GM’s aggressive cost-cutting in recent years helped it stay in gear during the coronavirus, and a new Cash for Clunkers program might spur recovery.
DETROIT, MI — General Motors has been essentially without revenue since March.
They aren’t alone in those troubles, Ford hemorrhage cash in April The ‘Gander reported.
But GM was in a much better position to handle such an extremely rough month. Despite a net profit dive of 88%, GM still managed to make $247 million in the first quarter of 2020.
But even if the automaker can reopen May 18 as it hopes, two months of idle factories set the company up for a very rough second quarter.
GM hit a slight blip in Q4 of 2019 according to aggregated data from Macrotrends, where it lost $270 million. But for over a year before that, the auto giant was regularly posting net profits around $2 billion.
“There are bright spots within the industry,” Chief Financial Officer Dhivya Suryadevara said on a conference call. “Obviously trucks are our strong suit, and that’s something we’re going to capitalize on.”
GM has seen indications that while the broader economy is struggling, the auto industry actually has a path through the crisis. The pandemic, GM argues, has not erased demand for cars and trucks.
Though GM admits in states hit hard by the crisis like Michigan and New York have drastically reduced sales, that doesn’t hold true everywhere. Southern, western and southwestern states have not seen nearly so sharp declines.
Despite this, Suryadevara conceded that the second quarter will be tough. Like their competitor Ford, GM is counting on their cash-on-hand to help get them through the troubled times ahead. Unlike Ford, GM didn’t have to burn billions on debts while their factories idled, which has left them in a stronger position, if only just.
GM had $33 billion cash-on-hand at the end of March to ride out the storm on.
MarketWatch said GM was better positioned than Ford, or the third major player in Detroit Fiat-Chrysler. This has been thanks to an aggressive cost-cutting strategy and exiting markets like Europe where GM had trouble remaining competitive.
Shrewd business or not, though, The Verge reported on the human cost of that savings thousands of layoffs. It is unclear how much President Trump’s largely ineffective trade wars played into those layoffs as a matter of strategy, but Forbes notes that Trump trade policies did hammer the auto industry for years.
The automaker also has been leaning in on an online strategy to help manage the struggles posed by the pandemic.
Suryadevara said 85% of U.S. dealers are selling vehicles online with about 3,500 participating. And nearly as many are making home deliveries for vehicles during the pandemic.
But GM also braced by suspending stock buybacks and cancelling quarterly dividends while the factories sit idle.
Mary Barra, GM’s CEO, said she and other automakers are in talks with government officials about ways to re-engage the auto industry and stimulate the economy. She specifically cited the Obama-era “Cash for Clunkers” program that provided incentives to trade in old vehicles. Ford has expressed a similar interest in reviving the program.
Kelley Blue Book explained how the program could be adapted to a totally new purpose and act as a jumpstart for car dealerships and the automotive supply chain, amplifying the secondary effects that emerged as added benefits of a program both economic and environmental.
Pretty much the only limitation of the original program’s economic success was a difficulty sustaining the economic stimulus Cash for Clunkers represented, reports Newsweek. Hopefully, a 2020 version of the policy wouldn’t need to.
The Associated Press contributed to this report.