General Motors Co 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations This MD&A should be read in conjunction with the accompanying audited consolidated financial statements and notes. Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the "Forward-Looking Statements" section of this MD&A and Part I, Item 1A. Risk Factors for a discussion of these risks and uncertainties. The discussion of our financial condition and results of operations for the year ended December 31, 2018 included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019 is incorporated by reference into this MD&A. Non-GAAP Measures Unless otherwise indicated, our non-GAAP measures discussed in this MD&A are related to our continuing operations and not our discontinued operations. Our non-GAAP measures include: earnings before interest and taxes (EBIT)-adjusted, presented net of noncontrolling interests; earnings before income taxes (EBT)-adjusted for our GM Financial segment; earnings per share (EPS)-diluted-adjusted; effective tax rate-adjusted (ETR-adjusted); return on invested capital-adjusted (ROIC-adjusted) and adjusted automotive free cash flow. Our calculation of these non-GAAP measures may not be comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result, the use of these non-GAAP measures has limitations and should not be considered superior to, in isolation from, or as a substitute for, related U.S. GAAP measures. These non-GAAP measures allow management and investors to view operating trends, perform analytical comparisons and benchmark performance between periods and among geographic regions to understand operating performance without regard to items we do not consider a component of our core operating performance. Furthermore, these non-GAAP measures allow investors the opportunity to measure and monitor our performance against our externally communicated targets and evaluate the investment decisions being made by management to improve ROIC-adjusted. Management uses these measures in its financial, investment and operational decision-making processes, for internal reporting and as part of its forecasting and budgeting processes. Further, our Board of Directors uses certain of these and other measures as key metrics to determine management performance under our performance-based compensation plans. For these reasons we believe these non-GAAP measures are useful for our investors. 23 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES EBIT-adjusted EBIT-adjusted is presented net of noncontrolling interests and is used by management and can be used by investors to review our consolidated operating results because it excludes automotive interest income, automotive interest expense and income taxes as well as certain additional adjustments that are not considered part of our core operations. Examples of adjustments to EBIT include but are not limited to impairment charges on long-lived assets and other exit costs resulting from strategic shifts in our operations or discrete market and business conditions; costs arising from the ignition switch recall and related legal matters; and certain currency devaluations associated with hyperinflationary economies. For EBIT-adjusted and our other non-GAAP measures, once we have made an adjustment in the current period for an item, we will also adjust the related non-GAAP measure in any future periods in which there is an impact from the item. Our corresponding measure for our GM Financial segment is EBT-adjusted because interest income and interest expense are part of operating results when assessing and measuring the operational and financial performance of the segment. EPS-diluted-adjusted EPS-diluted-adjusted is used by management and can be used by investors to review our consolidated diluted EPS results on a consistent basis. EPS-diluted-adjusted is calculated as net income attributable to common stockholders-diluted less income (loss) from discontinued operations on an after-tax basis, adjustments noted above for EBIT-adjusted and certain income tax adjustments divided by weighted-average common shares outstanding-diluted. Examples of income tax adjustments include the establishment or reversal of significant deferred tax asset valuation allowances. ETR-adjusted ETR-adjusted is used by management and can be used by investors to review the consolidated effective tax rate for our core operations on a consistent basis. ETR-adjusted is calculated as Income tax expense less the income tax related to the adjustments noted above for EBIT-adjusted and the income tax adjustments noted above for EPS-diluted-adjusted divided by Income before income taxes less adjustments. When we provide an expected adjusted effective tax rate, we do not provide an expected effective tax rate because the U.S. GAAP measure may include significant adjustments that are difficult to predict. ROIC-adjusted ROIC-adjusted is used by management and can be used by investors to review our investment and capital allocation decisions. We define ROIC-adjusted as EBIT-adjusted for the trailing four quarters divided by ROIC-adjusted average net assets, which is considered to be the average equity balances adjusted for average automotive debt and interest liabilities, exclusive of finance leases; average automotive net pension and other postretirement benefits (OPEB) liabilities; and average automotive net income tax assets during the same period. Adjusted automotive free cash flow Adjusted automotive free cash flow is used by management and can be used by investors to review the liquidity of our automotive operations and to measure and monitor our performance against our capital allocation program and evaluate our automotive liquidity against the substantial cash requirements of our automotive operations. We measure adjusted automotive free cash flow as automotive operating cash flow from continuing operations less capital expenditures adjusted for management actions. Management actions can include voluntary events such as discretionary contributions to employee benefit plans or nonrecurring specific events such as a closure of a facility that are considered special for EBIT-adjusted purposes. Refer to the “Liquidity and Capital Resources” section of this MD&A for additional information. 24 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES The following table reconciles Net income attributable to stockholders under U.S. GAAP to EBIT-adjusted: Years Ended December 31, 2020 2019 2018 Net income attributable to stockholders $ 6,427 $ 6,732 $ 8,014 Loss from discontinued operations, net of tax — — 70 Income tax expense 1,774 769 474 Automotive interest expense 1,098 782 655 Automotive interest income (241) (429) (335) Adjustments GMI restructuring(a) 683 — 1,138 Ignition switch recall and related legal matters(b) (130) — 440 Cadillac dealer strategy(c) 99 — — Transformation activities(d) — 1,735 1,327 GM Brazil indirect tax recoveries(e) — (1,360) — FAW-GM divestiture(f) — 164 — Total adjustments 652 539 2,905 EBIT-adjusted $ 9,710 $ 8,393 $ 11,783 ________ (a) These adjustments were excluded because of a strategic decision to rationalize our core operations by exiting or significantly reducing our presence in various international markets to focus resources on opportunities expected to deliver higher returns. The adjustments primarily consist of dealer restructurings, asset impairments, inventory provisions and employee separation charges in Australia, New Zealand, Thailand and India in the year ended December 31, 2020 and employee separation charges, asset impairments and supplier claims in Korea in the year ended December 31, 2018. (b) These adjustments were excluded because of the unique events associated with the ignition switch recall, which included various investigations, inquiries and complaints from constituents. (c) This adjustment was excluded because it relates to strategic activities to transition certain Cadillac dealers from the network as part of Cadillac's electric vehicle strategy. (d) These adjustments were excluded because of a strategic decision to accelerate our transformation for the future to strengthen our core business, capitalize on the future of personal mobility, and drive significant cost efficiencies. The adjustments primarily consist of accelerated depreciation, supplier-related charges, pension and other curtailment charges and employee-related separation charges in the year ended December 31, 2019 and primarily employee separation charges and accelerated depreciation in the year ended December 31, 2018. (e) This adjustment was excluded because of the unique events associated with decisions rendered by the Superior Judicial Court of Brazil resulting in retrospective recoveries of indirect taxes. (f) This adjustment was excluded because we divested our joint venture FAW-GM Light Duty Commercial Vehicle Co., Ltd. (FAW-GM), as a result of a strategic decision by both shareholders, allowing us to focus our resources on opportunities expected to deliver higher returns. 25 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES The following table reconciles diluted earnings per common share under U.S. GAAP to EPS-diluted-adjusted: Years Ended December 31, 2020 2019 2018 Amount Per Share Amount Per Share Amount Per Share Diluted earnings per common share $ 6,247 $ 4.33 $ 6,581 $ 4.57 $ 7,916 $ 5.53 Diluted loss per common share – discontinued operations — — — — 70 0.05 Adjustments(a) 652 0.46 539 0.38 2,905 2.03 Tax effect on adjustments(b) (70) (0.05) (188) (0.13) (416) (0.29) Tax adjustments(c) 236 0.16 — — (1,111) (0.78) EPS-diluted-adjusted $ 7,065 $ 4.90 $ 6,932 $ 4.82 $ 9,364 $ 6.54 ________ (a) Refer to the reconciliation of Net income attributable to stockholders under U.S. GAAP to EBIT-adjusted within this section of the MD&A for adjustment details. (b) The tax effect of each adjustment is determined based on the tax laws and valuation allowance status of the jurisdiction to which the adjustment relates. (c) In the year ended December 31, 2020, t he adjustment consists of tax expense related to the establishment of a valuation allowance against deferred tax assets in Australia and New Zealand. This adjustment was excluded because significant impacts of valuation allowances are not considered part of our core operations. In the year ended December 31, 2018, the adjustment consists of: (1) a non-recurring tax benefit related to foreign earnings; and (2) tax effects related to U.S. tax reform legislation. The following table reconciles our effective tax rate under U.S. GAAP to ETR-adjusted: Years Ended December 31, 2020 2019 2018 Income before income taxes Income tax expense Effective tax rate Income before income taxes Income tax expense Effective tax rate Income before income taxes Income tax expense Effective tax rate Effective tax rate $ 8,095 $ 1,774 21.9 % $ 7,436 $ 769 10.3 % $ 8,549 $ 474 5.5 % Adjustments(a) 652 70 545 188 2,946 416 Tax adjustments(b) (236) — 1,111 ETR-adjusted $ 8,747 $ 1,608 18.4 % $ 7,981 $ 957 12.0 % $ 11,495 $ 2,001 17.4 % __________ (a) Refer to the reconciliation of Net income attributable to stockholders under U.S. GAAP to EBIT-adjusted within this section of the MD&A for adjustment details. Net income attributable to noncontrolling interests for these adjustments is included in the years ended December 31, 2019 and 2018. The tax effect of each adjustment is determined based on the tax laws and valuation allowance status of the jurisdiction to which the adjustment relates. (b) Refer to the reconciliation of diluted earnings per common share under U.S. GAAP to EPS-diluted-adjusted within this section of the MD&A for adjustment details. We define return on equity (ROE) as Net income (loss) attributable to stockholders for the trailing four quarters divided by average equity for the same period. Management uses average equity to provide comparable amounts in the calculation of ROE. The following table summarizes the calculation of ROE (dollars in billions): Years Ended December 31, 2020 2019 2018 Net income (loss) attributable to stockholders $ 6.4 $ 6.7 $ 8.0 Average equity(a) $ 43.3 $ 43.7 $ 37.4 ROE 14.9 % 15.4 % 21.4 % _______ (a) Includes equity of noncontrolling interests where the corresponding earnings (loss) are included in Net income (loss) attributable to stockholders. 26 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES The following table summarizes the calculation of ROIC-adjusted (dollars in billions): Years Ended December 31, 2020 2019 2018 EBIT-adjusted(a) $ 9.7 $ 8.4 $ 11.8 Average equity(b) $ 43.3 $ 43.7 $ 37.4 Add: Average automotive debt and interest liabilities (excluding finance leases) 27.8 14.9 14.4 Add: Average automotive net pension & OPEB liability 17.6 16.7 18.3 Less: Average automotive net income tax asset (24.0) (23.5) (22.7) ROIC-adjusted average net assets $ 64.7 $ 51.8 $ 47.4 ROIC-adjusted 15.0 % 16.2 % 24.9 % ________ (a) Refer to the reconciliation of Net income attributable to stockholders under U.S. GAAP to EBIT-adjusted within this section of the MD&A. (b) Includes equity of noncontrolling interests where the corresponding earnings (loss) are included in EBIT-adjusted. Overview Our vision for the future is a world with zero crashes, zero emissions and zero congestion, which guides our growth-focused investment in electrification, self-driving vehicles and new products and services. The all-electric future we are building integrates our technology, scale and manufacturing expertise to drive growth, profitability and deliver world-class customer interactions. Our strategy includes product leadership in electric vehicles and autonomous vehicles, continued leadership in trucks and SUVs, and developing and monetizing new software and services. We will execute our strategy with a diverse team and a steadfast commitment to good citizenship through sustainable operations and a leading health and safety culture. The COVID-19 pandemic and government actions and measures taken to prevent its spread continue to affect our operations. In response to COVID-19, we previously suspended the majority of our global manufacturing operations and our Automotive China JVs’ manufacturing operations. By May 2020, we had resumed our global manufacturing operations. Government-imposed restrictions on businesses, operations and travel and the related economic uncertainty have impacted demand for our vehicles in most of our global markets. During the first half of 2020, we executed a number of austerity measures, including aggressive actions to reduce costs and preserve liquidity, such as limiting advertising and other third-party spending, suspending our dividend on common shares, deferring salaried employee compensation and delaying non-critical projects, including certain future product programs. As production has returned to normal levels, the majority of the austerity measures we put into place have normalized. The extent of COVID-19’s impact on our future operations, liquidity and the demand for our products will depend upon, among other things, the duration and severity of the outbreak or subsequent outbreaks, related government responses, such as required physical distancing or restrictions on business operations and travel, the pace of recovery of economic activity and the impact to consumers, the effectiveness of available vaccines and any potential supply disruptions, all of which are uncertain and difficult to predict in light of the rapidly evolving landscape. Refer to Part I, Item 1A. Risk Factors for a full discussion of the risks associated with the COVID-19 pandemic. The automotive industry and GM are currently experiencing a global semiconductor supply shortage. The supply shortage has impacted multiple suppliers that incorporate semiconductors into the parts they supply to us. We expect the semiconductor supply shortage will have a short-term impact on our business. We do not expect this shortage to impact our growth and electric vehicle initiatives, we will continue prioritizing full-size trucks, SUVs and electric vehicles. Refer to Part I, Item 1A. Risk Factors for further discussion of these risks. For the year ending December 31, 2021, we expect EPS-diluted and EPS-diluted-adjusted of between $4.50 and $5.25, Net income attributable to stockholders of between $6.8 billion and $7.6 billion and EBIT-adjusted of between $10.0 billion and $11.0 billion, inclusive of the impact of the semiconductor supply shortage. We do not consider the potential future impact of adjustments on our expected financial results. We estimate the short-term semiconductor supply shortage to have a net EBIT-adjusted impact of approximately $1.5 billion to $2.0 billion in the year ending December 31, 2021. 27 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES The following table reconciles expected Net income attributable to stockholders under U.S. GAAP to expected EBIT-adjusted (dollars in billions): Year Ending December 31, 2021 Net income attributable to stockholders $ 6.8-7.6 Income tax expense 2.2-2.4 Automotive interest expense, net 1.0 EBIT-adjusted(a) $ 10.0-11.0 ________ (a) We do not consider the potential future impact of adjustments on our expected financial results. We also face continuing market, operating and regulatory challenges in several countries across the globe due to, among other factors, weak economic conditions, competitive pressures, our product portfolio offerings, heightened emissions standards, labor disruptions, foreign exchange volatility, rising material prices, evolving trade policy and political uncertainty. Refer to Part I, Item 1A. Risk Factors for a discussion of these challenges. In November 2018, we announced plans to accelerate steps to improve our overall business performance, including the reorganization of global product development staffs, the realignment of manufacturing capacity in response to market-related volume declines in passenger cars and a reduction of our salaried workforce . We achieved $4.5 billion in cost savings primarily from reductions in Automotive and other cost of sales and Automotive and other selling, general and administrative expense in our consolidated financial statements, inclusive of $0.2 billion of savings related to the wind-down of Holden sales, design and engineering operations and sale of our vehicle and powertrain manufacturing facilities in Thailand. We previou sly announced plans to reduce capital expenditures from approximatel y $8.5 billion to approximately $7.0 billion on a normalized run-rate basis. As a result of re-timing 2020 spending due to pandemic-related austerity measures into 2021 and a strategic decision to accelerate investments in our all-electric future beginning in 2021, we expect that our annual capital expenditures will exceed $7.0 billion through at least 2023. A s we continue to assess our performance and the needs of our evolving business, additional restructuring and rationalization acti ons could be required. These actions could give rise to future asset impairments or other charges, which may have a material impact on our operating results. GMNA Industry sales in North America were 17.7 million units in the year ended December 31, 2020, representing a decrease of 16.2% compared to the corresponding period in 2019. U.S. industry sales were 14.9 million units in the year ended December 31, 2020, representing a decrease of 14.7% compared to the corresponding period in 2019. As described above, the COVID-19 pandemic has resulted in a contraction of total North America industry volumes in 2020. Dealer inventory remains constrained for several critical vehicles, including our full-size trucks. Our total vehicle sales in the U.S., our largest market in North America, were 2.5 million units for a market share of 17.1% in the year ended December 31, 2020, representing an increase of 0.6 percentage points compared to the corresponding period in 2019. We continue to lead the U.S. industry in market share. As discussed above, in response to COVID-19, we suspended production across our manufacturing facilities in March 2020. By May 2020, we had resumed critical manufacturing operations and reached normalized production levels in June 2020. We continue to follow physical distancing guidance, enhanced deep cleaning procedures and provide personal protective equipment to protect our employees. We estimate GMNA's breakeven point at the U.S. industry level to be in the range of 10.0 to 11.0 million units. The extent of COVID-19's impact on industry volumes in 2021 will ultimately depend upon, among other things, the duration and severity of the outbreak or subsequent outbreaks, related government responses, the pace of recovery of economic activity and the impact to consumers, the effectiveness of available vaccines and any potential supply disruptions, all of which are uncertain and difficult to predict in light of the rapidly evolving landscape. GMI Industry sales in China were 24.9 million units in the year ended December 31, 2020, representing a decrease of 1.9% compared to the corresponding period in 2019. Our total vehicle sales in China were 2.9 million units for a market share of 11.6% in the year ended December 31, 2020, representing a decrease of 0.5 percentage points compared to the corresponding period in 2019. While we have observed a recovery of the market as the impact of the COVID-19 pandemic in China subsides, the ongoing global macro-economic impact of COVID-19 and geopolitical tensions may continue to place pressure on China's 28 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES automotive industry. Our Automotive China JVs generated equity income of $0.5 billion in the year ended December 31, 2020. Although a continuation of a competitive industry, pricing pressures and a more challenging regulatory environment related to emissions, fuel consumption and new energy vehicles will continue to place pressure on our operations in China, we will continue to build upon our strong brands, network, and partnerships in China as well as continue to drive improvements in vehicle mix and cost. Outside of China, industry sales were 21.1 million units in the year ended December 31, 2020, representing a decrease of 18.0% compared to the corresponding period in 2019, primarily due to the global macroeconomic impact of COVID-19. Our total vehicle sales were 1.0 million units for a market share of 4.7% in the year ended December 31, 2020, representing a decrease of 0.1 percentage points compared to the corresponding period in 2019. In the year ended December 31, 2020, restructuring actions in GMI were related to the wind-down of Holden sales, design and engineering operations in Australia and New Zealand, with cessation of Holden vehicle sales by 2021, the sale of our vehicle and powertrain manufacturing facilities in Thailand, and the execution of a binding term sheet to sell our manufacturing facilities in India. These actions were taken to strengthen the Company's core business and focus investment on other opportunities that will derive the greatest returns for shareholders and support investment in future technologies. We recorded charges of $0.7 billion in the year ended December 31, 2020. We also recorded deferred tax charges of $0.2 billion in the year ended December 31, 2020. The charges were primarily considered special for EBIT-adjusted, EPS-diluted-adjusted and adjusted automotive free cash flow purposes. We intend to continue to provide servicing and spare parts to customers for an extended period of time in Australia, New Zealand, Thailand and India. Refer to Note 18 to our consolidated financial statements for additional information related to these restructuring actions. Cruise We are actively testing our autonomous vehicles in the U.S. Gated by safety and regulation, we continue to make significant progress towards commercialization of a network of on-demand autonomous vehicles in the U.S. Automotive Financing - GM Financial Summary and Outlook We believe that offering a comprehensive suite of financing products will generate incremental sales of our vehicles, drive incremental GM Financial earnings and help support our sales throughout various economic cycles. GM Financial's leasing program is exposed to residual values, which are heavily dependent on used vehicle prices. Used vehicle prices increased approximately 3% in 2020 compared to 2019, primarily due to low new vehicle inventory, largely driven by the suspension of manufacturing operations as a result of the COVID-19 pandemic, creating strong demand for used vehicles, which resulted in gains on terminations of leased vehicles of $1.3 billion in GM Financial interest, operating and other expenses in the year ended December 31, 2020, compared to gains of $0.7 billion in the corresponding period in 2019. Further, vehicles sold during 2020 were carried at lower net book values, resulting from increased depreciation rates recorded in anticipation of reduced residual values throughout 2020. In 2021, GM Financial expects used vehicle prices to decline by an amount in the low single digits on a percentage basis as compared to 2020 levels as supply and demand dynamics normalize. The following table summarizes the estimated residual value based on GM Financial's most recent estimates and the number of units included in GM Financial Equipment on operating leases, net by vehicle type (units in thousan ds): December 31, 2020 December 31, 2019 Residual Value Units Percentage Residual Value Units Percentage Crossovers $ 16,334 964 65.5 % $ 15,950 972 60.5 % Trucks 7,455 275 18.7 % 7,256 288 18.0 % SUVs 3,435 92 6.3 % 3,917 108 6.7 % Cars 1,949 140 9.5 % 3,276 238 14.8 % Total $ 29,173 1,471 100.0 % $ 30,399 1,606 100.0 % GM Financial's penetration of our retail sales in the U.S. increased to 45% in the year ended December 31, 2020 from 43% in 2019. Penetration levels vary depending on incentive financing programs available and competing third-party financing products in the market. GM Financial's prime loan originations as a percentage of total loan originations in North America increased to 73% in 2020 from 68% in 2019. In the year ended December 31, 2020, GM Financial's revenue consisted of leased vehicle income of 69%, retail finance charge income of 26%, and commercial finance charge income of 3%. Consolidated Results We review changes in our results of operations under five categories: volume, mix, price, cost and other. Volume measures the impact of changes in wholesale vehicle volumes driven by industry volume, market share and changes in dealer stock levels. Mix measures the impact of changes to the regional portfolio due to product, model, trim, 29 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES country and option penetration in current year wholesale vehicle volumes. Price measures the impact of changes related to Manufacturer’s Suggested Retail Price and various sales allowances. Cost primarily includes: (1) material and freight; (2) manufacturing, engineering, advertising, administrative and selling and warranty expense; and (3) non-vehicle related activity. Other primarily includes foreign exchange and non-vehicle related automotive revenues as well as equity income or loss from our nonconsolidated affiliates. Refer to the regional sections of this MD&A for additional information. Total Net Sales and Revenue Years Ended December 31, Favorable/ (Unfavorable) Variance Due To 2020 2019 % Volume Mix Price Other (Dollars in billions) GMNA $ 96,733 $ 106,366 $ (9,633) (9.1) % $ (15.1) $ 2.7 $ 3.3 $ (0.5) GMI 11,586 16,111 (4,525) (28.1) % $ (4.4) $ 1.2 $ 0.5 $ (1.8) Corporate 350 220 130 59.1 % $ 0.1 Automotive 108,669 122,697 (14,028) (11.4) % $ (19.6) $ 3.9 $ 3.8 $ (2.2) Cruise 103 100 3 3.0 % $ — GM Financial 13,831 14,554 (723) (5.0) % $ (0.7) Eliminations/reclassifications (118) (114) (4) (3.5) % $ — $ — Total net sales and revenue $ 122,485 $ 137,237 $ (14,752) (10.7) % $ (19.6) $ 3.9 $ 3.8 $ (2.9) Refer to the regional sections of this MD&A for additional information on volume, mix and price. Automotive and Other Cost of Sales Years Ended December 31, Favorable/ (Unfavorable) Variance Due To 2020 2019 % Volume Mix Cost Other (Dollars in billions) GMNA $ 83,886 $ 94,582 $ 10,696 11.3 % $ 11.0 $ (2.2) $ 1.8 $ — GMI 12,515 14,967 2,452 16.4 % $ 4.0 $ (0.9) $ (1.6) $ 1.0 Corporate 310 81 (229) n.m. $ (0.2) $ — Cruise 829 1,026 197 19.2 % $ 0.2 Eliminations (1) (5) (4) (80.0) % $ — $ — Total automotive and other cost of sales $ 97,539 $ 110,651 $ 13,112 11.8 % $ 15.0 $ (3.1) $ 0.2 $ 1.0 ________ n.m. = not meaningful The most significant element of our Automotive and other cost of sales is material cost, which makes up approximately two-thirds of the total amount. The remaining portion includes labor costs, depreciation and amortization, engineering, freight and product warranty and recall campaigns. Factors that most significantly influence a region's profitability are industry volume, market share, and the relative mix of vehicles (trucks, crossovers, cars) sold. Variable profit is a key indicator of product profitability. Variable profit is defined as revenue less material cost, freight, the variable component of manufacturing expense and warranty and recall-related costs. Vehicles with higher selling prices generally have higher variable profit. Refer to the regional sections of this MD&A for additional information on volume and mix. In the year ended December 31, 2020, favorable Cost was primarily due to: (1) charges of $1.7 billion primarily related to accelerated depreciation and supplier-related charges resulting from transformation activities in 2019; (2) favorable cost of $1.5 billion primarily due to the impact of COVID-19, inclusive of the suspension of production and austerity measures as well as cost savings associated with transformation activities and savings related to the wind-down of Holden sales, design and engineering operations and sale of our vehicle and powertrain manufacturing facilities in Thailand; and (3) decreased costs of $0.3 billion related to parts and accessories sales; partially offset by (4) a benefit of $1.4 billion related to the retrospective recoveries of indirect taxes in Brazil in 2019; (5) increased material and freight costs of $0.9 billion; (6) charges of $0.7 billion 30 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES primarily related to dealer restructuring charges, property and intangible asset impairments, inventory provisions and employee separation charges in Australia, New Zealand, Thailand and India; and (7) increased costs of $0.4 billion primarily due to the Takata Corporation (Takata) recall of $1.1 billion partially offset by decreased other campaign and warranty-related costs. In the year ended December 31, 2020 favorable Other was due to the foreign currency effect resulting from the weakening of the Brazilian Real and other currencies against the U.S. Dollar. Automotive and Other Selling, General and Administrative Expense Years Ended December 31, Year Ended 2020 vs. 2019 Change 2020 2019 2018 Favorable/ (Unfavorable) % Automotive and other selling, general and administrative expense $ 7,038 $ 8,491 $ 9,650 $ 1,453 17.1 % In the year ended December 31, 2020, Automotive and other selling, general and administrative expense decreased primarily due to decreased advertising and other costs of $1.4 billion primarily related to the impact of COVID-19, inclusive of austerity measures and cost savings associated with transformation activities. Interest Income and Other Non-operating Income, net Years Ended December 31, Year Ended 2020 vs. 2019 Change 2020 2019 2018 Favorable/ (Unfavorable) % Interest income and other non-operating income, net $ 1,885 $ 1,469 $ 2,596 $ 416 28.3 % In the year ended December 31, 2020, Interest income and other non-operating income, net increased primarily due to increased non-service pension income of $0.3 billion. Income Tax Expense Years Ended December 31, Year Ended 2020 vs. 2019 Change 2020 2019 2018 Favorable/ (Unfavorable) % Income tax expense $ 1,774 $ 769 $ 474 $ (1,005) n.m. ________ n.m. = not meaningful In the year ended December 31, 2020, Income tax expense increased primarily due to changes in valuation allowance, an increase in pre-tax income, and the absence of U.S. tax benefits from foreign activity. For the year ended December 31, 2020 our ETR-adjusted was 18.4%. We expect our adjusted effective tax rate to be approximately 24% for the year ending December 31, 2021. Refer to Note 17 to our consolidated financial statements for additional information related to Income tax expense. GM North America Years Ended December 31, Favorable/ (Unfavorable) Variance Due To 2020 2019 % Volume Mix Price Cost Other (Dollars in billions) Total net sales and revenue $ 96,733 $ 106,366 $ (9,633) (9.1) % $ (15.1) $ 2.7 $ 3.3 $ (0.5) EBIT-adjusted $ 9,071 $ 8,204 $ 867 10.6 % $ (4.1) $ 0.5 $ 3.3 $ 1.3 $ (0.1) EBIT-adjusted margin 9.4 % 7.7 % 1.7 % (Vehicles in thousands) Wholesale vehicle sales 2,707 3,214 (507) (15.8) % 31 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES GMNA Total Net Sales and Revenue In the year ended December 31, 2020, Total net sales and revenue decreased primarily due to: (1) decreased net wholesale volumes across most vehicle lines as a result of suspending production due to the COVID-19 pandemic, partially offset by lost production volumes associated with the UAW strike in 2019; and (2) unfavorable Other primarily due to decreased sales of parts and accessories due to the COVID-19 pandemic and foreign currency effect resulting from the weakening of the Mexican Peso against the U.S. Dollar; partially offset by (3) favorable price primarily due to full-size SUVs, pickup trucks and crossover vehicles; and (4) favorable mix associated with decreased sales of passenger cars and crossover vehicles, improved mix associated with our new full-size pickup trucks, partially offset by decreased sales of full-size SUVs. GMNA EBIT-Adjusted The most significant factors that influence profitability are industry volume and market share. While not as significant as industry volume and market share, another factor affecting profitability is the relative mix of vehicles sold. Trucks, crossovers and cars sold currently have a variable profit of approximately 160%, 60% and 30% of our GMNA portfolio on a weighted-average basis. In the year ended December 31, 2020, EBIT-adjusted increased primarily due to: (1) favorable price; (2) favorable Cost due to savings in advertising, manufacturing, engineering and other administrative and selling of $2.1 billion, inclusive of the suspension of production and austerity measures in response to the COVID-19 pandemic as well as transformation activities; partially offset by increased material and freight cost of $0.7 billion, and increased costs of $0.4 billion primarily due to the Takata recall of $1.1 billion partially offset by decreased other campaigns and warranty-related costs; and (3) favorable mix; partially offset by (4) decreased net wholesale volumes. GM International Years Ended December 31, Favorable/ (Unfavorable) Variance Due To 2020 2019 % Volume Mix Price Cost Other (Dollars in billions) Total net sales and revenue $ 11,586 $ 16,111 $ (4,525) (28.1) % $ (4.4) $ 1.2 $ 0.5 $ (1.8) EBIT (loss)-adjusted $ (528) $ (202) $ (326) n.m. $ (0.5) $ 0.3 $ 0.6 $ 0.2 $ (0.9) EBIT (loss)-adjusted margin (4.6) % (1.3) % (3.3) % Equity income — Automotive China $ 512 $ 1,132 $ (620) (54.8) % EBIT (loss)-adjusted — excluding Equity income $ (1,040) $ (1,334) $ 294 22.0 % (Vehicles in thousands) Wholesale vehicle sales 663 995 (332) (33.4) % ________ n.m. = not meaningful The vehicle sales of our Automotive China JVs are not recorded in Total net sales and revenue. The results of our joint ventures are recorded in Equity income, which is included in EBIT (loss)-adjusted above. GMI Total Net Sales and Revenue In the year ended December 31, 2020, Total net sales and revenue decreased primarily due to: (1) decreased wholesale volumes primarily due to lower industry volumes due to the COVID-19 pandemic primarily in South America and lower volumes in Asia/Pacific inclusive of the wind-down of our vehicle sales operations in Australia, New Zealand and Thailand; (2) unfavorable Other primarily due to the foreign currency effect resulting from the weakening of the Brazilian Real and Argentine Peso against the U.S. Dollar and decreased components, parts and accessories sales; partially offset by (3) favorable mix primarily in Brazil; and (4) favorable pricing across multiple vehicle lines in Argentina and Brazil. GMI EBIT (loss)-Adjusted In the year ended December 31, 2020, EBIT (loss)-adjusted increased primarily due to: (1) unfavorable volume; (2) unfavorable Other primarily due to decreased equity income and the foreign currency effect resulting from the weakening of the Brazilian Real and Argentine Peso against the U.S. Dollar; partially offset by (3) favorable pricing; (4) favorable mix primarily in Brazil and Asia/Pacific; and (5) favorable Cost primarily due to decreased advertising and engineering expenses, inclusive of savings related to the wind-down of Holden sales, design and engineering operations and sale of our vehicle and powertrain manufacturing facilities in Thailand, partially offset by increased material cost. 32 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES We view the Chinese market as important to our global growth strategy and are employing a multi-brand strategy. In the coming years we plan to leverage our global architectures to increase the number of product offerings under the Buick, Chevrolet and Cadillac brands in China and continue to grow our business under the local Baojun and Wuling brands. We operate in the Chinese market through a number of joint ventures and maintaining strong relationships with our joint venture partners is an important part of our China growth strategy. The following table summarizes certain key operational and financial data for the Automotive China JVs (vehicles in thousands): Years Ended December 31, 2020 2019 2018 Wholesale vehicle sales including vehicles exported to markets outside of China 3,029 3,244 4,030 Total net sales and revenue $ 38,736 $ 39,123 $ 50,316 Net income $ 1,239 $ 2,258 $ 3,992 December 31, 2020 December 31, 2019 Cash and cash equivalents $ 8,980 $ 6,257 Debt $ 313 $ 109 Cruise Years Ended December 31, 2020 vs. 2019 Change 2020 2019 2018 Favorable/ (Unfavorable) % Total net sales and revenue(a) $ 103 $ 100 $ — $ 3 3.0 % EBIT (loss)-adjusted $ (887) $ (1,004) $ (728) $ 117 11.6 % ________ (a) Reclassified to Interest income and other non-operating income, net in our consolidated income statement in each of the years ended December 31, 2020 and 2019. Cruise EBIT (Loss)-Adjusted In the year ended December 31, 2020, EBIT (loss)-adjusted decreased primarily due to a reduction in developmental costs as we progress towards the commercialization of a network of on-demand autonomous vehicles in the U.S., partially offset by an increase in administrative expense. GM Financial Years Ended December 31, 2020 vs. 2019 Change 2020 2019 2018 Amount % Total revenue $ 13,831 $ 14,554 $ 14,016 $ (723) (5.0) % Provision for loan losses $ 881 $ 726 $ 642 $ 155 21.3 % EBT-adjusted $ 2,702 $ 2,104 $ 1,893 $ 598 28.4 % Average debt outstanding (dollars in billions) $ 91.4 $ 91.2 $ 85.1 $ 0.2 0.2 % Effective rate of interest paid 3.3 % 4.0 % 3.8 % (0.7) % GM Financial Revenue In the year ended December 31, 2020, Total revenue decreased primarily due to decreased leased vehicle income of $0.5 billion primarily due to a decrease in the size of the leased vehicle portfolio and decreased investment income of $0.1 billion resulting from a decline in benchmark interest rates. GM Financial EBT-Adjusted In the year ended December 31, 2020, EBT-adjusted increased primarily due to: (1) decreased interest expense of $0.6 billion due to a lower effective rate of interest on debt resulting from a decline in benchmark interest rates; (2) decreased leased vehicle expenses net of decreased leased vehicle income of $0.3 billion primarily due to increased leased vehicle termination gains, due to the outperformance of used vehicle prices compared to residual value estimates and a decrease in the size of the leased vehicle portfolio; partially offset by (3) increased provision for loan losses of $0.2 billion primarily due to increased expected charge-offs as a result of the forecasted economic impact of the COVID-19 pandemic, inclusive of new CECL standard impacts. 33 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES Liquidity and Capital Resources As described in the “Overview” section of this MD&A, the COVID-19 pandemic has had a material impact on our financial results and it may have a material impact on future periods, including our cash flows from operating activities and liquidity. The extent of the impact of COVID-19 on our liquidity will depend upon, among other things, the duration and severity of the outbreak or subsequent outbreaks, related government responses, such as required physical distancing or restrictions on business operations and travel, the pace of recovery of economic activity and the impact to consumers, the effectiveness of available vaccines and any potential supply disruptions, all of which are uncertain and difficult to predict. Refer to Part I, Item 1A. Risk Factors for a full discussion of the risks associated with the COVID-19 pandemic. During 2020, to preserve financial flexibility in light of the uncertainty in global markets resulting from the COVID-19 pandemic, we borrowed $15.9 billion under our revolving credit facilities, extended a portion of our revolving credit facilities for an additional year, issued $4.0 billion in senior unsecured notes and entered into a new unsecured 364-day, $2.0 billion revolving credit facility. We repaid all amounts drawn under the revolving credit facilities as of December 31, 2020. S ee the "Automotive Liquidity" section of this MD&A for additional information on these liquidity actions. Despite the uncertainty resulting from the COVID-19 pandemic, we believe our current levels of cash, cash equivalents, and marketable debt securities, available borrowing capacity under our revolving credit facilities and other liquidity actions currently available to us are sufficient to meet our liquidity requirements. We also maintain access to the capital markets and may issue debt or equity securities, which may provide an additional source of liquidity. We have substantial cash requirements going forward, which we plan to fund through our total available liquidity, cash flows from operating activities and additional liquidity measures, if determined to be necessary. The following summarizes aggregated information about our material short and long-term cash requirements from our known contractual and other obligations: Payments Due by Period 2021 2022-2023 2024-2025 2026 and after Total Automotive debt $ 1,199 $ 2,619 $ 2,618 11,260 17,696 Automotive Financing debt 35,742 34,579 14,417 7,277 92,015 Automotive interest payments(a) 947 1,807 1,532 8,439 12,725 Automotive Financing interest payments(b) 2,072 2,329 955 443 5,799 Operating lease obligations 266 436 312 498 1,512 Material 2,496 1,593 71 18 4,178 __________ (a) Amounts include automotive interest payments based on contractual terms and current interest rates on our debt and finance lease obligations. Automotive interest payments based on variable interest rates were determined using the interest rate in effect at December 31, 2020. (b) GM Financial interest payments were determined using the interest rate in effect at December 31, 2020 for floating rate debt and the contractual rates for fixed rate debt. GM Financial interest payments on floating rate tranches of the securitization notes payable were converted to a fixed rate based on the floating rate plus any expected hedge payments. Our known current material uses of cash include, among other possible demands: (1) capital expenditures of approximately $9.0 billion to $10.0 billion in 2021 in addition to payments for engineering and product development activities; (2) payments associated with previously announced vehicle recalls, the settlements of the multi-district litigation and any other recall-related contingencies; and (3) payments to service debt and other long-term obligations, including discretionary and mandatory contributions to our pension plans. Our material future uses of cash, which may vary from time to time based on market conditions and other factors, are focused on the three objectives of our capital allocation program: (1) grow our business at an average target ROIC-adjusted rate of 20% or greater; (2) maintain a strong investment-grade balance sheet, including a target average automotive cash balance of $18 billion; and (3) after the first two objectives are met, return available cash to shareholders. Our senior management evaluates our capital allocation program on an ongoing basis and recommends any modifications to the program to our Board of Directors, not less than once annually. Our liquidity plans are subject to a number of risks and uncertainties, including those described in the "Forward-Looking Statements" section of this MD&A and Part I, Item 1A. Risk Factors, some of which are outside of our control. 34 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES We continue to monitor and evaluate opportunities to strengthen our competitive position over the long term while maintaining a strong investment-grade balance sheet. These actions may include opportunistic payments to reduce our long-term obligations, as well as the possibility of acquisitions, dispositions, investments with joint venture partners and strategic alliances that we believe would generate significant advantages and substantially strengthen our business. In January 2017, we announced that our Board of Directors had authorized the purchase of up to $5.0 billion of our common stock with no expiration date, as part of our common stock repurchase program. We have completed $1.7 billion of the $5.0 billion program through December 31, 2020. Cash flows occur amongst our Automotive, Cruise and GM Financial operations that are eliminated when we consolidate our cash flows. Such eliminations include, among other things, collections by Automotive on wholesale accounts receivables financed by dealers through GM Financial, payments between Automotive and GM Financial for accounts receivables transferred by Automotive to GM Financial, loans to Automotive from GM Financial, dividends issued by GM Financial to Automotive and Automotive cash injections in Cruise. The presentation of Automotive liquidity, Cruise liquidity and GM Financial liquidity presented below includes the impact of cash transactions amongst the sectors that are ultimately eliminated in consolidation. Automotive Liquidity Total available liquidity includes cash, cash equivalents, marketable debt securities and funds available under credit facilities. The amount of available liquidity is subject to seasonal fluctuations and includes balances held by various business units and subsidiaries worldwide that are needed to fund their operations. We manage our liquidity primarily at our treasury centers as well as at certain of our significant consolidated overseas subsidiaries. Over 90% of our cash and marketable debt securities were managed within North America and at our regional treasury centers at December 31, 2020. We have used and will continue to use other methods including intercompany loans to utilize these funds across our global operations as needed. Our cash equivalents and marketable debt securities balances are primarily denominated in U.S. Dollars and include investments in U.S. government and agency obligations, foreign government securities, time deposits, corporate debt securities and mortgage and asset-backed securities. Our investment guidelines, which we may change from time to time, prescribe certain minimum credit worthiness thresholds and limit our exposures to any particular sector, asset class, issuance or security type. The majority of our current investments in debt securities are with A/A2 or better rated issuers. We use credit facilities as a mechanism to provide additional flexibility in managing our global liquidity. At December 31, 2019, the total size of our credit facilities was $17.5 billion, which consisted principally of three revolving credit facilities. In May 2020, as an additional source of available liquidity, we entered into a fourth facility, increasing the size of our credit facilities to $18.5 billion. These facilities consist of a three-year, $4.0 billion facility that includes a letter of credit sub-facility of $1.1 billion, a five-year, $10.5 billion facility, a three-year, $2.0 billion transformation facility and a 364-day, $2.0 billion revolving credit facility entered into in May 2020. Total borrowing capacity under our automotive credit facilities does not include a 364-day, $2.0 billion facility designated for exclusive use by GM Financial. In April 2020, we renewed our 364-day, $2.0 billion facility designated for exclusive use by GM Financial for an additional 364-day term and extended $3.6 billion of the three-year, $4.0 billion facility for an additional year expiring in April 2022. The remaining portion will expire in April 2021, unless extended. As part of the extension of the three-year, $4.0 billion facility, we agreed not to execute any share repurchases while we have any outstanding borrowings under the revolving credit facilities, except for the three-year, $2.0 billion transformation facility. In addition, we are restricted from paying dividends on our common shares if outstanding borrowings under the revolving credit facilities exceed $5.0 billion, with the exception of the three-year, $2.0 billion transformation facility. In 2020, we borrowed $3.4 billion against our three-year, $4.0 billion facility, $2.0 billion against our three-year, $2.0 billion transformation facility and $10.5 billion against our five-year, $10.5 billion facility. We repaid all amounts drawn under the revolving credit facilities as of December 31, 2020. We had letters of credit outstanding under our sub-facility of $0.3 billion and $0.2 billion at December 31, 2020 and 2019. If available capacity permits, GM Financial has access to our revolving credit facilities, except for the three-year, $2.0 billion transformation facility and the new 364-day $2.0 billion facility. GM Financial did not have borrowings outstanding against our revolving credit facilities at December 31, 2020 and 2019. Refer to Note 13 to our consolidated financial statements for additional information on credit facilities. We had intercompany loans from GM Financial of $0.4 billion and $0.5 billion at 35 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES December 31, 2020 and 2019, which primarily consisted of commercial loans to dealers we consolidate, and we had no intercompany loans to GM Financial. Refer to Note 5 of our consolidated financial statements for additional information. In May 2020, we issued $4.0 billion in aggregate principal amount of senior unsecured notes with a weighted average interest rate of 6.11% and maturity dates ranging from 2023 to 2027. The notes are governed by a sixth supplemental indenture and the same base indenture that governs our existing notes, which contains terms and covenants customary for these types of securities, including a limitation on the amount of certain secured debt we may incur. The net proceeds from the issuance of these senior unsecured notes provide additional financial flexibility and will be used for general corporate purposes. In August 2020, we repaid $0.5 billion of our floating rate senior unsecured debt upon maturity. Several of our loan facilities, including our revolving credit facilities, require compliance with certain financial and operational covenants as well as regular reporting to lenders. We have reviewed our covenants in effect as of December 31, 2020 and determined we are in compliance and expect to remain in compliance in the future. GM Financial's Board of Directors declared and paid dividends of $0.8 billion and $0.4 billion on its common stock in 2020 and 2019. Future dividends from GM Financial will depend on a number of factors including business and economic conditions, its financial condition, earnings, liquidity requirements and leverage ratio. The following table summarizes our available liquidity (dollars in billions): December 31, 2020 December 31, 2019 Automotive cash and cash equivalents $ 14.2 $ 13.4 Marketable debt securities 8.1 3.9 Automotive cash, cash equivalents and marketable debt securities 22.3 17.3 Cruise cash and cash equivalents(a) 0.8 2.3 Cruise marketable debt securities(a) 0.9 0.3 Available liquidity 24.0 19.9 Available under credit facilities 18.2 17.3 Total available liquidity $ 42.2 $ 37.2 __________ (a) Amounts are designated exclusively for the use of Cruise. Refer to Note 20 to our consolidated financial statements for further details. The following table summarizes the changes in our Automotive available liquidity (excluding Cruise, dollars in billions): Year Ended December 31, 2020 Operating cash flow $ 7.5 Capital expenditures (5.3) Dividends paid and payments to purchase common stock (0.6) Issuance of senior unsecured notes 4.0 Repayment of senior unsecured notes (0.5) Other non-operating(a) (0.1) Increase in available credit facilities 0.9 Total change in automotive available liquidity $ 5.9 __________ (a) Amount includes $0.5 billion of net payments on other debt including finance leases and several other insignificant items, partially offset by $0.6 billion of proceeds from the sale of our remaining shares in Lyft. 36 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES Automotive Cash Flow (Dollars in billions) Years Ended December 31, 2020 vs. 2019 Change 2020 2019 2018 Operating Activities Income from continuing operations $ 5.0 $ 5.8 $ 7.1 $ (0.8) Depreciation, amortization and impairment charges 5.5 6.7 6.1 (1.2) Pension and OPEB activities (1.6) (1.5) (3.4) (0.1) Working capital (1.7) (2.2) 0.7 0.5 Accrued and other liabilities and income taxes (1.4) (1.5) 1.9 0.1 Other 1.7 0.1 (0.7) 1.6 Net automotive cash provided by operating activities $ 7.5 $ 7.4 $ 11.7 $ 0.1 In the year ended December 31, 2020, the increase in Net automotive cash provided by operating activities was primarily due to: (1) payments of $1.1 billion in the prior year related to transformation activities; (2) working capital; (3) higher dividends received from GM Financial of $0.4 billion; and (4) several other insignificant items; partially offset by (5) unwind of sales incentives of $1.8 billion; and (6) lower dividends received from our nonconsolidated affiliates of $0.7 billion. Years Ended December 31, 2020 vs. 2019 Change 2020 2019 2018 Investing Activities Capital expenditures $ (5.3) $ (7.5) $ (8.7) $ 2.2 Acquisitions and liquidations of marketable securities, net(a) (3.6) 2.4 2.3 (6.0) GM investment in Cruise — (0.7) (1.1) 0.7 Other 0.1 0.2 (0.2) (0.1) Net automotive cash used in investing activities $ (8.8) $ (5.6) $ (7.7) $ (3.2) __________ (a) Amount includes $0.6 billion and $0.3 billion of proceeds from the sale of our shares in Lyft in the year ended December 31, 2020 and 2019. In the year ended December 31, 2020, capital expenditures decreased primarily due to the delay of non-critical projects, including certain future product programs, in response to the COVID-19 pandemic. Cash used in acquisitions and liquidations of marketable securities, net increased due to the increased purchases of marketable securities with proceeds from the issuance of debt in response to the COVID-19 pandemic and increased liquidations of marketable securities for strike-related liquidity needs during 2019. Years Ended December 31, 2020 vs. 2019 Change 2020 2019 2018 Financing Activities Net proceeds (payments) from short-term debt $ (0.5) $ 0.5 $ (1.4) $ (1.0) Issuance of senior unsecured notes 4.0 — 2.1 4.0 Repayment of senior unsecured notes (0.5) — — (0.5) Dividends paid and payments to purchase common stock (0.6) (2.2) (2.3) 1.6 Proceeds from KDB investment in GM Korea — — 0.7 — Other (0.3) (0.4) (0.6) 0.1 Net automotive cash provided by (used in) financing activities $ 2.1 $ (2.1) $ (1.5) $ 4.2 37 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES Adjusted Automotive Free Cash Flow We measure adjusted automotive free cash flow as automotive operating cash flow from continuing operations less capital expenditures adjusted for management actions. For the year ended December 31, 2020, net automotive cash provided by operating activities under U.S. GAAP was $7.5 billion, capital expenditures were $5.3 billion and adjustments for management actions, primarily related to GMI restructuring, were $0.3 billion. For the year ended December 31, 2019, net automotive cash provided by operating activities under U.S. GAAP was $7.4 billion, capital expenditures were $7.5 billion and adjustments for management actions, primarily related to transformation activities, were $1.2 billion. Status of Credit Ratings We receive ratings from four independent credit rating agencies: DBRS Limited (DBRS), Fitch Ratings (Fitch), Moody's Investor Service (Moody's) and Standard & Poor's (S&P). All four credit rating agencies currently rate our corporate credit at investment grade. The following table summarizes our credit ratings at January 29, 2021: Corporate Revolving Credit Facilities Senior Unsecured Outlook DBRS BBB BBB N/A Negative Fitch BBB- BBB- BBB- Stable Moody's Investment Grade Baa2 Baa3 Negative S&P BBB BBB BBB Negative Cruise Liquidity The changes in our Cruise available liquidity in the year ended December 31, 2020 were primarily driven by operating cash flow. In January 2021, Cruise Holdings issued Class G Preferred Shares in exchange for $2.2 billion from Microsoft and other investors, including $1.0 billion from General Motors Holdings LLC. Refer to Note 26 to our consolidated financial statements for additional information. When Cruise's autonomous vehicles are ready for commercial deployment, Softbank Vision Fund (AIV M2), L.P. (The Vision Fund) is obligated to purchase additional convertible preferred shares (Cruise Preferred Shares) for $1.35 billion. Cruise Cash Flow (Dollars in billions) Years Ended December 31, 2020 vs. 2019 Change 2020 2019 2018 Net cash used in operating activities $ (0.8) $ (0.8) $ (0.6) $ — Net cash used in investing activities $ (0.7) $ (0.3) $ (0.1) $ (0.4) Net cash provided by financing activities $ — $ 1.1 $ 3.0 $ (1.1) In the year ended December 31, 2020, Net cash provided by financing activities decreased primarily due to a reduction in the issuance of preferred shares. Automotive Financing – GM Financial Liquidity GM Financial's primary sources of cash are finance charge income, leasing income and proceeds from the sale of terminated leased vehicles, net distributions from credit facilities, securitizations, secured and unsecured borrowings and collections and recoveries on finance receivables. GM Financial's primary uses of cash are purchases of retail finance receivables and leased vehicles, the funding of commercial finance receivables, repayment or repurchases of secured and unsecured debt, funding credit enhancement requirements in connection with securitizations and secured credit facilities, interest costs, operating expenses and dividend payments. The following table summarizes GM Financial's available liquidity (dollars in billions): December 31, 2020 December 31, 2019 Cash and cash equivalents $ 5.1 $ 3.3 Borrowing capacity on unpledged eligible assets 19.0 17.5 Borrowing capacity on committed unsecured lines of credit 0.5 0.3 Borrowing capacity on revolving credit facility, exclusive to GM Financial 2.0 2.0 Total GM Financial available liquidity $ 26.6 $ 23.1 38 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES In the year ended December 31, 2020, available liquidity increased primarily due to an increase in cash and cash equivalents and available borrowing capacity on unpledged eligible assets, resulting from the issuance of securitization transactions, unsecured debt and preferred stock. GM Financial structures liquidity to support at least six months of GM Financial's expected net cash outflows, including new originations, without access to new debt financing transactions or other capital markets activity. GM Financial has access to $16.5 billion of our revolving credit facilities with exclusive access to the 364-day, $2.0 billion facility. Refer to the "Automotive Liquidity" section of this MD&A for additional details. We have a support agreement with GM Financial which, among other things, establishes commitments of funding from us to GM Financial. This agreement also provides that we will continue to own all of GM Financial’s outstanding voting shares so long as any unsecured debt securities remain outstanding at GM Financial. In addition, we are required to use our commercially reasonable efforts to ensure GM Financial remains a subsidiary borrower under our corporate revolving credit facilities. Credit Facilities In the normal course of business, in addition to using its available cash, GM Financial utilizes borrowings under its credit facilities, which may be secured or unsecured, and GM Financial repays these borrowings as appropriate under its cash management strategy. At December 31, 2020, secured, committed unsecured and uncommitted unsecured credit facilities totaled $26.2 billion, $0.5 billion and $1.5 billion with advances outstanding of $3.7 billion, an insignificant amount and $1.5 billion. GM Financial Cash Flow (Dollars in billions) Years Ended December 31, 2020 vs. 2019 Change 2020 2019 2018 Net cash provided by operating activities $ 8.0 $ 8.1 $ 7.4 $ (0.1) Net cash used in investing activities $ (9.3) $ (5.0) $ (17.5) $ (4.3) Net cash provided by (used in) financing activities $ 2.4 $ (3.5) $ 11.1 $ 5.9 In the year ended December 31, 2020, Net cash provided by operating activities decreased primarily due to: (1) a decrease in leased vehicle income of $0.5 billion; and (2) a decrease in derivative collateral posting activities of $0.1 billion; partially offset by (3) a decrease in interest paid of $0.5 billion. In the year ended December 31, 2020, Net cash used in investing activities increased primarily due to: (1) increased purchases of finance receivables of $4.9 billion; and (2) decreased collections and recoveries on finance receivables of $0.7 billion; partially offset by (3) decreased purchases of leased vehicles of $1.2 billion. In the year ended December 31, 2020, Net cash provided by financing activities increased primarily due to: (1) an increase in borrowings of $22.2 billion; and (2) issuance of preferred stock of $0.5 billion; partially offset by (3) an increase in debt repayments of $16.4 billion; and (4) an increase in dividend payments of $0.4 billion. Off-Balance Sheet Arrangements Not applicable. Contractual Obligations and Other Long-Term Liabilities Not applicable. Critical Accounting Estimates The consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the periods presented. We believe the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in developing estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. Refer to Note 2 to our consolidated financial statements for our significant accounting policies related to our critical accounting estimates. 39 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES Product Warranty and Recall Campaigns The estimates related to product warranties are established using historical information on the nature, frequency and average cost of claims of each vehicle line or each model year of the vehicle line and assumptions about future activity and events. When little or no claims experience exists for a model year or a vehicle line, the estimate is based on comparable models. We accrue the costs related to product warranty at the time of vehicle sale and we accrue the estimated cost of recall campaigns when they are probable and estimable, which is generally at the time of sale. The estimates related to recall campaigns accrued at the time of vehicle sale are established by applying a paid loss approach that considers the number of historical recall campaigns and the estimated cost for each recall campaign. These estimates consider the nature, frequency and magnitude of historical recall campaigns, and use key assumptions including the number of historical periods and the weighting of historical data in the reserve studies. Costs associated with recall campaigns not accrued at the time of vehicle sale are estimated based on the estimated cost of repairs and the estimated vehicles to be repaired. Depending on part availability and time to complete repairs we may, from time to time, offer courtesy transportation at no cost to our customers. These estimates are re-evaluated on an ongoing basis and based on the best available information. Revisions are made when necessary based on changes in these factors. The estimated amount accrued for recall campaigns at the time of vehicle sale is most sensitive to the estimated number of recall events, the number of vehicles per recall event, the assumed number of vehicles that will be brought in by customers for repair (take rate) and the cost per vehicle for each recall event. The estimated cost of a recall campaign that is accrued on an individual basis is most sensitive to our estimated assumed take rate that is primarily developed based on our historical take rate experience. A 10% increase in the estimated take rate for all recall campaigns would increase the estimated cost by approximately $0.4 billion. Actual experience could differ from the amounts estimated requiring adjustments to these liabilities in future periods. Due to the uncertainty and potential volatility of the factors contributing to developing estimates, changes in our assumptions could materially affect our results of operations. Sales Incentives The estimated effect of sales incentives offered to dealers and end customers is recorded as a reduction of Automotive net sales and revenue at the time of sale. There may be numerous types of incentives available at any particular time. Incentive programs are generally specific to brand, model or sales region and are for specified time periods, which may be extended. Significant factors used in estimating the cost of incentives include type of program, forecasted sales volume, product mix, and the rate of customer acceptance of incentive programs, all of which are estimated based on historical experience and assumptions concerning future customer behavior and market conditions. A change in any of these factors affecting the estimate could have a significant effect on recorded sales incentives. A 10% increase in the cost of incentives would increase the sales incentive liability by approximately $0.3 billion. Subsequent adjustments to incentive estimates are possible as facts and circumstances change over time, which could affect the revenue previously recognized in Automotive net sales and revenue. GM Financial Allowance for Loan Losses The GM Financial retail finance receivables portfolio consists of smaller-balance, homogeneous loans that are carried at amortized cost, net of allowance for loan losses. The allowance for loan losses on retail finance receivables reflects net credit losses expected to be incurred over the remaining life of the retail finance receivables, which have a weighted average remaining life of approximately two years. We forecast net credit losses based on relevant information about past events, current conditions and forecast economic performance. We believe that the allowance is adequate to cover expected credit losses on the retail finance receivables; however, because the allowance for loan losses is based on estimates, there can be no assurance that the ultimate charge-off amount will not exceed such estimates or that our credit loss assumptions will not increase. GM Financial incorporates assumptions about forecast charge-off recovery rates and overall economic performance in its allowance estimate. Used vehicle prices rebounded in the second half of 2020 after decreasing in March and April 2020, and recoveries outperformed the forecast. Therefore, GM Financial increased its recovery rate forecast as of December 31, 2020. Each 5% relative decrease/increase in the forecast recovery rates could increase/decrease our allowance for loan losses by approximately $0.1 billion. GM Financial updated its forecast of economic performance in March 2020, following the onset of the COVID-19 pandemic, and has continued to monitor and update the forecast through December 31, 2020. At December 31, 2020, the weightings applied to the economic forecast scenarios considered resulted in an allowance for loan losses on the retail finance receivables portfolio of $1.9 billion. Using different possible weightings that GM Financial could apply to the economic forecast scenarios 40 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES result in an allowance for loan losses ranging from $1.8 billion to $2.0 billion. Actual economic data and recovery rates that are lower than those forecasted by GM Financial could result in an increase to the allowance for loan losses. The GM Financial commercial finance receivables portfolio consists of floorplan financing as well as dealer loans, which are loans to finance improvements to dealership facilities, to provide working capital, and to purchase and/or finance dealership real estate. The allowance for loan losses on commercial finance receivables is also based on estimates that, effective January 1, 2020, include historical loss experience for the consolidated portfolio, as well as the forecast for industry vehicle sales. There can be no assurance that the ultimate charge-off amount will not exceed such estimates or that GM Financial's credit loss assumptions will not increase. Valuation of GM Financial Equipment on Operating Lease Assets and Residuals GM Financial has investments in leased vehicles recorded as operating leases, which relate to vehicle leases to retail customers with lease terms that typically range from two to five years. At lease inception an estimate is made of the expected residual value at the end of the lease term. The expected residual value is based on third-party data that considers various data points and assumptions, including, but not limited to, recent auction values, the expected future volume of returning leased vehicles, used vehicle prices, manufacturer incentive programs and fuel prices. Realization of the residual values is dependent on the future ability to market the vehicles under prevailing market conditions. The customer is obligated to make payments during the lease term for the difference between the purchase price and the contract residual value plus a money factor. However, since the customer is not obligated to purchase the vehicle at the end of the contract, GM Financial is exposed to a risk of loss to the extent the customer returns the vehicle prior to or at the end of the lease term and the value of the vehicle is lower than the residual value estimated at lease inception. The following table summarizes vehicles included in GM Financial equipment on operating leases, net (vehicles in thousands): December 31, 2020 December 31, 2019 Crossovers 964 972 Trucks 275 288 SUVs 92 108 Cars 140 238 Total 1,471 1,606 At December 31, 2020, the estimated residual value of GM Financial's leased vehicles was $29.2 billion. Depreciation reduces the carrying value of each leased asset in GM Financial's operating lease portfolio over time from its original acquisition value to its expected residual value at the end of the lease term. GM Financial updated the residual value estimates on the operating lease portfolio to reflect the decrease in forecasted used vehicle prices in March 2020, following the onset of the COVID-19 pandemic, and has continued to monitor and update the residual value estimates through December 31, 2020. Used vehicle prices rebounded in the second half of 2020 after decreasing in March and April 2020, and sales proceeds on terminated leased vehicles outperformed the residual value estimates during the year ended December 31, 2020. Accordingly, GM Financial increased the residual value estimates at December 31, 2020, which will result in a prospective decrease in the depreciation rate over the remaining term of the leased vehicle portfolio. If used vehicle prices decrease, GM Financial would increase depreciation expense and/or record an impairment charge on the lease portfolio. If an impairment exists, GM Financial would determine any shortfall in recoverability of the leased vehicle asset groups by year, make and model. Recoverability is calculated as the excess of: (1) the sum of remaining lease payments plus estimated residual value; over (2) leased vehicles, net less deferred revenue. Alternatively, if used vehicle prices outperform GM Financial's latest estimates, it may record gains on sales of off-lease vehicles and/or decreased depreciation expense. 41 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES The following table illustrates the effect of a 1% relative change in the estimated residual values at December 31, 2020, which could increase or decrease depreciation expense over the remaining term of the leased vehicle portfolio, holding all other assumptions constant (dollars in millions): Impact to Depreciation Expense 2021 $ 198 2022 72 2023 21 2024 and thereafter 1 Total $ 292 Changes to residual values are rarely simultaneous across all maturities and segments, and also may impact return rates. If a decrease in residual values is concentrated among specific asset groups, the decrease could result in an immediate impairment charge. GM Financial reviewed the leased vehicle portfolio for indicators of impairment and determined that no impairment indicators were present at December 31, 2020 and 2019. Used vehicle prices increased approximately 3% in 2020 compared to 2019, primarily due to low new vehicle inventory, largely driven by the suspension of manufacturing operations as a result of the COVID-19 pandemic, creating strong demand for used vehicles. In 2021, GM Financial expects used vehicle prices to decline by an amount in the low single digits on a percentage basis compared to 2020 levels as supply and demand dynamics normalize. Pension and OPEB Plans Our defined benefit pension plans are accounted for on an actuarial basis, which requires the selection of various assumptions, including an expected long-term rate of return on plan assets, a discount rate, mortality rates of participants and expectation of mortality improvement. Our pension obligations include Korean statutory pension payments that are valued on a walk away basis. The expected long-term rate of return on U.S. plan assets that is utilized in determining pension expense is derived from periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks using standard deviations and correlations of returns among the asset classes that comprise the plans' asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. In December 2020, an investment policy study was completed for the U.S. pension plans. As a result of changes to our capital market assumptions, the weighted-average long-term rate of return on assets decreased from 5.9% at December 31, 2019 to 5.6% at December 31, 2020. The expected long-term rate of return on plan assets used in determining pension expense for non-U.S. plans is determined in a similar manner to the U.S. plans. Another key assumption in determining net pension and OPEB expense is the assumed discount rate used to discount plan obligations. We estimate the assumed discount rate for U.S. plans using a cash flow matching approach, which uses projected cash flows matched to spot rates along a high quality corporate bond yield curve to determine the weighted-average discount rate for the calculation of the present value of cash flows. We apply the individual annual yield curve rates instead of the assumed discount rate to determine the service cost and interest cost, which more specifically links the cash flows related to service cost and interest cost to bonds maturing in their year of payment. The Society of Actuaries (SOA) issued mortality improvement tables in the three months ended December 31, 2020. We incorporated these SOA mortality improvement tables into our December 31, 2020 measurement of U.S. pension and OPEB plans' benefit obligations. The change in these assumptions decreased the December 31, 2020 U.S. pension and OPEB plans’ obligations by $0.7 billion. Significant differences in actual experience or significant changes in assumptions may materially affect the pension obligations. The effects of actual results differing from assumptions and the changing of assumptions are included in unamortized net actuarial gains and losses that are subject to amortization to pension expense over future periods. The unamortized pre-tax actuarial loss on our pension plans was $8.4 billion and $6.7 billion at December 31, 2020 and 2019. The year-over-year change is primarily due to a decrease in discount rates partially offset by higher than expected asset returns. 42 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES The underfunded status of the U.S. pension plans remained unchanged in the year ended December 31, 2020 at $5.4 billion primarily due to: (1) the unfavorable effect of a decrease in discount rates of $5.6 billion; and (2) service and interest costs of $1.9 billion; partially offset by (3) a favorable effect of actual returns on plan assets of $6.6 billion; and (4) changes in mortality improvement assumptions and demographic gains of $0.9 billion. The following table illustrates the sensitivity to a change in certain assumptions for the pension plans, holding all other assumptions constant: U.S. Plans(a) Non-U.S. Plans(a) Effect on 2021 Pension Expense Effect on December 31, 2020 PBO Effect on 2021 Pension Expense Effect on December 31, 2020 PBO 25 basis point decrease in discount rate -$81 +$1,707 -$1 +$669 25 basis point increase in discount rate +$103 -$1,634 +$1 -$634 25 basis point decrease in expected rate of return on assets +$142 N/A +$32 N/A 25 basis point increase in expected rate of return on assets -$142 N/A -$32 N/A __________ (a) The sensitivity does not include the effects of the individual annual yield curve rates applied for the calculation of the service and interest cost. Refer to Note 15 to our consolidated financial statements for additional information on pension contributions, investment strategies, assumptions, the change in benefit obligations and related plan assets, pension funding requirements and future net benefit payments. Refer to Note 2 to our consolidated financial statements for a discussion of the inputs used to determine fair value for each significant asset class or category. Valuation of Deferred Tax Assets The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The assessment regarding whether a valuation allowance is required or should be adjusted is based on an evaluation of possible sources of taxable income and also considers all available positive and negative evidence factors. Our accounting for the valuation of deferred tax assets represents our best estimate of future events. Changes in our current estimates due to unanticipated market conditions and governmental legislative actions or events, could have a material effect on our ability to utilize deferred tax assets. Refer to Note 17 to our consolidated financial statements for additional information on the composition of valuation allowances. Forward-Looking Statements This report and the other reports filed by us with the SEC from time to time, as well as statements incorporated by reference herein and related comments by our management, may include "forward-looking statements" within the meaning of the U.S. federal securities laws. Forward-looking statements are any statements other than statements of historical fact. Forward-looking statements represent our current judgment about possible future events and are often identified by words like “aim,” “anticipate,” “appears,” “approximately,” “believe,” “continue,” “could,” “designed,” “effect,” “estimate,” “evaluate,” “expect,” “forecast,” “goal,” “initiative,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “priorities,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” or the negative of any of those words or similar expressions. In making these statements, we rely on assumptions and analysis based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe these judgments are reasonable, but these statements are not guarantees of any future events or financial results, and our actual results may differ materially due to a variety of important factors, many of which are beyond our control. These factors, which may be revised or supplemented in subsequent reports we file with the SEC, include, among others, the following: (1) our ability to deliver new products, services and customer experiences in response to increased competition and changing consumer preferences in the automotive industry; (2) our ability to timely fund and introduce new and improved vehicle models, including electric vehicles, that are able to attract a sufficient number of consumers; (3) the success of our crossovers, SUVs and full-size pickup trucks; (4) our highly competitive industry, which is characterized by excess manufacturing capacity and the use of incentives, and the introduction of new and improved vehicle models by our competitors; (5) our ability to deliver a broad portfolio of electric vehicles and drive increased consumer adoption; (6) the unique technological, operational, regulatory and competitive risks related to the timing and commercialization of autonomous vehicles; (7) the ongoing COVID-19 pandemic; (8) global automobile market sales volume, which can be volatile; (9) our significant business in China, which is subject to unique operational, competitive, regulatory and economic risks; (10) our joint ventures, which we cannot operate solely for our benefit and over which we may have limited control; (11) the international scale and footprint of our operations, which exposes us to a variety of unique political, economic, 43 Table of Contents GENERAL MOTORS COMPANY AND SUBSIDIARIES competitive and regulatory risks, including the risk of changes in government leadership and laws (including labor, tax and other laws), political instability and economic tensions between governments and changes in international trade policies, new barriers to entry and changes to or withdrawals from free trade agreements, public health crises, including the occurrence of a contagious disease or illness, such as the COVID-19 pandemic, changes in foreign exchange rates and interest rates, economic downturns in the countries in which we operate, differing local product preferences and product requirements, changes to and compliance with U.S. and foreign countries' export controls and economic sanctions, differing labor regulations, requirements and union relationships, differing dealer and franchise regulations and relationships, and difficulties in obtaining financing in foreign countries; (12) any significant disruption, including any work stoppages, at any of our manufacturing facilities; (13) the ability of our suppliers to deliver parts, systems and components without disruption and at such times to allow us to meet production schedules; (14) prices of raw materials used by us and our suppliers; (15) our ability to successfully and cost-effectively restructure our operations in the U.S. and various other countries and initiate additional cost reduction actions with minimal disruption; (16) the possibility that competitors may independently develop products and services similar to ours, or that our intellectual property rights are not sufficient to prevent competitors from developing or selling those products or services; (17) our ability to manage risks related to security breaches and other disruptions to our information technology systems and networked products, including connected vehicles and in-vehicle systems; (18) our ability to comply with increasingly complex, restrictive and punitive regulations relating to our enterprise data practices, including the collection, use, sharing and security of the Personal Identifiable Information of our customers, employees, or suppliers; (19) our ability to comply with extensive laws, regulations and policies applicable to our operations and products, including those relating to fuel economy and emissions and autonomous vehicles; (20) costs and risks associated with litigation and government investigations; (21) the costs and effect on our reputation of product safety recalls and alleged defects in products and services; (22) any additional tax expense or exposure; (23) our continued ability to develop captive financing capability through GM Financial; and (24) any significant increase in our pension funding requirements. For a further discussion of these and other risks and uncertainties, refer to Part I, Item 1A. Risk Factors. We caution readers not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors, except where we are expressly required to do so by law. * * * * * * *