general motors co (gm) earnings report: q1 2016 … · general motors co (gm) earnings report: q1...

CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive

EventDescription:Q12016EarningsCallMarketCapasofEventDate:47.20BPriceasofEventDate:32.66

©2014TheStreet,Inc.Al l R ightsReserved Page1of16

GENERALMOTORSCO(GM)EarningsReport:Q12016ConferenceCallTranscriptThefollowingGENERALMOTORSCOconferencecalltookplaceonApril21,2016,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

RandyArickx;GeneralMotors;InvestorRelationsMaryBarra;GeneralMotors;Chairman&CEOChuckStevens;GeneralMotors;CFO

OtherPart icipants

JohnMurphy;BoAMerrillLynch;AnalystItayMichaeli;Citi;AnalystJosephSpak;RBC;AnalystPatArchambault;GoldmanSachs;AnalystRodLache;DeutscheBank;AnalystBrianJohnson;BarclaysCapital;AnalystNeelMehta;MorganStanley;AnalystColinLangan;UBS;AnalystRyanBrinkman;JPMorganChase;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheGeneralMotorsCompanyfirst-quarterearningsconferencecall.

(OperatorInstructions)

Asareminder,today'sconferenceisbeingrecordedThursday,April21,2016.

IwouldnowliketoturntheconferenceovertoRandyArickx,ExecutiveDirectorofCorporateCommunicationsandInvestorRelations.Pleasegoahead,sir.

RandyArickx(InvestorRelations):

Thanks,Operator.GoodmorningandthankyouforjoiningusaswereviewGM'sfinancialresultsforthefirstquarterof2016.

OurpressreleasewasissuedthismorningandtheconferencecallmaterialsareavailableontheGMinvestorrelationswebsite.WearealsobroadcastingthiscallviawebcastontheInternet.Includedinthechartsetmaterialspublishedthismorning,we'veincludedthekeytakeawaysfromeachchartinthenotespagesinordertoprovidecolorontheresults.

Thismorning,MaryBarra,GeneralMotors'ChiefExecutiveOfficerandChairman,willprovidesomebriefopeningremarks,followedbyChuckStevens,GM'sExecutiveVPandCFO.Andthenwewillopenthelinesforquestionsfromtheanalystcommunity.




Beforewebegin,Iwouldliketodirectyourattentiontothelegendregardingforward-lookingstatementsonthefirstpageofthechartset.Thecontentofourcallwillbegovernedbythislanguage.

Intheroomtoday,wealsohaveTomTimko,VicePresident,ControllerandChiefAccountingOfficerandDhivyaSuryadevara,VicePresident,FinanceandTreasurertoassistinansweringyourquestions.

NowIwillturnthecallovertoMaryBarra.

MaryBarra(Chairman&CEO):

Thanks,Randy.Thanks,everyone,forjoiningthecall.

I'mextremelypleasedtoreportthatGMdeliveredaverystrongperformanceinthisquarter.Solet'stakealookatthenumbers.Thehighlightsandyear-over-yearimprovementsinclude,first,revenueof$37.3billion,up$1.6billion;Q1recordEBIT-adjustedof$2.8billion,whichisup$0.6billion;Q1recordEBIT-adjustedmarginof7.1%,up1.3percentagepoints;andQ1recordearningspershareadjustedof$1.26,up47%.

Ournetincomewas$2billion.Thisisalsoup$1billionandinaddition,ourrecord28.5%ROIConatrailingfour-quarterbasisdemonstratesthepositiveresultsofourdisciplinedcapitalallocationframework.Ifwelook,wereturned$0.9billiontoshareholdersasofMarch31andthisreallyunderscoresourcommitmenttoenhancingshareholdervalueovertime.

Ithinkit'salsoimportanttotakenotethat,inQ1,wesawimprovedperformanceinallofoursegmentsledbyNorthAmerica,continuedstrengthinChinaandbreakevenresultsinEurope.We'vehadpositivedevelopmentsforChevroletandCadillac,whichareourtwoglobalbrands.

Tostartwith,intheUnitedStates,Chevroletretailsharewasupafullpointyear-over-yeartoabout11%,Malibu'sbestQ1retailsalessince1980intheUSandinMarch,85%ofMalibusalesweretheall-newmodel.Inaddition,wearelaunchingtheCruzeandveryexcitedaboutthatreceptioninthemarketplace.

InChina,theMalibuXLflagshipsedanisalsokeytogrowingthebrandinChinafromaChevroletperspectiveandagain,thisvehicleisgettinggoodreception.

AndfromaCadillacperspective,inthefirstquarter,ourATPswerethehighestinNorthAmericainourhistoryandweareveryexcitedabouttheCadillacCT6andtheXT5thatarenowlaunchinginbothChinaandtheUnitedStates.

FromaNorthAmericaperspective,USretailsalesareup7%year-over-year,largelyonChevroletandBuickperformances.USretailmarketsharegrewfasterthananyotherautomaker,up1.1percentagepointsto16.6%andourATPsof$34,600exceededtheindustryaveragebyabout$3,500.Andendingtotaldealerinventorywasdown13%year-over-year.

IfwemovetoChinawithourjointventurepartners,wedeliveredover963,000vehicles,upslightlyfromQ12015thankstothegrowthinSUVandtheluxurysegment.TheBuickEnvisionsalesmorethandoubledandwhenweincludetheBaojun560,totalSUVsalesjumped148%.WearealsoveryexcitedaboutthenewBuickLaCrossesedanthatwasintroducedthatcancontinuetobuildonthestrengthofBuickinChina.AndourCadillacsalescontinuetorise,up6.1%inthequarterontopof17%,whichwasthefull-yearincreaselastyear.

InEurope,webrokeeveninQ1andweareonplantobreakevenforthecalendaryearandthisisreallydrivenbyOpel'sproductoffensive.Opel/Vauxhallsaleswere[309,000],up8.4%year-over-year,outpacingtheindustryandthisisreallyonthestrengthoftheAstra,whichwasnamedEurope's2016Car




oftheYear.Marketsharewasupin15ofthe21marketsandtheincreasesareinmostofthemajormarketsacrossEurope.AndwestillhavetwoveryimportantproductlaunchesinEuropethisyear,theAstraSportsterandtheMokkaX.

InSouthAmerica,operatingperformanceimprovedbecauseofourcontinuedworkandespeciallythefocuslastyearonrightsizingthebusinesswhileprotectingthenewproductpipeline.

AndifwelookatGMFinancial,GMFinancialgrewitscaptivepresencewithGMcustomersanddealersinallregionswithNorthAmericaincreasingitspenetrationofGoodmorningretailsalesto37%inthequarter.Thisisupfrom21%inthefirstquarterof2015.

Andacrossthecompany,ouroperationalexcellenceprogram,whichisreallydrivingSixSigmaandcontinuousimprovementineveryaspectofthebusiness,iswellunderwayandit'splayingakeyroleinthe$5.5billioncostefficiencychallengethatwehaveoutlinedandthatweexpecttoachieveby2018.

Thesuccessofthecorebusinesshasenabledustomakesmartinvestmentsinshapingthefutureofpersonalmobility.Ontheautonomousfront,weannouncedourintenttoacquireCruiseAutomationtofurtheracceleratethedevelopmentofautonomousvehicletechnologyandpositionGeneralMotorsinaleadershiprole.

Incarsharing,weintroducedMaven,whichcombinesandexpandsourmultiplecarsharingprogramunderasinglebrand,whichincludesMavenCityandMaven+.MavenCityofferscarsondemandinkeycitiesdrivenbyOnStar-poweredsmartphoneconnectivitythatreallyprovidesthecustomersanownership-likeexperienceandMaven+isacompletelydedicatedprivatefleetforresidentialcommunities.

WestartedthisinNewYorkCity,asI'vetalkedaboutinthepast.WearegoingtosoonbeaddingChicagoandthiswillgiveusthepotentialtoreachmorethan5,000residents.

Onride-sharing,asyouknow,wealsoannouncedthestrategicpartnershipwithLyftandit'safourdimensionalapproachthatenablesusfirsttodevelopanintegratednetworkofon-demandautonomouscarsandwealsointroducedExpressDrive,andthisisashort-termrentalprogramontheLyftplatformthatmakesGeneralMotorscarsavailabletoLyftdriversataffordablerates.Italsoexposesbothpassengersanddriverstoourproductsandgetsmoreseatsinseats.Wehavethefirstlaunch,whichisinChicago,anddemandis8timesthesupply.WeplantoaddhubsinBostonandBaltimoreandWashingtoninthenearfuture.

AnotheraspectoftheallianceandthepartnershipthatwehavewithLyftisbeingabletocombinetheLyftexperiencewithourvehicleconnectivityleadershipandthisreallyprovidesabetterexperienceforthecustomer.Andwealsoseemanyopportunitiestojointlyexpandbothofourbusinessandpresentcross-marketingopportunities,andyouwillseeustakingadvantageofthoseaswemoveforward.

Fromanalternativepropulsionperspective,wealsorevealedthe2017ChevroletBoltEVattheConsumerElectronicsshow.It'sgoingtoachievemorethan200milesperchargeofallEVrangeandwillcostabout$30,000aftergovernmentincentives.Productionwillbeginlaterthisyear.

Soinsummary,ourstrongfirstquartergivesasevenmoreconfidencethatwewilldelivertheearningsgrowthweoutlinedinJanuary.WedeliveredQ1recordEBIT-adjusted,EBIT-adjustedmarginsandEPS-adjusted,alongwitharecordreturnoninvestedcapital.Ouraggressiveproductlaunchcadenceandcontinuedcostdisciplinewillhelpusdeliveronourcommitmentsfortheyearandcontinuetodriveshareholdervalue.

Withthat,IwillturnitovertoChuck.




ChuckStevens (CFO):

Thanks,Mary.

Ijustwantedtotakeacoupleofminutestoprovidesomeperspectiveonthequarter.AsMarysaid,allreportingsegmentspostedimprovedresultsfromayearago,includingabout$500millionofimprovementoutsideNorthAmerica.Clearly,weareontrackforanotherrecordyearin2016,verymuchinlinewiththeoverviewweprovidedbackinJanuary.

Justafewcommentsonourresultsbyregion.First,letmestartwithNorthAmerica.NorthAmericacontinuestoputupimpressivenumbers.Wecontinuetoseesteady,moderateindustrygrowthintheUSofapproximately3%andweexpectthattrendtocontinuethroughouttherestoftheyear.

EBIT-adjustedof$2.3billionwasafirst-quarterrecord,upover$100millionfromayearagodespiteover$200millioninrestructuringexpenseandtheincreasedlaunch-relatedcosts.ThesuccessofourimportantlaunchesliketheChevroletMalibuandCruze,aswellasmaterialandcostefficiencieswillhelpmorethanoffsethigherD&Amarketingandengineering-relatedcoststhroughouttheyearaswecontinuetoinvestinourportfolioandbrands.

Aswe'vesaidbefore,weexpecttomaintain10%plusmarginsforthecalendaryearwhiledeliveringimprovedEBIT-adjustedperformancecomparedto2015.

ShiftingtoEurope,weareverypleasedwiththebreakevenresultsinEurope.Morethana$200millionimprovementyear-over-yearandweremainverymuchontracktodeliverbreakevenresultsforthefullyear.WecontinuetoseemoderategrowthinEuropewhereindustryvolumeswereupabout5%year-over-yearinthefirstquarterandasMaryindicatedearlier,Opel/Vauxhallsalesoutpacedtheindustrybygrowingover8%comparedtoayearago.

ThesuccessofOpel/Vauxhall'srecentlaunches,suchastheAstraandtheCorsa,havecontributedtoincreasedwholesalesandrelatedtop-linegrowthintheregion.Wearealsoveryfocusedoncostswhereweareutilizingtoolssuchasoperationalexcellencethroughouttheregioninyouareseeingsomeoftheresults.

Inregardstoearningcadencefortheyear,weexpectnormalseasonalitythroughouttheyearwhilewecontinuetomanageFXchallengesintheregion.

MovingontoChina,anothersolidquarterwithstrongequityincomeof$518million,aboutequaltoayearago.Whiletheindustrygrewroughly6%inthequarter,ourretailsaleswereroughlyflatyear-over-year.Thequarterwasimpactedbymodelchangeovers.However,asourlaunchesrampup,weexpectvolumesandmarketsharetoimprove.

Ourpreviousguidance,industrygrowthinthemid-singledigitrangeandourabilitytosustainourstrongmarginperformancehasnotchangedandweareverymuchontrack.WealsocontinuetocapitalizeonimprovingmixwithourstrongSUVandNPVsales,aswellasproductsliketheCadillacCT6andXT5whileremainingfocusedoncostefficienciesanddrivingmaterialcostperformance.

TurningtoSouthAmerica,EBIT-adjustedimprovedthisquarterversusayearagobyapproximately$150millioninamuchmorechallengingeconomicenvironment.Asyouareaware,macroeconomicconditionsremainchallengingwithnonear-termrecoveryinsight.

WhilewearepleasedwiththedevelopmentsinArgentinaandareseeingpositivemarketsignsthere,politicaluncertaintycontinuesinBrazilwhereindustryvolumesweredown29%inthefirstquarter.However,theresultsofourrestructuringactionsoverthepastyearcontributedtoimprovedresultsthisquarterversusayearago.Wewillcontinuetotakeactionstohelpmitigatethenegativeheadwindsthat




areimpactingtheindustryandGM'sresultsinthatregionasappropriateandwearewell-positionedtotakeadvantageoftheeconomicrecoverywhenitmaterializes.

Finally,GMF.Wecontinuetoexecuteourcaptivestrategyandareseeingtheresults.AsMarymentioned,penetrationintheUSincreasedto37%inthefirstquarter,upfrom21%lastyear.Revenuegrewby$700millionto$2.1billioninthefirstquarter,arecordandweearned$225millioninearningsbeforetaxesinthefirstquarter,anotherrecord.

Shiftingtoourcapitalallocationframework,wecontinuetofocusondrivingshareholdervalue.Inthefirstquarter,wereturned$900milliontoshareholders,including$600millionindividendsand$300millioninsharerepurchases.Wealsoremainfocusedoninvestinginthebusiness.AndasMarydiscussedearlier,ourstrategicinvestmentsinLyftandCruiseAutomationwillhelpusbuildthefoundationfordrivingfurthershareholdervalueinthefuture.

Andasweindicatedearlierthisyear,wealsotookstepstofurtherderiskthebalancesheetbycontributing$1.5billiontoourUShourlypensionplanduringthequarterandjustrecentlyfinalizedanother$500millioncontributioninApril.Asyouknow,the$2billioncontributionwasfundedwithdebtprovidingtheCompanygreaterflexibilitybypushingoutanyrequiredpensioncontributionsfurtherintothefuture.

Asexpectedandinlinewithnormalseasonality,Q1-adjustedautomotivefreecashflowwasanoutflowof$1.5billionforthequarter,whichwasa$200millionimprovementversusayearago.

WithregardtoourtotalCompanyoutlookfortheyear,weareverymuchonplanforimprovedfull-yearprofitandmargingrowthversus2015,whichwouldbeanotherrecordyearfortheCompany.AndwehaveevenmoreconfidencethatwewillachieveourEPS-adjustedguidanceof$5.25to$5.75forthefullyearandwecontinuetoexpectgrowthinadjustedautomotivefreecashflowtonearly$6billionin2016.

Thatconcludesouropeningcomments.Wewillnowmovetothequestion-and-answerportionofthecall.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

JohnMurphy,BankofAmerica.

JohnMurphy(Analyst-BoAMerrillLynch):

Goodmorning,guys.Afirstquestionjustonthepaceofbuybacksinthequarter.Itseemedlikeitwasalittlebitlight.Obviously,it'satoughworkingcapitalquarter,aseasonalquarterforyouoncashflow.

I'mjustcuriousasweseecashflowrampupthroughthecourseoftheyearifyoucontinuetoseethebuybacksasasignificantopportunityhere?

ChuckStevens (CFO):

Sure.Andataminimum,whatwewanttodoiscompletethecommittedsharebuybackprogramthatweannouncedinthefirstquarterlastyear,whichwas$5billionthroughtheendof2016andperourcapitalallocationframework,aswegeneratefreecashflow,wearegoingtobuybacksharesasexpeditiouslyaspossible.

But,asIsaid,John,ataminimum,wewanttocompletethatfirst$5billiononourpathtothe$9billionupsizethatwasapprovedbytheBoardearlierthisyear.





Okay,great.That'shelpful.Andthenjustasecondquestionaswethinkofthefreecashflowyouareshowingonslide23here.There'sa$500millionbenefitfromequipmentonoperatingleasesandI'massumingthat'sthegainonvehiclescomingbackoffleaseandtheresidualsperformingbetterthanexpected.I'mjustcuriousifthatiscorrectandifthat'ssomethingyouthinkwillcontinuethroughthecourseofthisyear.

Andwhatisdrivingthat?Isthatjustbettermarketconditions,oristhatbetterresidualperformancebecausenameplatesandbrandsarestartingtoresonatewithconsumers?

ChuckStevens (CFO):

Yes,John,thatisessentiallyrelatedtodailyrentalfleetandthatisrelatedtofewerunitsbeingplacedintoservice.Whenyoulookattheimpactofdailyrentaloncashflow,youneedtolookatboththeequipmentonoperatingleasesandaccruedandotherliabilitiesandinventory.Soitkindofshowsupinthreedifferentplaces.

Wecanprovideyouwithalittlebitmorespecificityaroundthat,butthathasnothingtodowithleaseresidualsonvehiclesthatarebeingleasedthroughGMF.ObviouslythatflowsthroughGMFresults.


Okay.

ChuckStevens (CFO):

But,withthatsaid,weareseeing--continuetoseepositiveresultsonleaseterminationsfromaGMFperspective.


Okay.That'sveryhelpful.Andthenjustlastly,itsoundsliketheBaojunbrandishelpingoutquiteabitinChinaandit'ssortofagreatexampleofapurpose-specifiedbrandinamarket.Aswethinkaboutpotentiallytheneedforapurpose-specifiedbrandintheelectricalvehiclemarket,isthereeveraconsiderationtobrandtheBoltortheVoltadifferentbrandandcomeupwithanewangletherebecauseoneoftheelectric-specificcompaniesthat'souttherehasgotagoodcacheintheirbrandanditdoesseemliketheremightbesomecompetitivedynamicsthatwouldbesolvedifyoucameupwithagoodnewbrandthere.


Fromabrandperspective,IthinkwhenyoulookattheChevroletVolttostartwithafewyearsback,it'sdonealot,Ithink,tohelpincreaseawarenessandconsiderationandpositiveviewsontheChevroletbrand,sowe'vebeenbuildingonthat.Chevroletisaglobalbrandandit'safullrangewhenyoulookattheelectrification,notonlyjustallelectricwiththeBolt,butextendedrangeelectricvehiclewiththeVoltandevenvehiclesliketheMalibuhybrid.SoIthinkwelookatitandseeitasanopportunity--toacertainextent,VoltandnowBoltEVarestartingtohavealevelalltheirownandwethinkitreallycomplementstheChevroletbrandglobally.


Okay.Great.Thankyouverymuch.

Operator :




Michaeli,Citi.

ItayMichaeli(Analyst-Citi):

Goodmorning,everyoneandcongrats.Justwantmaybetostartwithactuallyalong-termstrategicquestion.You'vehadabusyquarterwithLyft,Cruze,MobilizeREMandMaven.Iwashopingmaybe,Mary,youcouldprovidesomecoloronhowinvestorsshouldthinkaboutthemagnitudeofthelong-termopportunitythatyouarepursuinghere,particularlymaybeinregionswhereGMhasnothistoricallybeenwell-represented.What'sthelong-termvisionforGMwithrespecttosomeoftheseopportunitiesthatyouarepursuing?


Well,Iwouldsayit'shardtosizethemwhenyoulookathowmanydifferentpeoplearesizingup.Isautonomousgoingtocausetheindustrytogrow?Isitgoingtoshrinkit?Ithinkthere'stoomanyunknowns.ButwhatIwouldsayisweseeasignificantopportunityandthat'swhywearemovingsoaggressivelyonallfronts.Whenyoulookatthetechnologythatweareputtingintocarsasitrelatestoconnectivity,whenyoulookatwhatwearedoingfromapropulsionperspective,notonlydramaticallyimprovingourtechnologyfromaninternalcombustionengineperspective,buttheinvestmentsintheleadershippositionthatwehavewiththeChevroletVoltEVtobethefirstautomakerthathasthetypeofrangeof200milesplusatanaffordablepriceof$30,000afterincentives.

Thenwhenyoulookatautonomous,andwebelievethatwewillseeautonomousinthemarketplacefirstinaride-sharingactivityforawholehostofreasonsofbeingabletocontrolandgrowandlearnandwethinkthat'sahugeopportunityacrosstheglobe,toyourpoint.

SoIcan'tspecificallysizeit,butIthinkit'sextremelysignificant.That'swhywearepushingitsoaggressivelyanditbuildsontopofastrongcorebusiness.Soagain,Ithinkthatwillunfoldovertime,butweseeitassignificant.


That'sveryhelpful.Andmaybejustafollow-upforChuck.IknowwearestillearlyintheCruzeandMalibulaunches,butjusthowareyoufeeling,Chuck,aroundthe$1,500variableprofitgoalfortheyearonthosemetrics?

ChuckStevens (CFO):

Yes,weareverymuchontrackwiththat,Itay,basedonthereceptionsofarandourexpectationsandthelaunchpricingandthedeliveryofcostaswelaunchtheseproducts.Soverymuchontrack.Andbytheway,continuetobeontrackalongthesamedynamicinEuropewiththeimprovedprofitabilityontheCorsaandtheAstrathatwetalkedaboutbefore.


That'sveryhelpful.Thankssomuch,everyone.

Operator :

JosephSpak,RBC.

JosephSpak(Analyst-RBC):

Goodmorning,everyone.Thanksfortakingmyquestion.ThefirstoneisinNorthAmerica.Ithink,ifmynotesareright,thisisthefirsttimeinmaybeeventwoyearsthatthecarryoverpricingwasn'tadrag.And




IguessIjustwanttosortofconfirmwhat'sinthat,what'snotinthat.SotheK2platformsarenowinthatandismaybewithinthecarryover.Pricingissortofstillokaythere,butsomeoftheothersalittlebitofadrag.Isthatthewaytothinkaboutit?

ChuckStevens (CFO):

Yes,obviously,theK2hasbeenincarryoverpricingsincetheendof2013,early2014aswemovethroughthatlaunchcycle.SowhenIlookatcarryoverpricing,Ithinkthere'stwodynamics.Aheadwindwasreallytherundownofmodelchanges.WearegettingreadytolaunchthenewCruzeandthenewMalibu.Fromacarryoverpricingperspective,apositiveiswecontinuetoseepriceopportunitiesonfull-sizetrucksandfull-sizeSUVsthatwearetakingadvantageof.Soaswelookattheyear,itfeelstomethatcarryoverpricingwillbeperhapsabitlessofaheadwindthanwe'veseeninthelastcoupleofyears.


Okay.That'shelpful.AndthenthesecondoneisjusttofollowuponSouthAmerica,whichisclearlyachallengedenvironment.Ibelieveearlierthisyearyouwerestilllookingforimprovementthere.Idon'tknowexactlywhatyouarethinkingintermsofyourpoliticalexpectationsforwhat'sgoingondownthere,ifthingshavechangedornot,butgiventheworkyou'veseenthere,areyoustillontracktoseesomeimprovementthereandmaybeyoucouldjustclarifyisthatfromamarginoranabsolutedollarperspective?

ChuckStevens (CFO):

Well,whenwelookedathowtheyearwasdevelopingorourexpectationsfortheyearin2016versus2015,whatwesaidiswecouldseeascenariowherewewouldseeslightimprovementinaggregateonayear-over-yearbasisdependingonhowthemacrosituationdeveloped.Iwouldsayourfirst-quarterresultsarecertainlyencouragingfromthatperspective.Weimproved$150milliononayear-over-yearbasisinamuchworsemacroenvironmentandIhavetohedgemyinputorguidancefortherestoftheyearbecauseit'sreallydifficulttoforecastwhat'sgoingtohappeninBrazil.Down29%inthefirstquarter,buttheteamcontinuestotakeaction.We'vegotastrongproductlineup.Wearegettingtractiononcostandit'sagoodstarttotheyear,butlet'sseehowtherestofitplaysout.


Gotit.Soenvironmentworse,butyourinternalperformancebetterthanexpected?

ChuckStevens (CFO):

Atleastthroughtheendofthefirstquarter,yes.


Yes.Okay.Thanksalot.

Operator :

PatArchambault,GoldmanSachs.

PatArchambault (Analyst-GoldmanSachs):

Thankyou.Goodmorning.Maybejuststartingonsomeofthetechnologystuff,CruiseAutomation,obviouslythere'sbeenalotmadeabouttheamountthatwasspentonthat.Ithinkitwasover$1billionreportedinthepressandthatwasaprettybigpremiumovertheprivatevaluationsthatwerediscussedinthosesamearticles.




Twoquestionstothat.Numberoneiswhatareyouexactlygettingoutofthatthatmadeitsuchasoughtafterasset?Andthenmaybemorebroadlywhatdoesittellyouaboutthenatureofinnovation?Itseemslikepartofwhyit'ssurprisingisasmalloutfitlikethatcancomeupwithtechnologythatalargeoutfitlikeyouguyswant.Andsowhatdoesthatsayaboutthenatureofpartnershipsaswelooktogoonthisveryaggressivetechnologypath?


Sure.Pat,firstoff,aseveryoneknows,thetransactionhasn'tclosedandwewillprovideadditionaldetailsontheacquisitionwhenthedealcloses.WestillexpectthatthatwillhappeninQ2.Sowhenyoulookatthatthough,thereisalotoftechnicalcapabilitywithinGeneralMotorsandwhenyoulookatthespecifictechnologiesthatarenecessary,whichtherearemanyandthere'sstill,Iwillsay,criticaldevelopmentonthemainline,theexpertiseandtheworkthat'salreadybeendonebyCruisewesawassomethingthatwouldreallyaccelerateourabilitytoleadfromanautonomousperspective.

AndIthinkfromashareholderperspective,wearealwayslookingatwaysthatwecanleadandgettheremorequicklyandmakethedecisionofdowepartner,dowebuy,ordowedevelopinternally.Andaswelookedatthecapability,weclearlythought,andourvisionofthefuture,again,ofwhereCruisewasheaded,wewereverymuchalignedsimilartothewaywewerewithLyftandwesawthisasahugeopportunitytoreallyaccelerateourperformanceinautonomous.


AndIguessjustbuildingonthat,withinthetechnology,autonomousdriving,cybersecurity,V2V,arethosethingsthatultimatelyyouwanttoreallyhavefullcontrolofin-house,ordoyouseeyourselvesworkingwithpartnershipsfortheforeseeablefuturejustgivenhowfastallofthisisevolving?


IthinkasanOEMandlookingatthewholeautonomousexperience,wewanttomakesurewecontrolthekeyareaswherewecandifferentiatetheexperienceforthecustomerandtheentirecustomerexperience.Butwithinthat,therearestrongpartnerships.WecontinuetoworkwithMobileyealongwithotherpartnerships,butIthinkwhatyouneedto--wherewearegoingtoplacetheemphasisoniscontrollingthekeyaspectsofthewholevaluechain.


Gotit.IfIcansneakonelastonejustonleasing.Iknowthatyousaid,Chuck,thatleasingwas--theresidualswereperformingwell.TheManheim,ofcourse,hasturnedabit.Whatareyourunderlyingresidualassumptionsforyourleasebook?Areyouassumingsomekindofdeclineinresiduals,orhowisthatworkingintothat?

ChuckStevens (CFO):

Yes,certainly,usedcarpricinghasbeenatall-timehighsoverthemostrecentcoupleyearsandfromaplanningperspective,weexpectmoderationinusedcarpricing.That'sbuiltintoboththeautocompanies,aswellasGMF'sexpectationsandweareseeingthatplayoutkindofasweexpected.Sonomaterialexposures,nomaterialriskandasIsaid,asweanticipatedamoderationinusedcarpricingisbuiltintoourbaselineplan.


Gotit.Allright.Thanksalot,guysandcongratulationsonthequarter.




Operator :

RodLache,DeutscheBank.

RodLache (Analyst-DeutscheBank):

HadacouplequestionsonNorthAmerica.First,I'mtryingtojusttriangulatehowpricingandcostsmaylookgoingforwardandmaybejusttolevel-setme,wasthereroughlya$400millionyear-over-yeartailwindfromthenonoccurrenceoftherentalsalesdelaysfromlastyearandaboutamaybe$150millioncostbenefitfromthepensionchangethisquarter?

ChuckStevens (CFO):

That'sdirectionallycorrect.Pickingoutthosetwospecificdriversamongstmany,yes.


Okay.SoIguessit'sprettyimpressivethatyouaresuggestingthatpricingactuallyimprovesoverthecourseoftheyear,evenasthatfactoronayear-over-yearbasisIwouldexpectwouldfadeintothebackhalf.

ChuckStevens (CFO):

Well,what'sgoingtohelpthepricingfortherestoftheyear,Rod,isobviouslynewmajors,theMalibu,Cruze,XT5,amongstothersandthat'sveryconsistentwithwhatweguidedbeforethatweexpectedtoseeanincreaseinnewmajorpricingovertherestoftheyearandthefull-yearimpactofthepricingactionswe'vetakenoverthelastnumberofmonthsonfull-sizeSUVsandtrucksandkindofcyclingthroughsomeofthesupportthatwe'vehadtoprovideonpassengercarsaswelaunchthesenewcarsisgoingtohaveabenefitfromacarryoverpricingstandpoint.


Okay.Soyouaresayingit'snotreallyjustMalibuandCruzebecauseitlookedliketooffsetthatonanannualizedbasisyou'dneedtoimprovethepricingbylike$3,000onthosevehicles.Youaresuggestingthatthereareothervehiclesthatyou'vebeentakingpriceupon.Isthatright?

ChuckStevens (CFO):

Sure.Yes.


Okay.AndthentheNorthAmericanfixedcostnumber,youshowedinyourdeck$600million.I'massumingthatthatincludesthe$150millionfromthepension,soitwaslike$750millioninthequarter.Isthatareasonablerunratethatweshouldbethinkingaboutfortherestofthisyear?

ChuckStevens (CFO):

No.Andagain,whenyoulookattheputsandtakesfirstquarterthisyearversusfirstquarteroflastyear,clearlywehadthatfleetlossheadwindlastyearinthefirstquarter.Thisyear,wehadtheSAPprogram,whichwe'vetalkedaboutveryclearly,whichwasintherangeof$240million.Youalreadybroughtupthepension,butinadditioninthefirstquarter,wehadlaunch-relatedcostsfrombothamarketingandamanufacturingperspectiveintherangeof$200million.Weveryclearlytalkedaboutanincreaseinengineeringexpensein2016versustheprioryeartosupportourveryaggressiveproductlaunchcadenceandthatobviouslyhashadanimpactinQ1.




Butaswe'vetalkedaboutinthepast,broadlyspeaking,startinginacompanylevel,Rod,wesaidthatincrementalmateriallogisticsperformancesavingsandmanufacturinginGBSwouldmorethanoffsetincreasedfixedcostsassociatedwithD&A,marketingandengineeringaswewentthroughthatproductlaunchcadenceandthat'splayingoutasweexpectedfromatotalcompanylevel.

InNorthAmerica,wecyclethroughandwearetalkingtoyouearlynextFebruary,IwouldexpectthattoberelativelyflattishwhenIthinkaboutmaterialcostperformance,logisticsperformanceandthenetfixedcostincreaseyear-over-year,sonothingfundamentallyhaschanged.

Andmylastcommentwouldbetakethisinthecontextofwewillandwearestillverymuchontracktogenerate10%plusEBITmarginsinNorthAmericain2016andobviouslytherewillbeputsandtakesonallthedrivers,butIthinkthat'sthefundamentalmessage.


Great.Thankyou.Andjustonelastthing,ifyoucancommentonthis,itseemslikeanumberofcompanies,includingGM,areperformingreallywellinEurope,betterthanexpected,butthere'sabitofcautionmaybepartlybecauseoftheconcernsaboutBrexit.Isthatsomethingthatissortofcharacterizingyouroutlookthatjusttheuncertaintythereisaffectingyourviewanddoyouhaveanythoughtsonwhattheimplicationsofthatmightbe?

ChuckStevens (CFO):

Well,aswesittoday,verystrongfirstquarter,significantimprovementversuslastyear.Iwouldsayaheadofplanthroughthefirstquarter.Wearestillcommittedtodrivethatbusinesstobreakeventhisyear,butversuswherewewereatthreeorfourmonthsago,I'dsaythebiggestcloudorheadwindoutthereisthecurrencyenvironmentandwhat'sdrivingthatistheweakerpoundsterling,whichobviouslyisn'tbeinghelpedbytheBrexitsituation.AndI'dsaythat'sthebiggestriskthatwehaveamongstmany,butthat'sthebiggestriskthatwehaverightnowthatweareworkingtomanagethrough.


Okay,great.Thankyou.

Operator :

BrianJohnson,Barclays.

BrianJohnson (Analyst-BarclaysCapital):

Yes,kindofcontinuingonNorthAmerica.Lookingatyour10-K,itlookslikewhenyoutalkaboutvariableprofit,itshiftedevenmoretotrucks.Itwentfrom1.6timestheaverageto1.7andcarsdeterioratedfrom40%to30%andevenCUBsdeteriorated.Iguessafewquestionsaroundthat.

One,willtheactionsintermsofproductsaroundMalibuandCruze,andIassumetheLambdaplatform,helpmovethisoverthenextyear?Andthensecond,withsomecompetitorsseeingtheprofitpoolsinlargeSUVsandpickuptrucksaddingcapacityoverthenextcoupleyears,howareyouthinkingaboutprotectingthoseprofitsintheyearstocome?

ChuckStevens (CFO):

Well,certainly,aswegothroughthelaunchcadencenotonlyonpassengercarsandnewentriesintheCadillacportfolioandrefreshingtheoldestcrossoverlineup,wewouldexpecttoseethatprofitdynamicshiftandobviouslyimprovethoseprofitpoolsinpassengercarsandcrossovers,vis-a-vistrucks.




Theotherthingthat'sjustmathematicallyimpactingthatshiftfromthe2014Ktothe2015KiswearesellingmorevehiclesinMexicoandobviously,therearemorepassengercarsthereandtheyarelowerpriced,lowerprofit,obviouslylowercostandthat'shavinganimpactaswell.

Relativetotrucks,thewayyouprotectyourprofitpoolintrucksandSUVs,greatproducts,greatbrands,continuetotakeadvantageofthat,alignsupplyanddemandandcontinuetodrivecostefficiencyandourtruckswellintotheirlifecyclecontinuetoperformverywell.Wehadjustunder38%retailshareinthefirstquarter.Wecontinuetoleadintheindustry.Wejustlaunchedarefreshedtruck,whichwillcarryustothenextgenerationtruckandwefeelveryconfidentthatwewillbeabletoprotectthosepoolsbecausewe'vegotgreatproducts.


Andjustafollow-uponsedans,how--andwewillseeGMFinanciallaterintheday--areyoudealingwiththefallinresidualsonsedanprices?Isit,A,anynoisefromthedealersthattheyneedtrade-inallowances?I'llaskGMFinanciallateronhowit'sshowingupintheleasereturns.Andthenasyouworkwithyourrentalcarpartners,anyshiftfromrisktoprogramcarsonthat,or--andaretheybeginningtoaskforlower-pricedcars,orareyouleavingthatforthecompetitors?

ChuckStevens (CFO):

Well,asImentionedearlier,Brian,overall,theleaseportfoliocontinuestoperformwellforGMF.Obviously,trucksandSUVsareperformingverywell.Carsareperformingnotaswellastheyhadbeen,butataportfoliolevelwereokay.Wetalkedaboutveryspecificallyourstrategytoreduceourdailyrentalfleetsalesandthat'sreallyfocusedonrepurchasebecause,attheendoftheday,whatwearetryingtodoisreduceourexposuretotheusedcarmarket,continuetofocusonretaildeliveries,whichdrivesbetterresidualsultimatelyandbetterownerloyalty.Sothat'spartofthestrategyaswell.


Okay,thanks.

Operator :

MorganStanley.

NeelMehta(Analyst-MorganStanley):

Goodmorning,everyone.ThisisNeelMehtastandinginforAdamJonas.Mary,theCompanyhasbeenmakinganumberofinvestments,bothorganicandstrategic,inshared,electricandautonomous.Theseareseriousmovesthatarecreatingaprettyformidablecollectionofproprietaryhigh-techassetsandsoftwareengineeringcapabilityandintellectualproperty.IsthereanyargumentthatcanbemadetosupportthiscollectionoftechalongwiththeexistingOnStarinfrastructuretoexistasanindependententityseparatefromtheparentcompanytoperhapshelpmaximizevaluetoshareholders?


Well,first,talkingaboutconnectivity,Ireallythinkwhenyoulookatputtingthecustomeratthecenterofwhattheywant,theywantthatintoday'sbusiness.Soit'svitaltohaveintegratedintothevehiclefromatechperspectivetomeetandexceedthewantsanddesiresofcustomerstoday.

Fromanautonomousperspective,Iappreciateyourcomments.IthinkwearelookingatitveryseriouslyandwiththeextensivetechnologycapabilitywehaveinsidetheCompany,alongwithscaleandunderstandinghowtodoandexecutevehicleswiththistypeoftechnologysafely,Ithinkitissomething




thatreallyisanopportunityforusandthat'swhywearemovingsoquicklyonit.

ButIthinkrightnowwhenyoulookatit,it'slookingathowthebusinessisgoingtoevolveandwewilllookatthatovertime.ButthetechnologiesIseeare--manyareverycoretosellingvehiclestoday.Andevenonautonomous,that'sajourney.There'sanevolutionarypathandarevolutionarypathandweareworkingonboth.


Understood.Andonefollow-up,ifImay.Whatdoesmanagementthinkoftheideaofcreatingabrandthatis100%focusedonelectricpropulsion,whetheritbeanallnewbrandorsaytakingCadillacandfocusingonallfurtherdevelopmentjustonEVs?


Well,Itouchedonthisbefore,butwhenyoulookatit,firstofall,wehavetwoglobalbrands,ChevroletandCadillac.Andthere'salsopureEVlikewehavewiththeBoltEVthatwillbecomingoutlaterthisyear.WehaveextendedrangeelectricvehicleswiththeChevroletVolt,butthenwealsohavealotofelectrification,theMalibuhybridandwewillbelaunchingover10newelectrifiedvehiclesinChina.Sotousreallytheelectrificationissomethingthatweintegratedintheportfoliothatallowsustobuildnotonlyourcapabilityandspreaditbroadlyandreachmorecustomers,butalsotobuildthosebrandssotheyareviewedappropriatelyastechnologyleaders.AndIthinkwecontinuetodothat,soweseeitascoreandintegrated.


Great.Thanks.

Operator :

ColinLangan,UBS.

ColinLangan (Analyst-UBS):

Thanksfortakingmyquestion.Justfirstquestiononthefreecashflow.Ifyoulookatworkingcapitalandaccruedandotherliabilities,itlookedlikeitwasa$2billionoutflowinthequarterversusjust$900millionlastyearforthesetwoitems.IsthereanythingunusualandshouldthatbeanicereversalintoQ2?Andthencouldyoujustremindusonthepensionfunding,onceyoudothe$2billion,youaredonefortheyear,sothisisessentiallyjustswappingpensionfordebt?

ChuckStevens (CFO):

Yes,again,goingbacktothecommentImadeearlier,Ithinklookatworkingcapitalseparately,whichwasa$400millionimpactversus$600millionatthefirstquarterof2015.Whenyoulookataccruedandotherliabilities,that'stheotherlinethatisimpactedbyreducedcustomerdepositsassociatedwithdailyrentals.Soasweselllessdailyrentals,wegetlesscustomerdeposits.Aswede-fleet,ithasanimpactonoperatingleases,soyougottokindoflookatthosetwolinestogetherandnet-net,itwasa$1.1billionimpactinthefirstquarterofthisyearversus$1.5billionlastyear,whichisa$400millionimprovement,broadlyspeaking.


Oh,gotit.Andthepensionfundingthough,onceyoudothe$500million,it'sdonefortheyear?

ChuckStevens (CFO):




Well,weborrowed$2billion.Wewillhavecontributed$2billion.Wearedone.Obviously,thatwas,aswetalkedaboutit,ariskmanagementapproachtopushoutsomeofthetimingontheliabilitiesintoa20and30-yeartimeframeandpushoutmandatorycontributionsfrommaybe2019and2020totheearly2020s,2022,2023.Wewouldexpect,asinterestratesincrease,whentheyincrease,thatthatwillhelpclosetheremaininggapatleastfromaUSperspectivegoingforward.


Okay.Fromthecreditside,youtalkedearlier,itsoundslikeyoudon'tseeabigimpactfromusedcarpricesonyourleaseportfolio.AnycoloronsubprimeriskintermsofhowmuchofGMFinancialissubprime,andhowarethoseloansperforming?Alotofconcerningheadlinesaboutsubprimedefault.IstheperformancewithinyourportfolioprettyconsistentthoughbecauseIthinkthere'sprobablyanindustrymixissueoutthere?

ChuckStevens (CFO):

Well,one,oursubprimeportfoliooriginationshavebeenrelativelyconstantoverthelastnumberofyears,sowearenotgrowingthat.That'sfirst.Two,AmeriCredit,nowGMF,subjectmatterexpertsinsubprimeandmanagingtheriskassociatedwithsubprime.Third,ourdelinquenciesandcreditlossesassociatedwithsubprimehavebeenverystableoverthelastnumberofyears.Weseenoincrementalriskassociatedwiththat.Andthen,finally,wearerunningtodayoriginationsasweexecuteourcaptivestrategy.80%oforiginationsareprime,nearprime.SoagainverystablelevelsofsubprimeactivityatGMF.


Great.Veryhelpful.Andjustonelaststrategicquestion.Someofyourcompetitorsaretalkingaboutbatterypackcostof$190perkilowatthourforboththecellandthepack.Canyoumatchthatkindofcosttodayanddoesthatsoundreasonablewherethetechnologyistodayfromyourperspective?AnythoughtsthereontheEVcostsandthecompetition?


Yes,we'vetalkedaboutwiththeBoltEVandwiththestrategicworkthatwedowithLGandwithsomeotherkeysuppliers,butwethinkweareonapathwiththeBoltaswelaunchandgettoscaleofbeinginanindustry-leadingpositionof$150andthencontinuingtoimprovethatdown.Soweworkverycloselyonthat.Wethinkit'skeyandwhenwe--notthatwetalkaboutitspecificallywithnumbers,butwe'veseendramaticimprovementfromthefirstgenerationoftheVolttothesecondgenerationoftheVoltthatiscarriedintotheBoltEVandwillcontinuetodrivethatdown.


Andthe$150though,isthatforthecell,oristhatallincellandpack?


Ibelieveit'sallin,butIthinkwhenyousayallin,everybodymayhaveaslightlydifferentdefinitionofwhattheymeanwhentheysayallindependingonhowtheyhavearchitectedthevehicle.Wecanprovidemoredetailonthat,butagainIthinkthere'ssomevariationinhowpeoplearedefiningthat.


Okay.Allright.Thankyouverymuch.

Operator :




RyanBrinkman,JPMorgan.

RyanBrinkman (Analyst-JPMorganChase):

Thanksforsqueezingmein.Congratsonthegreatquarter.


Thankyou.

ChuckStevens (CFO):

Thanks,Ryan.


Okay,sofirstquestionisjustonChina.Yourmargintherehasbeenremarkablystable,right,relativetoIthinkinvestorexpectationsitwouldfallgiventhesofterpricingenvironment.Socanyoutalkabouthowyou'vebeenabletokeepthatmarginsteadydespitewhatlookslike6%typedeclinesversusmaybemorenormal3%typepricedeclines,whetherthat'sduetomix,volume,cost,somethingelsegiventhatyoudon'tprovideaChina-specificwalk.Andthenwhatarethedriversgoingtobegoingforwardfortherestoftheyear?

ChuckStevens (CFO):

Nothinghaschangedvis-a-vistheChinafundamentalsversuswhatwe'vebeentalkingaboutforthelastyearorso.Fundamentally,pricecontinuestobeachallenge.Lastyearitwasintherangeof4%to5%negativepriceheadwinds.Oncarryover,weexpectthatsamelevelthisyear.That'swhatwe'veseenplayoutsofarinthefirstquarterandweareoffsettingthatimpactthroughsignificantlyimprovedmixandyousawsomeofthoseresults--theEnvisionasanSUV,salesupsignificantly;theBaojun,560.WearelaunchingcriticalnewproductsliketheCadillacCT6andtheXT5.Somixhasbeenamitiganttothepriceheadwinds,aswellascarryovermaterialperformance.AndwhenIlookatthosetwotogether,theykindofoffsetthepriceheadwindsandwhereyouseethebenefit,atleastonanaggregateequityincomeorprofitperspective,isvolume.Andwewouldexpecttoseethatplayout.

Obviously,wecontinuetofocusverymuchoncostefficiency,bothmateriallogisticsandfixedcosts,butbroadlyspeakingfavorablevolume,favorablemixasweimproveourCadillacportfolioandlaunchmorecrossoversandMPVs,favorablematerialperformanceoffsettingormorethanoffsettingpriceheadwinds,aswellasfixedcostincreases,webringupnewplants.That'sthebroadstrokes,Ryan.


Okay,great.Thanks.Andthelastoneisjustaquickquestiononautofinancegiventhatyou'vealreadycommentedonusedcarpricesandsubprimepenetration.Maybejusttoroundthatout,couldyoutalkaboutwhatyouseeasthesustainabilityofsomeothertrendsthathavebeensupportiveofSAARlikeloandurationandleasepenetration?

ChuckStevens (CFO):

Well,weexpectforusspecificallywehadprettystrongleasepenetrationinthefirstquarterdrivenbyagainsomeofthemodelwind-downeffortsaroundMalibu,CruzeandtheSRX.Wewouldexpecttoseethatmoderate.Wewillbesomewhatbelowindustryaveragebecausetrucksdon'tleaseatthesamelevelsandobviously,weareoverweightintrucks.Sowewouldexpecttoseethatcontinue.

Wearetakinganumberofactionstomakesureweoptimizeresiduals.WetalkedabouttheExpressDrive




rentalhubs,anythingthatyoucando--thefactorypre-ownedcollection--anythingyoucandototakethatsupplyoutoftheauctiongenerallywillhelpresidualsovertimeandclearlythat'safocusthatwehavegoingforward.


Okay,great.Thanks.Congratsagain.

Operator :

Thankyou.I'dnowliketoturnthecallbackovertoMaryBarra.


Well,thankyouverymuchandthanks,everybody,forjoiningthecallthismorning.IhavetosayI'mextremelyproudoftheteamforwhattheywereabletoaccomplishthisyear,butweknowwehavemoreopportunityaswegothroughtheyear.Wearegoingtocontinuewiththedisciplineanddetailedfocusonstrengtheningthecorebusinessandtheadjacencies,butalsotakingadvantageofgrowthopportunitiesandourabilitytoleadaspersonalmobilityistransformedandredefined.Thankyou.

Operator :

Ladiesandgentlemen,thatdoesconcludetheconferencecallfortoday.

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