By on February 7, 2017

2017 Chevrolet Tahoe Z71 Midnight Edition

The grim memories of 2008 and 2009 only plague Renaissance Center denizens in the form of night terrors now, as General Motors finds itself on financial ground that’s oddly solid, considering some of the factors effecting the company.

Faced with a slowdown in the automotive market in 2016, the automaker — like so many others —boosted incentives on its vehicles. Meanwhile, the U.S. public’s insatiable thirst for SUVs and crossovers left some of the General’s cars high and dry, sending inventories soaring to very unhealthy levels. While new crossovers were in the pipe in 2016, those lucrative models weren’t scheduled to land until this year. GM’s European division, meanwhile, struggled to rise out of the red.

Despite all of this, the company posted record income and revenue in 2016, according to an earnings report released today.

Last year, GM’s piggy bank saw a record adjusted net income of $12.5 billion, up 15.9 percent from the year before. Net revenue stood at $166.4 billion — 9.2 percent higher than 2015’s tally. Fourth-quarter revenue rose 10.8 percent to $43.9 billion. While foreign currency changes kneecapped Q4 income to $1.8 billion, in line with estimates, it was still up significantly from a year prior.

Global vehicles sales rose 1.2 percent compared to 2015. With such pleasing results, GM’s outlook for 2017 can best be described in one word: rosy.

“By almost any measure, 2016 was a great year for our business and I am confident we can achieve even stronger results,” said GM CEO Mary Barra in a statement.

To keep things rosy, the automaker has had to do some less-than-happy things. Those ballooning inventories led to layoffs at multiple midwestern plants, with extra downtime planned to ease the flow of slower-selling car models. An efficiency program that began in 2015 continued through 2016, freeing up money to firm up the company’s bottom line.

Still, there’s a number of redesigned models arriving in 2017, and luckily for GM, they’re all crossovers. The downsized GMC Terrain and Chevrolet Equinox arrive early this year as 2018 models, while the full-size Chevrolet Traverse and Buick Enclave crossovers are also ready to go.

According to the automaker, “GM expects its global volume from new or refreshed vehicles to grow to 38 percent from 2017-2020, up from 26 percent in the 2011-2016 period. New or refreshed crossovers, trucks and SUVs are expected to represent a majority of this volume between 2017-2020.”

[Image: General Motors]

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23 Comments on “Big Incentives and Bursting Inventory Somehow Leads to Record Income for GM...”


  • avatar
    Master Baiter

    I hope they stash away some cash for a rainy day, so they don’t have to come to the government, hat in hand, in the next economic downturn.
    .
    .

    • 0 avatar
      dash riprock

      A quick look at their balance sheet will provide you with the info you need.

    • 0 avatar
      bd2

      The reason why GM (and Chrysler) had to turn to the institution of last resort (govt.) was b/c the credit markets had crashed (thanks Wall St. and the giant mortgage lenders!); Ford managed to leverage themselves to the hilt before the banks stopped lending due to the Ford family (who’s ongoing financial future depended on avoiding bankruptcy at all costs).

      Several years before the economy tanked, a few big investors arm-twisted GM into a stock buy-back which severely depleted GM’s reserves/rainy day fund.

      And there is the same pressure by a group of hedge funds for GM to once again, award them financially with a share buy-back.

      • 0 avatar
        Erikstrawn

        Are you forgetting why GM crashed when the credit markets froze? They were so heavily mismanaged they were writing seven figure checks on borrowed money with no accounting in a desperate attempt to keep the doors open.

        I’m no GM fan (except for LS motors and my ’99 Suburban), but I’m glad they got their ship right, and I’ll credit Mary Barra’s leadership.

        • 0 avatar
          bd2

          Of course, GM had long-standing issues, but they were finally starting to work their way out of them.

          Going thru bankruptcy hastened the departure of doing things the old GM way (still have work to do in that dept.), but doesn’t take away from the fact the investor forced stock buyback severely cut GM’s cash reserves and then the economy tanking and auto sales crashing took GM over the edge.

          If there had been other lenders available aside from the govt., we wouldn’t have seen nearly the level of vitriol towards GM.

  • avatar
    NormSV650

    Almost $35,000 sale price per unit and +$4,000 above industry average.

    In other news Toyota’s 4th quarter was off by 23%.

  • avatar
    FormerFF

    Correct me if I’m wrong, but isn’t all that inventory booked as being sold since it’s in dealer inventory? Hope they’ve established a reserve for the incentive spend needed to get it all sold.

    • 0 avatar
      Rick T.

      Straight from the 2015 GM 10-K accounting policies footnote:

      “Automotive net sales and revenue primarily consist of revenue generated from the sale of vehicles. Vehicle sales are recorded when title and 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 it 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 or announced 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.”

      I’d have to guess that when the incentives are taken off at January 1, they are not recording additional provisions unless some argument is made that they will have have to be ongoing to assist the dealers sell their inventories.

      • 0 avatar
        VoGo

        Thanks, Rick,
        GM can’t wait to record revenues for the vehicle to be delivered to the dealer – they record revenue when it is released to the carrier that transports it to the dealer (or perhaps stores it for a while until a dealer can be convinced to take said excess inventory?).

        Contrast this to Tesla, which records revenue when an actual customer receives the vehicle.

        • 0 avatar
          FreedMike

          Right, but the dealer has to buy the vehicles to begin with, and if the vehicles aren’t selling, they’re buying less of them.

          Either way, the vehicles are selling.

          • 0 avatar
            PrincipalDan

            As Jack and Mark Baruth would be quick to remind us – you are not GMs customer, the dealer is the customer.

        • 0 avatar
          jjster6

          Note that this is standard industry practice and according to U.S. Generally Accepted Accounting Principles as promulgated by the Financial Accounting Standards Board (FASB). FASB is proposing changes to the revenue recognition standards in the near future. Go see TTAA (The Truth About Accounting) for a discussion of the rules. :) Once required by GAAP to change the revenue recognition model I’m sure GM will.

          • 0 avatar
            VoGo

            I’m not suggesting that GM is cheating here. I just find the entire dealership model deplorable. Carmakers manufacturing vehicles they think dealerships will want, without any concern for what actual customers might prefer.

        • 0 avatar
          ect

          This is pretty typical. A sale is booked when title passes to the buyer, and that is very often when a product leaves the seller’s premises.

          If GM is like most companies, the invoice is generated when the product is packaged for shipment, as part of the shipping documents.

  • avatar
    Whittaker

    Amazing how well a company can do when they keep all their assets but transfer all their debt to a make-believe company.
    “Bankruptcy, Yes We Can”

  • avatar
    RRocket

    You may recall, as part of their sweetheart gov’t deal that GM won’t have to pay nearly $45 billion in income taxes moving forward. Something that has never been given to companies declaring bankruptcy.

    So I’m sure that has helped with their bottom line.

  • avatar
    deanst

    Why am I seeing the same article at gminsidenews? Is this a new form of corporate synergy?

    • 0 avatar
      DenverMike

      Same author. Steph contributes to gminsidenews too. But you can take anything reported by GM as partial or total crap. Figure “incentives” for overstuffed GM dealers won’t happen until they actually sell those cars tagged for rebates.

  • avatar
    05lgt

    Wait, you mean their Chinese customers pay MONEY for vehicles?

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