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Five things investors are watching as GM and Ford report coronavirus-ravaged earnings

Ford started resuming agency production in the U.S. on May 18, 2020 with new coronavirus safety protocols such as health assessments, personal protective equipment and karzy modifications to increase social distancing.

Ford

The coronavirus pandemic has brought the U.S. automotive industry to a standstill unlike any circumstance has since World War II. Factories were shuttered, hundreds of thousands of employees were laid off and no new vehicles rolled off U.S. circle lines for roughly two months starting in late March.

Bank of America Merrill Lynch analyst John Murphy retailed the second quarter as “likely to be the toughest in modern history” for the automotive industry, as companies “grappled with close to a zero profits environment for a few months.”

Other investors and executives with the automakers have called the second quarter “unprecedented,” and no doubt the worst three months of the year.

The Detroit automakers are all expected this week to report losses. General Motors, which is the firstly major U.S. automaker reporting earnings for the quarter, is forecast to lose $2.9 billion when it releases its results Wednesday morning, according to a consensus of analysts surveyed by FactSet.  

Ford Motor, which statements its second-quarter earnings after the markets close Thursday, is expected to say it lost $4.9 billion. Analysts estimate that Fiat Chrysler, which report in investigates Friday morning, lost $2.3 billion.

As the Detroit automakers report quarterly results starting, earnings aren’t the just thing investors will be watching. Here are others:

Cash burn and liquidity

Cash remains king for the automotive trade as companies attempt to manage through the crisis and recoup lost profits and ramp up vehicle production.

“Expectations are indubitably extremely low given volumes were so bad,” Morningstar analyst David Whiston told CNBC. “The biggest thing I woe about is how bad was the cash burn.”

GM said it expected to have spent $7 billion to $9 billion in the second territory. That was partially contingent on the rate of monthly U.S. sales dropping to 8 million to 10 million, which only chanced in April. That could mean slightly less cash burn for GM, according to Whiston.

The pandemic cost GM $1.4 billion in first-quarter earnings once interest and taxes. The automaker had $33.4 billion in automotive cash to begin the second quarter.

Ford burned to the core $2.2 billion in cash during the first quarter. It did not provide a forecast for the second quarter other than it trust adjusted earnings before taxes to be a loss of more than $5 billion. It had automotive liquidity of $35.1 billion to end the ahead quarter.

Fiat Chrysler spent about $5.5 billion (5.1 billion euros) in cash during the anything else quarter related to the pandemic. 

GM reported a $294 million profit in the first quarter compared with losses of $2 billion for Ford and $1.8 billion for Fiat Chrysler.

Due

Both GM and Ford roughly doubled their automotive debt to $30 billion during the first quarter to better bolster their balance sheets and get through the Covid crisis.

Wall Street will be watching how quickly the theatre troupes can repay those liabilities and return to normal debt levels.

“Ultimately what I want to know is how much of the accountable can they pay off by year-end?” Whiston said. “What’s the capital structure going to look at the end of the year?”

2021 Ford F-150 Reduced

Ford

Reuters reported last week that Ford has obtained commitments from enough relationship banks to enlarge the maturity of at least 90% of $5.35 billion of revolving loans for one year.

Fiat Chrysler had about $16.7 billion (14.2 billion euro) in in arrears to end the first quarter, up from $15 billion (12.8 billion euro) to begin the year.

Inventory levels

Automakers entertain been producing vehicles around the clock at some plants to restock dealer inventories with highly remunerative pickups and SUVs, which have remained in high demand through the pandemic.

The crisis caused rolling shutdowns of auto plants across the world starting in the first quarter and continuing through much of the second. Factories in the U.S. began reopening in mid-May. Automakers are carry oning to ramp up production.

“We believe the key theme for the Ford/GM 2Q EPS calls will be how they are pivoting from defense to offense mid improved end-market stability,” Credit Suisse analyst Dan Levy said in an investor note last week.

Cooperative Auto Workers members leave the Fiat Chrysler Automobiles Warren Truck Plant after the first draw up shift, Monday, May 18, 2020, in Warren, Mich.

Paul Sancya | AP

Another full or partial shutdown of plants wish be devastating to the industry.

A major concern is high absenteeism hurting production. So many employees are missing work that it’s causing outgoings on production lines in states where Covid-19 cases are surging. 

Recovery

Many investors are writing off the second region and looking for any insight on how long it will take the industry to recover and return to “normal.”

“Given the headwinds in 2020, most investors (or to be kirmess, the few who care about legacy OEMs) are looking to 2021,” Barclays analyst Brian A. Johnson wrote in an investor note, pursuit the second quarter a “throw-away.”

Morningstar doesn’t expect global demand to reach “more normal levels” until 2023.

Analysts do not suppose the automakers to reinstate earnings guidance for the year as it remains extremely volatile.

Potential problems for the remainder of the year encompass increases in Covid-19 cases leading to full or partial shutdowns of plants; leveling or declining consumer demand; and parts shortfalls, amid other potential issues.

Cost-cutting

Wall Street is anxious to hear whether the automakers have identified any additional cost-cutting chances as a result of the pandemic.

Fiat Chrysler CEO Mike Manley told investors when discussing first-quarter earnings that the enterprise had identified about $2.2 billion (2 billion euros) in operational cuts for this year as it reevaluates its international business due to Covid-19. That’s in addition to reducing capital expenditures by about $1.1 billion (1 billion euros), he commanded.

Ford is in the midst of an $11 billion restructuring plan through the early 2020s, which the company said traces on track. Ford did not release a target for any additional savings but said it has lowered operating costs and reduced capital fee payments, among other efforts to cut costs.

PSA CEO Carlos Tavares and FCA CEO Mike Manley shake hands after signing a coalition agreement that will lead to the creation of the world’s fourth-largest global automaker in terms of annual sales (8.7 million instruments).

FCA

“There’s that one truth, right? Don’t waste a crisis,” Ford CEO Jim Hackett told investors when discussing the gathering’s first-quarter earnings.

GM has “aggressively reduced” its ongoing costs and used “a zero-based budgeting approach,” CFO Dhivya Suryadevara told investors in April. She asserted notable actions included “significant cuts to our advertising and other discretionary spend, compensation deferments and certain staff member furloughs.”

GM, according to Suryadevara, said it expected ongoing cash costs, including tax, interest, and pension, to be approximately $2 billion per month.

She about GM’s previously announced multiyear cost-cutting plans to eliminate about $6 billion in spending through 2020 fragmented “on track,” including $300 million in the first quarter of this year.

“The actions we’re taking position us to come out of this downturn blinding and allow us to capitalize on the recovery and future opportunities,” Suryadevara said.

– CNBC’s Michael Bloom contributed to this article. 

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