The US government has a massive footprint on any US company that goes way beyond just the impact of tariffs. How the government chooses to use that influence can make or break the company.

“What’s good for General Motors is good for America”

Well, not anymore. The US Government has been a benign partner for most enterprises over the last few decades. That sentiment has arguably changed over the last few months.

Enough has been written on the impact of tariffs on US car companies. What is less appreciated, more widely, is that the impact of the US government on a company’s income statement or a balance sheet. As a curiosity, I dug out the latest 10-K for General Motors (GM) to understand the footprint the US government potentially has on GM’s business.

The word, “government,” shows up 54 times in GM’s 2024 10-K. For whatever its worth, as a benchmark, the word “earnings,” shows up 55 times. But let’s dig into line-by-line items on GM’s financial statements.

Sales:

GM’s sales in 2024 were $187 billion. Around $33 billion of that comes from overseas and is likely to be subject to reciprocal tariffs by other countries. Substantially all the domestic sales occur through a dealer network. Direct auto sales were historically prohibited in almost every state by franchise laws requiring that new cars be sold. So, the very basis of GM’s distribution channel is implicitly a function of government regulation. GM has a joint venture in China and that unit sells $21 billion of cars.

GM sold 2.7 million vehicles in the US in 2024. It sold more (3.3 million) vehicles overseas. GM’s joint ventures (JVs) sold 1.83 million vehicles, but that number is not included in the 3.3. million overseas vehicles sold. Why? Because GM holds between 20-50% of equity in Chinese joint ventures. Hence the JV’s sales are not consolidated in GM’s sales numbers, as per US GAAP (Generally Accepted Accounting Principles). So, GM’s exposure to overseas sales is higher than the overseas sales reported in its income statement.

The US government also buys GM’s vehicles, but I could not find a reliable estimate of such sales.

GM runs a large sub-prime financing unit and books revenue of around $15 billion in interest income. That revenue is a function of the interest rate at which GM can raise financing, and the rate depends on what happens to US treasury rate, which itself is likely to get affected by tariffs and trade policy changes of the US government. The credit risk inherent in sub-prime lending is also a function of management of the economy and potential for securitization (the CFPB or Consumer Financial Protection Bureau, also was involved). Moreover, in difficult economic times, especially recessions, consumers buy fewer (especially new) cars.

Cost of goods sold:

GM spends around $151 billion of cost of goods sold for the automotive sector. GM does not disclose how much of this imported but does disclose that 2/3rds of this, or approximately $100 billion, represents material costs. One analyst estimates that $56 billion of this is imported from Mexico and Canada along with around $4 billion of parts. Thus, around $60 billion of COGS is likely subject to tariffs.

GM states, “we purchase a wide variety of raw materials, systems, components, parts, supplies, energy, freight, transportation and other services from numerous suppliers to manufacture our products. The raw materials primarily include steel, aluminum, resins, copper, lead, precious metals and raw materials used in EVs. We do not normally carry substantial inventories of these raw materials in excess of levels reasonably required to meet our production requirements, and while we have not experienced any significant shortages of raw materials, supply disruptions may occur as a result of geopolitical and/or policy actions.” But this note was written before the latest round of tariffs.

It is also interesting to note the following sentence, “processing and extraction of certain EV battery raw materials is currently concentrated in China.”

R&D, embedded in the COGS number was $9.2 billion in 2024. GM discloses that such R&D is targeted at vehicle and greenhouse gas (GHG) emissions control, improved fuel economy, EVs (electric vehicles), AVs (autonomous vehicles) and the safety of drivers and passengers. Most of this R&D is likely to attract some kind of preferential tax treatment, which is again a function of US government policy.

SGA

Selling, General and administration expenses account for $10.6 billion in 2024. Of this, $3.3 billion is advertising. The remaining is most likely depreciation on non-factory PPE, and the cost of administrative and selling labor.

Labor costs

GM employs 90,000 hourly employees and 72,000 salaried employees. Most of the hourly US employees (approximately 47,000) belong to a trade union. The administration in power can substantially influence the bargaining power of the union. The projected benefit obligation (PBO) or the present value of pension benefits promised in the US is around $40 billion. Pension assets, meant to support those US pensions stand at around $38 billion. A lion’s share of the $38 billion is invested in government bonds and corporate bonds that tend to be priced as a function of the yield on US treasuries. Instability in US government regulations and macro-economic policies can affect the yield on US treasuries and hence on the pension assets that GM’s pension plans hold. Many of the assumptions in the calculations and the cash funding are a result of the labor department, tax rules and PBGC (Pension Benefit Guaranty Corporation) regulations.

Tax expense

GM’s effective tax rate is around 20% for 2024. A tax expense has not been recognized for around $6.1 billion representing indefinitely reinvested earnings overseas. Corporate tax laws, especially the federal tax rate and the tax treatment of overseas earnings, are squarely within the purview of the new administration.

Let’s now turn our attention to GM’s balance sheet. GM has $279 billion in assets. The major ones are $93 billion in receivables, $51 billion in property, plant and equipment (PPE) and $32 billion in equipment under operating leases. Both the receivables and equipment under operating leases relate to GM Financial. GM’s liabilities amount to $214 billion. Of this, $114 billion is borrowed by GM Financial, $31 billion relates to accrued liabilities and $26 billion to trade payables.

GM Financial Receivables:

GM Financial, the sub-prime lending subsidiary, has loan assets of $93 billion. If GM Financial were a stand-alone bank, it would rank as the 30^th largest bank in the US, as ranked by assets. Some of these assets are financed by floating rate loans, which will become more expensive if interest rates go up.

None of the banking regulation applies to GM Financial, as far as I know. However, GM Financial appears to have requested FDIC protection for its depositors, a move that the traditional bankers have resisted.

Other involvement with the US government:

• The U.S. federal government, through the Environmental Protection Agency (EPA), imposes exhaust and evaporative emission control requirements on vehicles sold in the U.S. The California Air Resources Board (CARB) likewise imposes exhaust and evaporative emission standards.
• For each model year, GM must obtain certification that their vehicles and engines will meet emission requirements of the EPA before they can sell vehicles in the U.S. and Canada, and of CARB before they can sell vehicles in California and the states that have adopted California emission standards.
• In the U.S., NHTSA promulgates and enforces Corporate Average Fuel Economy (CAFE) standards for three separate fleets: domestic cars, import cars and light-duty trucks. Manufacturers may use one or a combination of the following to resolve CAFE fleet deficits: credits from the five prior model years, expected credits for the next three model years, credits obtained from other manufacturers or payment of civil penalties. Manufacturers that do not resolve deficits for a model year may be subject to substantial CAFE civil penalties to bring their fleets into compliance. Incidentally, Tesla makes around $2 billion a year selling CAFÉ related credits to ICE (Internal Combustion Engine) dependent companies such as GM.
• Chemical regulations are increasing in North America. In the US, the EPA is moving forward with risk analysis and management of high priority chemicals under the authority of the 2016 Lautenberg Chemical Safety for the 21st Century Act. The EPA has also issued a per- and polyfluoroalkyl substances (PFAS) reporting rule that requires PFAS use reporting by manufacturers between 2011 and 2022.
• The National Traffic and Motor Vehicle Safety Act of 1966 (the Safety Act) regulates the vehicles and items of motor vehicle equipment that GM manufactures and sells.
• GM warns, “our near-term profitability is dependent upon the success of our current line of ICE vehicles, particularly our full-size ICE SUVs and full-size ICE pickup trucks.” The pace at which the US government wants US car makers to EVs (Electric Vehicles) has a huge impact on GM’s finances.
• In one of its risk factors, GM points out, “we are subject to risks associated with climate change, including increased regulation of GHG emissions, changing consumer preferences and other risks related to our transition to EVs and the potential increased impacts of severe weather events on our operations and infrastructure.”

Besides these, GM has innumerable entanglements, positive and negative, with overseas governments. These governments can change their stance towards GM if they want to retaliate in any way to changes in the US government’s trade policies.

Government subsidies

Apart from the obvious point that GM was bailed out by the Obama government during the financial crisis, GM has received sizeable subsidies and grants from the federal government and the state government. A few prominent examples include $506 million promised by Indiana in 2023 for an EV plant. Michigan has granted $1.76 billion in 2022 for EV retooling. Missouri promised $59 million in 2019 for an assembly plant. Granted, many of these are subsidies given out by the states, not by the Federal Government. Nevertheless, increasing separation of states in the “red” and “blue” category highlights potential instability that state level policies can impose on US companies.

Penalties

In the last five years, GM has attracted small and large penalties on account of enforcement actions initiated by NHTSA, USAO (California), CAPC (California Public Utilities Commission), the Texas Department of Insurance, the DOJ (Department of Justice), Indiana Department of Environmental Management, OSHA (Occupational Safety and Health Administration), EPA, Massachusetts Attorney General, California Air Resources Board, Michigan Department of Labor and Economic Opportunity, and Labor Department’s Wage and Hour Division. As you can see, some of these are state-run and some are Federally run agencies. Any change in enforcement preferences, triggered by a change in the administration, adds uncertainty.

The objective behind writing the piece was to highlight how dependent US businesses are on the US government. This dependence might explain why US CEOs tread carefully while speaking up on political and contentious policy issues.

On a lighter note, I chuckle when US CEOs and business leaders ask developing nations to pursue stable, predictable business friendly policies to attract capital from the West. Have we forgotten to practice what we preach?