US Auto Majors Outlook: General Motors & Ford Motor

  • May 25, 2020 AEST
  • Team Kalkine
US Auto Majors Outlook: General Motors & Ford Motor

In this article, we discuss the state of two major US automobile manufacturers and how they have positioned for the coronavirus pandemic.

Summary:

  • GM & Ford have secured additional liquidity through bond markets and financiers.
  • Both automobile manufacturers have suspended share repurchase programs and dividends.
  • They are also serving communities through manufacturing critical medical supplies, such as mask, ventilators etc.
  • Operations have resumed in most parts of the manufacturing regions since last week.
  • Focus on electric vehicles continues to be in agenda of both companies.

General Motors Company (NYSE:GM)

General Motors Company designs and builds a range of automotive products, including cars, trucks, crossovers, parts. It also owns GM Cruise, which is engaged in development and commercialisation of autonomous vehicles. Its other subsidiary – GM Financial provides automotive financing services. Within the automotive business, the company operates with GM North America and GM international.

       

                                                                   (Image Source: GM website)

 

General Motors has recently priced bond issuance of total $4 billion. The issuance includes three tranches of senior unsecured notes due in 2023/$1 billion, 2025/$2 billion and 2027/$1 billion carrying coupon rates of 5.4%, 6.125% and 6.8% respectively.

It has also entered a new 364-day revolving credit facility agreement, which was expected to provide borrowing capacity of around $2 billion. Net proceeds from the new notes would be used for general corporate purposes.

Earlier this month, the company released its first quarter ended 31 March 2020. In China, January holidays were extended due to COVID-19 outbreak and operations were resumed after mid-February gradually.

In Q1, the company recorded total net sales and revenues of $32.7 billion compared to $34.8 billion in the same period last year. Operating income for the period was $657 million against $1.24 billion in the Q119. Net income to common stockholders was $247 million against $2.1 billion in Q119.

In South Korea, the production continued under high level safety protocols. Production was halted in North and South America in March.  It was said that the business was targeting to restart manufacturing operation by 18 May in the US and Canada. GM has learnt to operate under COVID-19 after experiences from various facilities, including from South Korea and China.

Q1 Sales (Source: GM Website)

 

At the end of quarter, the liquidity position of the business was strong. It was also preserving cash via compensation deferments, capital expenditure adjustments. GM also suspended quarterly dividend and halted share repurchases.

In April, it started producing ventilators at its Kokomo Facility and accepted order of 30k units from the Federal Government, and also started producing face masks, which were being produced in China and Mexico.

The first quarter sales in the US declined by 7% primarily due to pandemic. But demand for full-size trucks was strong, and sales for full-size pick-up trucks increased by 27% over the previous year.  In February, the demand in China was impacted severely, which started to pick-up in March.

In its international business segment, the company closed its engineering, design and sales operations in Australia & New Zealand, and the Holden brand would be retired by 2021. However, it continues to operate specialty vehicles in the region.

The company progressed with product development for Electric Vehicle and Autonomous Vehicle and conversion of Detroit-Hamtramck plant to a fully EV-devoted assembly. In March, GM showcased EV strategy, including the proprietary Ultium battery system.

Cadillac Lyric and GMC Hummer EV are in the pipeline. GM’s EV portfolio would have an estimated driving range of 400 miles combined with fast charging capabilities to charge for 100 miles in just 10 minutes, which would be improved through new technology over time. It has also announced partnership with Honda to develop two all new EVs for Honda based on the company proprietary technology.

On 22 May 2022, GM last traded at $25.98.

Ford Motor Company (NYSE:F)

Based in Dearborn, Michigan, USA, Ford Motor Company is a global automobile company. It designs, develops, manufactures, and services a range of automobiles, including trucks, cars, SUVs, electric vehicles. Ford Motor Company also provides automobile financing services through Ford Motor Credit Company.

Earlier this month, the company announced its re-opening procedures after the pandemic forced closures. Ford noted that it employs the largest number of hourly workers in the US automobile industry.

It is also the largest exporter of automobiles in the country and its US manufacturing roots help to serve communities globally. Previously, the company had announced payment reliefs to customers, including a relief to new customers for a period of six months.

Like GM, Ford has also produced medical and personal protective equipment for the communities. It also developed air purifying respirators, which were approved by US healthcare agencies. It was preparing to restart its factories from 18 May that had been closed since March.

Likewise, the company also reported restarting of UK and European operations.  Its UK manufacturing plants in Essex and South Wales were set to reopen on 18 May. Also, the engine plant in Valencia, Spain re-opened last week.

Employees who could work from home are continuing to operate from home. It has introduced several measures, including face masks, face shields, temperature checks, self-assessments and social distancing measures. Meanwhile, the UK operations continue to build ventilators for the healthcare system and the company is also producing face masks for its employees.

In April, the company announced first-quarter results. It reported a net loss of $2 billion, largely due to coronavirus pandemic. Ford’s quarterly revenue was $34 billion and adjusted loss before interest and taxes was $632 million.

In automotive business, the company reported EBIT loss of $177 million largely due to poor performance in regions other than North America, which delivered a positive EBIT. Credit business recorded $30 million earnings before taxes as performance was impacted by $600 million increase in credit loss provisions, among other factors.

In order to maintain cash flows, the company has deferred capital expenditure, reduced operating costs and is deferring some executive salaries. Ford secured additional liquidity through unsecured bond issuance of $8 billion and over $15 billion was secured through line of credit.

It is expecting to record significant decline in second-quarter adjusted EBIT due to lower volumes across regions. And, the full-year guidance could not be provided due to the present uncertain environment. 

           

                                                               Ford Mustang Mach-E (Source: Ford Website)

 

It continues to focus on electric vehicles. Ford launched electric Mustang Mach-E in November last year. A new F-150 would be launched with a hybrid electric version. Ford would also launch electric versions of some cars in Europe.

On 22 May 2022 Ford last traded at $5.65.

(All currencies in USD unless or otherwise stated)

 


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