DETROIT—The Detroit 3 emerged from the worst of the COVID-19 pandemic with better-than-expected financial results. Now the companies must navigate an uncertain recovery amid the worst economic outlook since the Great Depression.
Ford Motor Co. posted a surprise $1.1 billion second-quarter profit—thanks to fortuitous timing on an investment by Volkswagen Group into the Ford-owned self-driving startup Argo AI—and its operating loss of $1.9 billion was much better than a projected $5 billion loss. General Motors reported a better-than-expected $758 million second-quarter loss and nearly broke even in North America. Fiat Chrysler Automobiles lost $1.24 billion in the quarter, but its North American operations eked out a small profit despite lengthy plant closures.
All three companies credited strong operational execution and cost-saving measures taken in the spring.
After collectively restarting vehicle production in May, Ford, GM and FCA experienced few hiccups thanks to stringent return-to-work safety protocols.
Now, executives hope to continue the recovery.
Ford, the only company to provide full-year guidance, said it expects to make money in the third quarter but post a loss for the year because of the rollout of new vehicles such as the redesigned F-150, Bronco Sport and Mustang Mach-E in the year's final months.
GM believes it can recover from the financial hit of the pandemic by the end of year, after the auto maker already was on track with its 2018 restructuring plan and began slashing more costs when the coronavirus took hold in the U.S. But that hope could evaporate if the virus continues to spread, shutting plants again and stifling demand.
"GM deserves credit for pivoting quickly and rolling out blockbuster incentive programs that arguably kept the industry afloat through its most challenging period in more than a decade," Jessica Caldwell, Edmunds' executive director of insights, said in a statement.
"With the worst quarter now behind GM, the company—like all auto makers—is challenged to sell in a world filled with uncertainty for consumers, employees and operations."
Strong cash position
After borrowing billions this year to withstand the economic effects of the virus, Ford said it's already paid back half of the outstanding $15.4 billion on its revolving credit facilities, and GM said it hopes to pay back the additional debt it incurred in response to the pandemic by the end of the year.
GM also told salaried employees that it will stop deferring 20 percent of their pay and give them the missed earnings this year, rather than in early 2021 as it had planned. GM previously said the salary deferrals, which started April 1 as a way to conserve cash, could last for six months.
"We're watching the virus, the economy and its impact on the overall industry very closely," GM CFO Dhivya Suryadevara said last week. "But the takeaway for this quarter is our ability to flex our cost structure quickly and to preserve liquidity and demonstrate the performance that we've been working towards over the past few years."
Likewise, Ford remains in a strong cash position with more than $39 billion on hand through the end of the quarter.
Chief Financial Officer Tim Stone said Ford expects to have $20 billion in cash through the second half of this year, even if demand falls or factories are forced to close again because of a surge in virus cases.
FCA CEO Mike Manley said that the company's liquidity "remained strong" at $20.6 billion, excluding $5.3 billion that is undrawn under a new $7.4 billion Italian facility.
FCA last month agreed to that credit facility backed by the Italian government, a financing package that will be used for the manufacturer's operations in Italy.
Recovery in the second half of 2020 is far from certain.
First, there are normal automotive challenges, such as Ford's slew of product launches.
Stone declined to say how much the F-150 changeover, which affects two U.S. assembly plants, would cost, but said the company expects it to be "more impactful" than the $600 million charge Ford booked in the fourth quarter of 2019 to cover UAW contract ratification bonuses.
Beyond that, no one knows whether sales might ever return to pre-pandemic levels.
Jonathan Smoke, chief economist at Cox Automotive, noted the U.S. vehicle market still was shaky and said that "we are seeing the market struggle to keep up the pace of the recovery we enjoyed in May and June."
Smoke added that inventory is becoming more of a problem for both new and used vehicles. Cox is expecting a modest month-over-month improvement in U.S. sales in July but said the comeback is being stifled by the coronavirus outbreak and economic uncertainty.
Still, Detroit 3 executives are hopeful that the practices they implemented to emerge from the worst of the pandemic will serve them well.
"Our intent," said Suryadevara, "is to continue to be very disciplined from a cost standpoint and have as much of those savings that we can hold onto stick."
Hannah Lutz and Vince Bond Jr. contributed to this report.