were obtained from financial statements available in General Motors Investor Relations.
2. GMC Sierra HD Denali image was obtained from: GMC Sierra.