I. Background and Industry
General Motors, along with its competitors, are part of the Automotive Manufacturer (Major) industry of the Consumer Goods economic sector. Companies in this industry make passenger cars and light trucks, as well as chassis for those vehicles. Demand is driven by employment and interest rates while the profitability of the individual company depends on manufacturing efficiency, product quality, and affective marketing. Large companies have economies of scale in purchasing and marketing while smaller companies can compete by focusing on specialized markets. The U.S. industry alone is highly concentrated with the top four companies account for about 75 percent of sales. General Motors Company is one of the world’s largest auto manufacturers which designs, manufactures, and markets cars, crossovers, trucks, and automobile parts worldwide. It operates in five segments: GMNA (GM North America), GME (GM Europe), GMIO (GM International Operations), GMSA (GM South America), and GM Financial. Financing activities are primarily conducted by General Motors Financial Company.
The company markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Opel, Holden, and Vauxhall brand names, as well as under the Alpheon, Jiefang, Baojun, and Wuling brand names. It also sells cars and trucks to dealers for consumer retail sales, as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies, and governments. In addition, the company offers connected safety, security and mobility solutions, and information technology services. The company, through its subsidiary, General Motors Financial Company, Inc., provides automotive financing services and lease products through GM dealerships in connection with the sale of used and new automobiles that target customers with sub-prime and prime credit scores.
General Motors Company was founded in 1897 and is based in Detroit, Michigan. The current iteration of GM traces its roots to mid-2009, when the former GM was split into two companies after it emerged from Chapter 11 bankruptcy protection: General Motors and Motors Liquidation (the name for leftover assets). Despite General Motor’s troubles with the dangerously defective vehicles, they don’t seem to be hurting sales. As of April, the automaker’s sales in the U.S. rose 7% from a year ago. The company expects to spend $1.7 billion to cover the cost of the record setting number of recalls so far in 2014. General Motors has landed on both Forbes’ and Fortune’s top rankings on multiple lists, including the following: #67 on Forbes’ Global 2000 list
#19 in Sales
#112 in Profits
#165 in Assets
# 7 on Fortune’s 500 List
#27 on the 2014 U.S. Top 100 Ideal Employer Ranking
II. Evaluation of Financial Performance
General Motors’ financial history and status for the last three years were analyzed through the use of General Motors’ Income Statement, Balance Sheet, Statement of Cash Flows, and various notes to the financial statements. Items on these financial statements for fiscal year 2013, including Total Assets, Total Liabilities, Total Revenues, Working Capital, Retained Earnings, and Net Income were used for a common size analysis against General Motor’s two top public competitors, Ford Motor Co. and Toyota Motor Corp ADR. A. Total Assets
Since 2011 ($144,603 million), the amount of Total Assets increased by 3.33% to $149,422 million in 2012 and increased 11.3% to $166,344 million in 2013. In comparison to the main competitors for fiscal year 2013, Toyota has over double the amount of total assets as GM ($376,781 million) and 65% more total assets than Ford Motor Co. Toyota Motor Corp had an increase of 11.6% in Total Assets from 2012 to 2013 while Ford Motor Co. had an increase of 6% from 2012 to 2013. B. Total Liabilities
The amount of Total Liabilities successively increased with Total Assets within the last three years due to overall growth. Respectively, during the years, the growth in Total liabilities was 6.45% from 2011 ($105,612 million) to 2012 ($112,422 million) and increased 9.56% to $123,170 million in 2013. In contrast to the main competitors for fiscal year 2013, Toyota has 95% more total liabilities as GM ($241,152 million) and 142% more total liabilities than Ford Motor Co. Toyota Motor Corp had an increase of 13.3% in Total Liabilities from 2012 to 2013 while Ford Motor Co. had an increase of .5% from 2012 to 2013. C. Total Revenues
For the analyzed period, the amount of Total Revenues increased successively, and by the end of 2013, increased over 3% since 2011. In 2013 alone, the amount of total revenues increased by 2.08 % to $155,427 million and increased 1.32% to $152,256 million in 2012. General Motors’ total revenue growth was significantly lower than that of Ford for fiscal year 2013 (9.4%), and slightly smaller than Toyota: 3.7%. D. Working Capital
General Motors’ working capital growth percentage between the 3 year analyzed periods was considerably different. Working capital increased by 36.82% from 2011 ($11,697 million) to 2012 ($16,004 million). GM still experienced growth in working capital, however it decreased to 19.28% from 2012 to 2013 ($19,089 million). In comparison to the main competitors’ growth rate for fiscal year 2013, General Motor’s was significantly lower than Toyota: 41.3% and slightly higher than Ford: 12.8%. E. Retained Earnings
According to General Motor’s Common Size Balance Sheet, Retained Earnings maintained a somewhat steady growth percentage from 2011 to 2013. There was a 40.01% increase from 2011 ($7,183 million) to 2012 ($10,057 million). General Motors experienced growth from 2012 to 2013 of 37.38%, $10,057 million and $13,816 million, respectively. For fiscal year 2013, growth in Retained Earnings for General Motors was greater than both Toyota: 7.5% and Ford: 30.9%.
Automotive – Net sales and revenue are primarily composed of revenue generated from the sale of vehicles. Vehicle sales are recorded when title and all risks and rewards of ownership have passed to our customers. For the majority of our automotive sales this occurs when a vehicle is released to the carrier responsible for transporting to a dealer and when collectability is reasonably assured. Vehicle sales are recorded when the vehicle is delivered to the dealer in most remaining cases. Provisions for recurring dealer and customer sales and leasing incentives, consisting of allowances and rebates, are recorded as reductions to automotive net sales and revenue at the time of vehicle sales. All other incentives, allowances and rebates related to vehicles previously sold are recorded as reductions to automotive net sales and revenue when announced. Vehicle sales to daily rental car companies with guaranteed repurchase obligations are accounted for as operating leases.
Estimated lease revenue is recorded ratably over the estimated term of the lease based on the difference between net sales proceeds and the guaranteed repurchase amount. The difference between the cost of the vehicle and estimated residual value is depreciated on a straight-line basis over the estimated term of the lease. Automotive Financing – Finance income earned on receivables is recognized using the effective interest method for consumer financing receivables and accrual method for commercial financing receivables. Income from operating lease assets, which includes lease origination fees, net of lease origination costs and incentives, is recorded as operating lease revenue on a straight-line basis over the term of the lease agreement.
III. Balance Sheet
Vertical analysis of the balance sheet notable assets are restricted cash and marketable securities, current and non-current GM Financial receivables, and GM Financial equipment on operating leases. Restricted cash and marketable securities increased 81.78% from fiscal year 2012 to fiscal year 2013. Current GM Financial receivables increased 253% while non-current GM Financial receivables increased 106% during fiscal years 2012 and 2013. GM Financial equipment on operating leases saw growth of 105% during the same period. Notable liabilities on the balance sheet were current and non-current GM Financial and Automotive liabilities. Current GM Financial liabilities increased 260% from 2012 ($3,770 million) to 2013 ($13,594 million) while non-current GM Financial liabilities increased 117% from 2012 ($7,108 million) to 2013 ($15,452 million). Automotive liabilities increased 91.97% from fiscal year 2012 to 2013, $3,424 million and $6,573 million, respectively.
Notable accounts that changed in the Stockholder’s Equity section of the balance sheet were Retained Earnings and accumulated other comprehensive loss. Retained Earnings increased 37.38% from fiscal year 2012 to fiscal year 2013 as stated in the Evaluation of Financial Performance section. Accumulated other comprehensive income decreased 61.34% from fiscal year 2012 to 2013, -$8,052 million and -$3113 million respectively. IV. Contingencies
The contingencies (and commitments) are listed under the Total Liabilities on the balance sheet, followed by the reference to Note 17. The contingencies described under this note includes litigations, product liability, credit card programs, environmental liability, asset retirement obligations and non-cancelable operating leases. Most of the contingencies are based off of litigations and product liability, for there are many various legal actions, governmental investigations, and claims and proceedings pending against the company. The biggest contingencies General Motors lists in Note 17 to the financial statements are the GM Korea Wage Litigation where eight separate group actions were brought up which involve 10,000 employees, which allege that GM Korea failed to include bonuses and certain allowances in its calculation of Ordinary Wages due under the Presidential Decree of the Korean Labor Standards Act.
The GMCL Dealers’ Claim was filed in the Ontario Superior Court of Justice against GMCL on behalf of a purported class of over 200 former GMCL dealers (the Plaintiff Dealers) which had entered into wind-down agreements with GMCL. The UAW claim is a suit against General Motors in the U.S. District Court for the Eastern District of Michigan claiming that GM breached an obligation to contribute $450 million to the UAW Retiree Medical Benefits Trust (New VEBA). The Nova Scotia Claims Litigation is a party-in-interest proceedings pending in the U.S. Bankruptcy Court for the Southern District of New York to adjudicate claims in the Old GM bankruptcy arising from certain securities issued by General Motors Nova Scotia Finance Company (Nova Scotia Finance), an Old GM subsidiary which we did not acquire in 2009 (Nova Scotia Claims Litigation). V. Statement of Cash Flows
General Motors uses the indirect method of preparing the Statement of Cash Flows. The largest increase in the operating activities section of General Motor’s Statement of Cash Flows is the change in deferred taxes, from -$35,561 million in 2012 to $1,561 million in 2013. The largest decrease was depreciation from $38,762 million in 2012 to $8,041 million in 2013. There are many reasons that could explain any unexpected operating activities that caused cash flow to decrease. For example, the large decrease in depreciation could be the selling of lease vehicles or related equipment used to manufacture parts for the vehicles. Sales proceeds from investments care classified as available-for-sale and sold prior to maturity were $4.7 billion, $4.7 billion, and $1.6 billion in the years ended December 31, 2013, 2012, 2011. Some of the sales proceeds came from investments in the China Joint Venture, the sale of New Delphi, and the acquisition of GM India. Acquisitions of available for sale securities had increased from 2012 (-$4,650 million) to 2013 ($-6,754 million), however is still significantly lower than in 2011 ($-20,535 million). Acquisitions of trading securities have been decreasing from 2011 to 2013. Both show a slowing of investments. General Motor’s purchasing leased vehicles (net) have doubled from 2012 ($-1,050 million) to 2013 ($-2,254 million).
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