Howes: GM demonstrates resilience amid COVID-19 pandemic, but shares slip
That could have been worse.
After missing eight of 13 second-quarter weeks of North American production because of the coronavirus shutdown, General Motors Co. posted a loss of less than $800 million for the three-month period, rescinded most of its salary cuts and signaled that the second half of the year could prove surprisingly resilient.
Doubters? There are many — starting with investors who bid GM shares down on the news Wednesday because, well, the news coming from the RenCen is never good enough. Blow the doors off with blistering truck sales amid a pandemic, and it's what about your electrification strategy?
Say you'll generate as much as $9 billion in cash in the second half of the year, and use much of it to retire a $16 billion line of credit, and the remarkable financial discipline is rewarded with a collective shoulder shrug and yet another moving of the proverbial goalposts.
GM isn't perfect under CEO Mary Barra and her management team. But it's managing its way smartly through the biggest challenge since its historic bankruptcy nearly a dozen years ago. The result: an automaker poised to emerge on the other side with enviable financial heft, powered in part by expanded production to rebuild depleted inventories.
And it probably still won't be enough to persuade skeptics that this GM is not the old GM, the world-class incinerator of other people's capital that tended to squander good times and stumble badly in awful times. Under Team Barra, this GM is doing neither.
That GM figures it can generate between $7 billion and $9 billion in cash in a leaner 14 million vehicle market in the second half of the year signals just how different the automaker is today — and how profitable its pickup (market share up in Q2) and SUV lineup can be.
Archrival Ford Motor Co. won't be so lucky when it details its second-quarter results after the markets close Thursday. The Dearborn automaker already has confirmed it expects to book pre-tax losses of roughly $5 billion for the COVID-interrupted quarter, naturally inviting unwelcome comparisons to the performance of GM and its management team.
Unwelcome, maybe, but such comparisons are perfectly legitimate from the outside looking in. The truth is that rampaging COVID-19 and the economic implosion that comes with it are offering Detroit the kind of test it needs to ace — a precondition to earning the respect of investors besotted with Tesla Inc., the vision of its founder and its recent string of profitable quarters, even during the pandemic's first months.
Detroit's bid for respectability is a marathon, not a sprint. It means managing the near-term truck and SUV business powered by internal combustion engines as well as the longer-term electrification that prompted one Wall Street analyst to ask Barra whether GM would change its name to Ultium, the brand of its new battery.
"General Motors brand I think goes back 111 years," said Morgan Stanley's Adam Jonas. "What do you think? Why not just change the name of the company? The General Motors brand has done its job, but I'm wondering if it might be out of touch with some of the really interesting directions you're taking the business."
Barra replied: "So that's something we evaluate and look at when it's the right time and what are the proof points that everybody looks at it and makes it real. So we got to keep telling our story; we've got to deliver. And that's exactly what we intend to do."
Corporate rebranding isn't the fastest road to higher market valuations. Execution is, a methodical discipline demonstrated by acting decisively and doing what you say you're going to do. And for Detroit's automakers, that means navigating trying economic times even as they maintain the capacity to invest and deliver a next-generation electrified fleet.
More immediately, it means continuing to manage through a pandemic that has claimed more than 150,000 American lives, infected more than 4 million and spread to every state. How big truck- and SUV-buying states, such as Texas, weather the crisis, and how the march of the pandemic affects customer demand, will shape how and whether GM can deliver its cash-flow targets.
"The path of the economy will depend significantly on the course of the virus," the Federal Reserve said in its statement Wednesday. "The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."
GM signaled as much with its financial report, saying its "scenario" for the second half of the year depended on variables it cannot control: the spread of coronavirus, its impact on economic reopening strategies, whether production or supplier networks would be disrupted in meaningful ways, how quickly GM can rebuild inventories, and whether the U.S. market can sustain an annualized sales rate of 14 million vehicles.
Clearly, GM and its rivals intend to manage COVID-19 adversity, not hide from it in lockdowns that deepen economic damage over time. And they should, because the arc of the pandemic threatens to slow reopening efforts and hamper economic recovery.
"It shouldn’t be a surprise there has been some pullback in hiring and investment based on the conditions the pandemic has created," said Doug Rothwell, CEO of Business Leaders for Michigan, in a statement outlining the group's economic forecast for the state. "But it’s important to highlight that nearly 70% of Michigan’s largest companies still expect to be hiring at the same rate or even more over the next six to 12 months.
“There is no question that we’re going through a period of great uncertainty right now. The best way to return our economy to full health is to mitigate the spread of the virus by wearing masks, washing hands and keeping distance from others as much as possible.”
Daniel Howes is a columnist and associate business editor of The Detroit News. His column runs most Tuesdays, Thursdays and Fridays.