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 and subsequently, the ability of the company to reward shareholders in the forms of dividends or shares buyback if there is any.
In addition, from accounting perspective, it’s harder to manipulate revenue compared to other variables in the income statement. Also, it’s highly suggested that investors keep track of a company’s revenue growth over several quarters to find out where revenue is heading, whether higher or lower and discover the reasons behind the direction.
With that said, in this article, we will explore the total net sales and revenue of General Motors (NYSE:GM) and keep track of the company’s revenue growth over multiple quarters. We will also investigate some of the quarters with severe revenue decline and dig out the reason of the drop by studying the company’s financials.
Other than total revenue, revenue from individual business segments and regions will also be explored to find out how each revenue segment or region performs in terms of growth and profitability.
Before summing up, we will also look at the profitability of GM and find out how much of that revenues or sales have actually been translated into operating income. As you will see in the following discussion, the operating margin measures the profitability of GM’s core operations, which in this case will be the automotive and financial services.
Before we start, let’s take a look at General Motors income statement to get a glimpse of what the company’s total revenue is comprised of.
As shown in the above snapshot, General Motors’ total net sales and revenue comes mainly from the following two major business segments:
- 1. Automotive
- 2. GM Financial
In general, GM’s core business consists of both automotive and GM Financial and these are the major core operations that generate the bulk of the revenues to the company.
Surprisingly, other than manufacturing and selling cars, GM also involves in financial services which are highly profitable (you will see below) that bring in a portion of sales to the company.
Automotive can be further broken down 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 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’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 equity in all the joint ventures in China. From accounting perspective, GM treated the automotive China joint ventures as associates rather than 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.”
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.
As mentioned, GM Financial is one of the major business segments and it provides automotive financing services. As shown in the GM’s revenue disaggregations snapshot in previous discussion, 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’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.
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.
We are all set and let’s move on to GM’s total revenue chart below.
Chart of GM’s Total Revenue
The chart above represents GM’s quarterly total revenue in the past 5 years from 2015 to 2019. The total revenue sums up the revenue contribution from both GM automotive and GM Financial.
The trend of the plot shows that GM’s total revenue may have already peaked in 2016 and has since started to decline. Quarterly total revenue was the highest at nearly $45 billion in 4Q16. However, total revenue has since trended downward, hitting a low point of slightly more than $30 billion in Q4 2019.
Quarterly total revenue of $30.8 billion posted in Q4 2019 was a record low for GM and the figure was 19.5% lower compare to a year ago. In terms of sequential growth, GM’s Q4 2019 result was 13% lower compared to the prior quarter.
2017 was a low point for GM when the company sold off its money-losing subsidiary GM Europe (GME) to PSA Group in the same year. Starting 2Q17, GME has been classified as discontinued operation in its financial statements and for this reason, the respective financial results had not been consolidated until the deal was completed by the end of 2017.
As seen from the chart, there was a significant drop in revenue starting 2Q17 which was mainly due to the GME business segment being reported as discontinued operation pending a sale.
The fact is that GM made about $40 billion of quarterly sales back in 4Q 2015 and yet, its quarterly sales after 4 years, has not only seen no improvement but further plunged to record low of roughly $30 billion in Q4 2019, representing a drop of as much as 25% over the 4-year period.
In short, GM’s revenue growth has been heading lower over the past 5 years and the impact of the decline may have an effect on shareholders’ return especially in the form of dividends that the company has been paying since 2014.
Chart of GM’s Revenue By Segment
The chart above shows the quarterly revenue breakdown into two major business segments: (1)Automotive and (2)GM Financial.
As mentioned in prior discussion, automotive revenue consists of the sum of all revenues from GM North America, GM International, GM Europe and GM Corporate which will be discussed later.
In the current chart, automotive revenue has made up the bulk of GM’s total revenue, averagely contributing more than 90% of sales to GM’s coffers. The remaining revenue has been contributed by GM Financial.
Although automotive revenue contributes the biggest portion of sales to GM, the growth has been trending downward and reached record low in 4Q 2019 at only $27 billion, a figure which was 23% lower compared to a year ago.
While GM posted record low of quarterly automotive revenue in Q4 2019 at only $27 billion, it was still the biggest contributor of sales to the company’s total revenue, at roughly 88% of total sales as of 4Q 2019. During the same quarter, GM’s automotive revenue was roughly 700% higher than that of GM Financial.
On the other hand, GM Financial, the financial arm of GM, saw its quarterly revenue staying constant at $3.6 billion in Q4 2019 compared to a year ago. However, the sequential growth has declined by about 3% from $3.7 billion in the prior quarter.
While GM Financial recorded zero comparable growth in Q4 2019 as well as a negative sequential growth in the same quarter, the long-term trend of the plot shows that the business segment is still holding its ground over the last 5 years.
In Q4 2015, GM Financial made only $2 billion of quarterly revenue whereas the respective quarterly revenue has increased by roughly 180% after 4 years in Q4 2019, representing an average year over year growth rate of 45% over the 4-year period.
Also, revenue source that came from GM’s automotive segment seems to be swinging wildly over the 5-year period, indicating that GM’s automotive business segment is operating in a highly cyclical and unpredictable market. This shows that consumers’ preference over GM’s automotive products can change dramatically in a matter of just a few months and is highly dependent on the general economic conditions.
In contrast, GM Financial revenue seems to be more stable and does not change as significantly as the revenue from the automotive segment. 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 really depend on consumers’ preference and market cyclicality.
Chart of GM’s 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 any doubt, GMNA has been the largest revenue contributor to GM automotive revenue over the 5-year period, making up close to 80% of automotive revenue in average. The 2nd spot was taken by GMI at roughly 14% of automotive revenue in average. The revenue from GME has ceased to exist after 2017 when the subsidiary was sold off in the same year.
While GMNA has contributed the bulk of revenue to GM’s total sales throughout the shown period, its respective growth was seen to be dropping especially in the latest quarter of 4Q 2019. In 4Q 2019, GM North America posted sales of only $22.7 billion which is a record low for the company over the 5-year period. The figure also represents a year over year decline of 23% or 18% sequentially.
The downtrend did not only occur to GMNA but also to GM International which recorded a quarterly sales of about $4.4 billion in 4Q 2019. However, GMI’s quarterly revenue decline was not as severe as GMNA which is seen from its comparative growth rate of -11%. In terms of sequential growth, GMI recorded a positive growth rate of 17% compared to the prior quarter.
Similarly, GM North America automotive segment is highly cyclical and unpredictable as seen from the dramatic changes in revenue from this region, indicating that GM is operating in a very competitive environment.
In short, over the span of the 5-year period from 2015 to 2019, GMNA has seen its sales declining while GMI’s revenue has more or less remained flat.
GM’s Total Revenue Quarterly Growth Rate (QoQ)
The plot above shows the sequential growth rate of GM’s quarterly total revenue from 2015 to 2019.
Out of the 19 quarters shown in the chart, 9 of them are in the negative region. In addition, 2017 was the year with the worst quarterly growth rate when 3 out of 4 quarters were seen having negative growth rate in the double-digits figures. Part of the reason for the drop in revenue was the sales of GME subsidiary in 2017.
In addition, GM posted the worst drop in quarterly revenue in 4Q19 when the sequential growth rate was at a staggering figure of -13%. 2019 has been one of the worst years for GM’s quarterly revenue growth as the company recorded 3 out of 4 quarters of revenue decline sequentially. Besides, GM also recorded 2 consecutive quarters of revenue decline in Q3 and Q4 2019 respectively.
In average, sequential growth rate for all financial periods shown in the chart has been 0% over the past 5 years, indicating that GM’s quarterly revenue growth has been stagnant.
GM Revenue Year Over Year (YoY) Growth Rate
The chart above shows the year over year (yoy) growth of GM’s quarterly total revenue from 2015 to 2019.
Year over year growth rate for total 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 observed in 2017 when the company posted double digits yoy revenue decline in 3 consecutive quarters. Revenue growth recovered slightly in 2018 but was still far behind the results in 2016.
Total revenue yoy growth has also been vastly negative in 2019, as seen from all the quarterly yoy negative growth rates throughout 2019. GM saw the worst revenue drop in Q4 2019 compared to a year ago when yoy growth rate was -19.5% as shown in the chart.
In average, yoy growth of GM’s total revenue for all quarters shown in the chart has been -2%. In other words, quarterly revenue year over year growth has slightly declined on average of 2% over the past 5 years.
Chart of GM’s Quarterly Operating Income
With all the revenues that we have been discussing, how do they translate to operating profits or incomes?
In this matter, I have created the chart above that illustrate GM quarterly operating income from 2015 to 2019.
Operating income is the profit made after all 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 from total revenues.
Operating incomes are measured before any other non-core business related income and expenses such as interest incomes and expenses, sales of asset and taxes are accounted for in the income statement. As such, operating income purely focuses on the strength of the core business by excluding all non-core business items.
From the analysis of the operating income plot above, investors can find out the trend of GM’s operating profit over multiple quarters and most importantly, how much of that revenue is translated to operating profit. In this matter, we will look at the company’s operating margin which is usually expressed in percentage.
From the chart, GM operating profit has grown quite significantly within the first two years of the 5-year period in 2015 and 2016. The upward trend was basically in line with what was seen in total revenue growth. From 2015 to 2016, quarterly operating income grew from $0.7 billion in 1Q15 to about $3 billion in 3Q16.
From 2016 and onward, GM’s operating income stayed relatively flat before slowly declining and reached the lowest point at $0.5 billion in 1Q18. After that, operating income recovered to $2.5 billion in 3Q19. However, GM’s operating income turned negative in Q4 2019 for the first time over the 5-year period. From the chart, GM suffered a loss of about $500 million in its core operation in that quarter.
A detail investigation into GM’s financials revealed that the company’s record loss in 4Q 2019 was largely due to the labor disruption in North America which has caused vehicle production cut in the same quarter. Here is a quote from GM’s 4Q 2019 annual filing that detailed the UAW strike:
Our collective bargaining agreement with the UAW, which was ratified in November 2015, expired on September 14, 2019. The UAW went on strike on September 16, 2019, causing subsequent stoppages to most vehicle production and parts distribution across our North America facilities. On October 25, 2019, the UAW ratified a new collectively bargained labor agreement (Labor Agreement). The Labor Agreement, which has a term of four years, covers the wages, hours, benefits and other terms and conditions of employment for our UAW-represented employees.
Fortunately, the UAW strike has been a one-off event which GM has successfully resolved and vehicles production has resumed since then.
Anyway, to figure out how profitable GM’s core operation is, we resort to measuring the operating margin. Based on my calculation, GM has an average quarterly operating margin of roughly 4.5% over the 5-year period. In other words, GM generates about 4.5 cent of operating profit out of $1 of revenue.
Is that bad or good? From the number alone, it looks pretty awful. However, this figure needs to be compared with the industry average to arrive at a conclusion.
GM’s Operating Income by Segment
I have further broken down the total operating income into two major segments: (1) GM automotive and (2)GM financial.
As seen from the chart, 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. GM automotive suffered nearly $1 billion in operating loss in that quarter alone.
In line with automotive revenue, the dramatic changes in automotive income prove that GM’s automotive business is highly cyclical and wildly unpredictable. There are just too many factors that could affect the company ability to squeeze profit out of the respective revenue. As mentioned, the labor disruption is just one of these factors and it had severely impacted the automotive segment as the company has just lost over $1 billion in operation for the first time over the 5-year period.
In contrast, GM Financial operating income has been more predictable and has, in fact, increased significantly in the last 5 years. While GM suffered huge operating loss in 4Q 2019, GM Financial has actually generated an operating profit of nearly $500 million in the same quarter, illustrating that the financial arm of the company has been pretty resilient to various market conditions.
GM’s Operating Margin by Segment
Before going further, the previous operating income chart shows that GM automotive operating income has been mostly higher than the operating income of GM Financial on an absolute value basis. While a larger profit may seem to be a good thing, it does not necessary mean that the respective business segment is more profitable.
For this reason, I have created the operating margin chart above to show investors which business segment squeezes more profit out of its respective revenue. IN order words, the metric measures the profitability of the business segment.
As seen from the current chart, it’s very obvious that GM Financial is the clear winner when it comes to profitability. Its respective quarterly operating margin has been consistently higher than that of GM automotive over the last 5 years. In some of the quarters shown, GM Financial operating margin has even recorded a double-digits figure, indicating that it is highly profitable.
On the other hand, GM automotive operating margin has been mostly in the low single-digit, indicating that it is a low margin business. What is worst is that GM automotive operating margin has gone close to 0% and even turned negative in some quarters.
Moreover, the trend of both plots are seen to be heading in the opposite direction in recent years. Since 2017, GM Financial quarterly operating margin has been trending upward from the 10% level to as much as 15% in 2019. In contrast, GM automotive operating margin was seen heading lower towards the low single-digit region in 2019.
The results show that GM Financial operating margin has been steadily improving while GM automotive has been in the opposite trend. According to my own calculation, the average operating margin of GM Financial is about 11% whereas the average value for GM automotive is only 4%.
In short, GM Financial is nearly 3X more profitable than GM automotive in average.
To sum up, GM total revenue comes from two major business segments which are automotive and GM Financial.
GM total revenue has flattened out since 2015 and has since declined in recent years. GM saw the worst drop in revenue when it recorded only $30.8 billion of sales in Q4 2019, representing a year-over-year decline of 19.5% or 13% sequentially.
Similarly, GM’s automotive revenue experienced the same decline in Q4 2019 when it posted quarterly revenue of only $27 billion which is also a record low from 2014 to 2019. In contrast, GM Financial revenue has been holding its ground in the last 5 years and posted a flat result of $3.6 billion in Q4 2019 compared to a year ago.
The automotive revenue analysis shows that the decline in total revenue has been largely caused by the declined in automotive revenue as the financial income from GM Financial was seen holding firm in the last 5 years.
Further analysis into automotive revenue shows that GM North America was mainly the culprit in causing the revenue decline in 4Q 2019. GM blamed the worst result on labor disruption.
GM’s operating income has been wildly swinging in the last 5 years and has first made a loss in 4Q 2019 of as much as $500 million. The culprit was traced to the automotive segment which has lost nearly $1 billion in the same quarter. On the other hand, GM Financial generated an operating income of $500 million in Q4 2019, helping to narrow down the loss from automotive segment.
GM Financial has the highest operating margin, averaging 11% from 2015 to 2019 and is more than 2X the average operating margin of the automotive segment which is only 4%.
In short, GM Financial makes more money than GM’s automotive segment even though the revenue contribution from this segment was only 10% in Q4 2019. The result shows that GM’s automotive business is generally cyclical and competitive.
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 is used under creative commons license and sourced from the following websites: GMC Sierra.
Other posts that you might be interested:
- GM total debt and liabilities
- GM global vehicle deliveries by segment
- General Motors automotive revenue recognition
- GM market share
- Tesla mobile service fleets expansion
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