How Does General Motors (GM) Make Money?
General Motors Co. (GM) is one of the leading automobile and truck manufacturers in the world. GM continues to produce vehicles under its traditional brands, such as Buick, but also produces vehicles in China through joint ventures. GM earns the majority of its revenue and profit from vehicle sales but also from its financing arm called GM Financial.
GM is in the midst of a transformation, in which the company is shifting some of its production from carbon-based vehicles to electric vehicles (EVs). This article contains an analysis of how General Motors earns its revenue and profit, as well as a look into the company's future.
- GM manufactures vehicles under multiple brands, including Chevrolet, Buick, GMC, and Cadillac, and two brands in China.
- GM delivered more than 6.8 million vehicles globally in 2020, in which more than 2.5 million were sold in the United States.
- GM's 2020 annual revenue was $122.5B and net income or profit was $6.4 billion.
- GM is in the process of transforming to electric vehicles with the goal of becoming the market leader in EVs in North America.
- In June of 2021, GM announced a commitment of $35 billion in investments into electric vehicles through 2025.
About General Motors (GM)
Founded in 1908 by William C Durrant, General Motors (GM) employs 155,000 employees globally, including more than 88,000 in the United States. GM is headquartered in the United States in Detroit, Michigan.
GM has 122 plants and facilities in the U.S., including 11 assembly plants, 19 parts distribution centers, and battery plants. GM's global manufacturing operations are located throughout six continents.
General Motors manufactures automobiles and trucks under multiple brands, including Chevrolet, Buick, GMC, and Cadillac.
GM also manufactures cars and trucks under two brand names in China called Wuling and Baojun. The company has a total of 10 joint ventures in China. It also does business via joint ventures as General Motors India, General Motors Egypt, and GM South Africa.
One of the subsidiaries that GM owns is OnStar Corp., which provides in-vehicle communications, security, hands-free calling, navigation, and remote diagnostics systems via a subscription service. OnStar offers a crash response system with built-in vehicle sensors to detect an automobile crash, reporting it to authorities. The system also provides stolen vehicle assistance, which locates and aids in the recovery. It even offers an in-vehicle Wi-Fi hotspot service, allowing customers to connect via cell phone.
GM Financial, which provides auto loans to GM customers, is a wholly-owned finance subsidiary of GM headquartered in Fort Worth, Texas. GM Financial has operations in North America and Latin America as well as a 35% equity interest in a joint venture with SAIC-GMAC Automotive Finance Company Limited in China.
GM's Sales, Revenue, and Profit
For many companies, 2020 was a challenging year due to the Covid-19 pandemic, which caused temporary shutdowns of manufacturing plants, halting production, sales, and deliveries.
GM delivered more than 6.8 million vehicles globally for 2020. Of that total, GM sold more than 2.5 million vehicles in the United States.
GM finished the year strong, selling 771,323 in Q4 2020, which was the best retail sales performance for a fourth quarter since 2007. Total sales for the quarter were up 5% and deliveries up 12% compared to Q4 2019. However, due to the pandemic, total deliveries for all of 2020 were down 12%.
Some of the key brands that drove sales for GM in Q4 2020 versus Q4 2019 include the following:
- GMC Sierra had its best Q4 retail sales, with deliveries up 14%, and full-year retail sales were up 9% for the year.
- Five GMC models had double-digit growth, including the Yukon and Yukon XL (up 41%), Canyon (up 42%), Sierra (up 14%), and Acadia (up 26%).
- Retail deliveries for Chevrolet were up 12%, and the brands that had strong percentage sales growth included the Corvette (up 158%), Bolt EV (up 106%), Tahoe (up 78%), and Suburban (up 56%) when comparing Q4 2020 to Q4 2019.
GM sold 2.9 million vehicles in China for 2020. Its strongest sales growth came from Wuling, which grew deliveries by 8.8%, selling over 1 million vehicles. Buick deliveries were up 4.1%, while Cadillac deliveries were up 7.9% for the year.
Transaction prices set a Q4 record at $41,886 and a full-year record at $39,229 per unit. Steve Carlisle, who is GM's Executive Vice President and President of GM North America, said of the results:
"GM outperformed the industry in the quarter and the full year by a significant margin because of our manufacturing and supply chain teams, and dealers helping keep people safe at work and our launches on track."
Revenue and Profit
In 2020, General Motors’ annual revenue was $122.5B and the company reported $6.4 billion in net income or profit.
The table below contains highlights from the major drivers of GM's 2020 revenue and profit by region. Please note that GMI means GM International, and GMA is North America. All data was obtained from GM's 10K annual report for 2020.
|GM Revenue from Sales for 2020|
|GMNA||GMI||Total Auto Revenue||GM Financial||2020 Total|
Earnings before interest and taxes (EBIT) is a common metric for measuring the profitability of corporations since it represents the profit without the interest expense on debt and tax expenses. The table below contains GM's full-year 2020 EBIT figures for the various regions.
|GM's Full-Year 2020 EBIT|
Following the Q4-2020 financial results, GM's Chief Economist, Elaine BuckBerg, mentioned that GM looks forward to the spring of 2021 in which consumers, businesses, and the U.S. economy return to a more normal range of activities lifting auto demand and consumer sentiment.
GM's Future Transition to Electric Vehicles
In August of 2021, GM announced that 40-50% of its annual U.S. sales will be electric vehicles by 2030. Electric vehicles include battery-electric, fuel-cell, and plug-in hybrid vehicles as part of the company's commitment to a zero-emissions, all-electric future, eliminating tailpipe emissions from light-duty vehicles.
In June of 2021, GM announced a commitment of $35 billion in investments into electric vehicles through 2025, including the construction of two new battery-cell plants in the United States. Previously, GM had committed an initial investment of $20 billion from 2020 through 2025.
The company has stated that it will accelerate its transformative strategy to electric vehicles with the goal of becoming the market leader in EVs in North America and a global leader in battery and fuel cell technology. GM is also committed to being the first company to safely commercialize self-driving technology.
Regarding the company's future transformation, GM Chair and CEO Mary Barra stated:
"GM is targeting annual global EV sales of more than 1 million by 2025, and we are increasing our investment to scale faster because we see momentum building in the United States for electrification, along with customer demand for our product portfolio."
The Bottom Line
For over a century, GM has been a leader in the auto industry. It remains to be seen whether GM can meet its goals of transforming to an electric-vehicle company in the near future. However, the revenue earned from carbon-based vehicle sales will likely be replaced, in part, by EV revenue. The transformation will undoubtedly have challenges and cost billions of dollars. GM must also contend with competitors that will also be ramping up EV sales and production in the coming decade.
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