Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by the conference is scheduled to begin momentarily until that time Airlines will again be placed on music cold. Thank you for your patience.
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I wasn't 20 earnings conference call during the opening remarks, all participants will be in listen only mode. After the opening remarks, we will conduct a question and answer session to ask a question Press Star then one under telephone keypad door. Your question press the pound Keith as a reminder, this conference call is being recorded Wednesday may six two.
Sales in 20, I wouldn't I wish to turn the conference over to Rocky.
Treasurer, and vice President of Investor Relations.
Thanks.
Good morning, and thank you for joining us as we review GM financial results for the fourth quarter 2020.
Yes release was issued this morning, and the conference calls materials are available on the GM Investor Relations website.
We're also brought costing best kept called while webcast.
For joining you from separate remote locations today.
On the call. This morning, I'm joined Mary Barra, Kim Chairman and CEO did this sort of Deborah Jim's executive Vice President and CFO, and Dan Cohrs, President and CEO.
Andrew.
Before we begin I would like to direct your attention to the forward looking statements for speech the charts that as usual the content up a called will be going but this language well now turn the call over to maybe borrow.
Thanks, Rocky and good morning, everyone. Thanks for joining this quarter, we have a lot to cover so I want to begin by updating you on airplanes to safely restart our operations and we will share the specifics ever cobot 19 activities at our first quarter financial performance.
Our work to resume production has been an ongoing process and I am pleased to report that based on conversations in collaboration with unions and government officials, we are targeting to restart the majority of our manufacturing operations in the U.S. in Canada. The weekend maintained under extensive safety measures. We made this decision what the safety of our employees as her.
Top priority and I want to thank them for their patients and their commitment through this process.
Ever since we suspended or operations in March or teams have been collaborating internally and externally to understand and share best practices to be able to return to the workplace.
This includes the goal safety standards, we implemented when we reopened or facilities in China as well its Korea, which remained open during the cold good natured outbreak there.
I will go into additional details about the extensive returned to the workplace safety protocols in a few minutes.
As we prepare to go back our thoughts continue to go out to everyone around the world what's been personally affected by coordinating and the wealthy never employees remains our top priority.
Early in this crisis, we recognize that while our operations in North and South America were suspended we had to keep ability to quickly support production crucial ventilators and personal protective equipment.
March 17th we were introduced embedded later manufacturer Vencat with tremendous collaboration that included the way W. leadership and suppliers, we began shipping ventilators firmer Kokomo, Indiana facility just one month later.
We're fulfilling a government order for 30000 ventilators to be completed by the end of August.
In Brazil, we are leading the federal government task force to repair data like ours.
Addition were making mass seashell think hours and several of our facilities for both health workers and for employees as of yesterday, we have donated up 1 million master hospitals in the United States.
We are proud of the employees, who have volunteered to do this work following in the footsteps of generations of automotive employees have supported the greater good during times of crisis.
Now, let's shift to the corridor, we entered this crisis better position financially because of the many business transformation actions, we have taken over the past several years to improve our competitiveness.
As we suspended operations. We also moved quickly to preserve our liquidity and protect the business in March we suspended guidance for the year and implemented significant austerity measures injury down our revolving credit facilities last month, we also suspended our quarterly dividend and share repurchases.
So let's take a look at the numbers in the first quarter. We delivered net revenue of 32.7 billion EBIT adjusted of 1.2 billion EBIT adjusted margin of 3.8%.
Yes delivered adjusted 62 cents adjusted automotive free cash flow of negative 900 million and well look adjusted of 13.2 on a trailing four quarter basis.
The outbreak significantly affected EBIT adjusted in the quarter and we expect an even greater impact in Q2 because of the production stoppage a phased restart and what we believe will be lower market demand.
Importantly, I work on safety early in the quarter ensured we couldn't deliver on our commitment to near term watches like or full size FCB and getting parts to our dealers.
Arlington, we completed the build out of the previous generation of full size as she base and the plant conversion for all new bottles. We will begin shipping the first units to dealers in early June.
And our customer care after sale warehouses employees across the country had been supplying parts to dealer. So they can take care of her customers and also keep their service business is running.
Our E V. Eight be work also continues on interrupted even as many of our engineers work remotely that means producing the production timing of key entries like the GMC Hammer E. B the catalyst lyric crossover E B and the cruise origin Avi remain fully on track.
Well the world has changed dramatically under cobot, the importance of transmission to transform transformation for the better is unchanged as his crews importance to our vision of the world with zero crashes zero Michelle zero congestion.
Cruise continues to make very record rapid progress toward its initial goal of super human driving performance.
Well Henri testing has been reduced under Kobe cruise has remained.
[laughter] remained has maintained a presence on road in Phoenix, Arizona and in recent weeks has restarted driving in San Francisco and supported the community by a ton of sleep delivering food in other essential to those most in need.
These activities combined with crews cutting edge simulated simulation capabilities have been able to team to continue to make rapid progress during this period.
As you know crews as well capitalized and this is especially important in an advantage for us. During these volatile times, we haven't will continue to grow our team by recruiting and retaining the very best engineering and leadership talent.
So let's shift toward dealers, we know many of them have been heavily impacted by the crisis and we're supporting them in a number of ways, including Schalkwyk drive. This is a leading ecommerce told that completes much of the vehicle purchase transaction online.
When combined with dealers, making contactless home deliveries, it's a powerful tool for our dealers and for our customers.
Actual 750 dealers have enabled shop CWIP drives since the cobot outbreak scenario, 85% at the U.S. dealer network is participating in shop click drive.
These 90% offer touchless home delivery experience.
An industry that is down 40% schalkwyk drug interactions are up 41%. So visits are at an all time high.
And stay tuned for improvements to Shacklett drive is we're working aggressively to add eight new features and capabilities in the coming week.
And finally, putting people first also means taking care of our customers many of whom have been financially affected by the pandemic.
Jim Financial is offering case by case solutions, including late fee waivers and monster is offering its crisis Asus services and free whiteside to keep customers connected to emergency resources into loved ones.
In short we are positioned to manage through the near term market dynamics because of Swift actions that we kept to preserve liquidity.
On the interrupted work on her easy and Amy portfolio. Our on time luck strategies for full size that should be.
Our continued ability like parts to dealers, who need them and by leveraging ecommerce in contact with tools like Schalkwyk drive.
In the coming days as we get closer to present leaner operations, we will share our complete returned to work play Burke first with our employees and then with other stakeholders. However, today I will briefly share a high level of review of the safety procedures were putting in place.
The place to everyone entry into our facilities, our approach meets or exceeds CDC and World Health organization guidelines and as I mentioned earlier is informed by the global standardized processes, we developed for use in China, and Korea, as well with input from our Union leadership.
We've already apply these protocols to Kokomo, Arlington, Warren and in our customer care and after sale operation.
Where our current if I were safety protocols have been in place we've not seen a confirmed cases community spread in our facilities.
We have also shared a protocols with our suppliers as they returned to work because our supply chain is key to our ability to resume production.
When anyone enters a facility they will do a self assessment questionnaire and they will have their temperature screened or protocols also require frequent handwashing additional cleanup workstation and common areas continued physical distancing wearing a basket in some cases in cases, where in a mask and safety glasses.
Will also increase time between shifts to further promote physical distancing as people enter and exit the worksite.
Now I'd like to shift to our regional performance in Q1.
In North America.
We were tracking toward a very solid quarter until we suspended our operations sales the full size pickups outpaced the industry by double digit percentages and drove year over year improvements in market share and financial result.
As we begin to replenish the pipeline trucks and full say says she piece will remain a very high priority.
Overall retail in fleet volumes were down in April, but we continue to see resilience and truck deliveries in April James incentives for light duty pickup trucks were below the fact that average.
And they said earlier, we remain 100% committed to the Ve technology and products, we shared in March as well as our agreement to jointly develop and manufacture to all new electric vehicles for how to based on our Eatec allergy.
There will also make her onstar and driver assist technologies available and these vehicles.
This collaboration built out our existing partnership in E V and fuel cells the fuel cell space.
Demonstrates our ERP cost in technology leadership, it will help us deliver a profitable E business through increased scale and capacity utilization.
Turning to our international Operation, China was our first major market affected by Covidien team. It put downward pressure on an already weak industry and we experienced a significant year over year decrease and volumes in equity income.
Production has resumed in China under strict safety protocols and dealers are beginning to report improved retail traffic.
Following the strongest impact in February the industry started to pick up in March and Jan China sales posted gains in April year over year.
We expect to see gradual recovery as a result of our strong mix of new products and the positive impact of government subsidies. However, the outbreak will still affect our overall 2020 results.
Also in Jim International We announced we will wind down vehicle sales and design and engineering operations in Australia, and New Zealand and retire the holding brand and 2021 will instead focus on sales of GM specialty vehicles.
In Thailand, we will sell our rail manufacturing facility in withdraw separately from the domestic market and vehicle sales by the ended the year.
These measures build on the comprehensive strategy really need laid out in 2015 to take actions in markets that do not heard an adequate return on investment.
In South America, we continue to work with her stakeholders to turn around the business and capitalize on our leading volume and market share in the region. We will continue to take decisive steps to further accelerate our actions to improve the business.
Will streamline and integrate our product portfolio implement additional austerity measures take pricing actions and optimize our manufacturing footprint in terms of capacity utilization as well as work to increase localization effort.
Before I turn it to Debbie I want to assure you that our leadership team at Atsina everything within our control to protect our employees and the business. During these uncertain times.
But the same resolved and discipline, we have demonstrated for years, we will continue to focus on conserving cash and preserving our liquidity liquidity without sacrificing investments in key product programs and technology that will lead us into the future.
In addition, we're actively working to accelerate our transformation and seize opportunities in this environment.
With that I'll turn things over to do Ya.
Thanks, Mary and good morning, everybody, we're experiencing unprecedented times as a result, this endemic and given this backdrop, we're providing increased transparency into our cost structure balance sheet key drivers of liquidity.
As you all know coming into this we'd already taken a number of actions over the past few years, just trends in the company, including addressing underperforming businesses across various international markets.
And maintaining a strong investment grade balance sheet.
Additionally, the transmission actions that we took in late 2018 and the recent focus on improving cash flow has put us in a much better position today, that's between these challenging market conditions.
Our liquidity continues to be very strong at 33.4 billion at the end of course score.
Even in an extreme scenario would be a real production. Our current local took liquidity will take us into Q4 2020.
In addition, the capital markets continue to be open as a way to access additional layers of liquidity to pay 'cause beyond that timeframe.
With that let me give you an overview the drug Where's the core cash flow.
Of course, let me touch on governance.
Revenue from vehicle sales have been minimal over the past few weeks or high margin after sales and onstar businesses continued to operate at a reduced rate.
Looking at all no. Okay. Those are primarily comprised of three buckets.
The ongoing cashcall.
Okay.
And unwind of negative working capital.
On the cost front, we have aggressively to future ongoing cost was significant austerity measures used to zero based budgeting approach some of the more notable cost actions include.
Significant cuts tour advertising and other discretionary spend compensation departments and certain employee promos and after these austerity measures.
They talk ongoing cash costs, including tax interest in pension to be approximately 2 billion per month.
These costs austerity measures will normalize as production and demand normalized.
Next next let's let's move to Catholics.
Have you know our expected spend for the your prior to the crisis with 7 billion.
We've deferred so noncritical Catholics programs related to product refreshes.
And Catholics varies from quarter to quarter, and it's expected to be 1.5 billion in Q2.
This is a pool of 25% or planned capex for Q2, but it does not impact near term programs like a full size has to be and strategic investments maybe a navy programs will contiguous blend.
Additionally, during the unique position as the of transition pass the necessary investments in our full size truck as sealy and crossover franchise.
Finally, let's look at the third bucket, which is the I'm going to four negative working capital.
End of March our niche E. R. E. P was 13 billion of which 10 billion flexes with production and typically unwinds in less than 60 days.
Now for a bulk of these payments are behind doesn't April with some additional payments in me after which it trails. So.
We also had finished goods inventory in transit of 2 billion, which we expect to liquidate doing the same time period.
In addition, we had sales allowances to the tune up 10 billion, which normally payout were four to five months, but does oh with lower demand.
Putting all these pieces together and acknowledging it's difficult to predict how's the production will evolve we still want it to offer some helpful context on how to think about the second quarter and the ASM guidance.
We are targeting a be deemed reach on diesel production in North American plans and as we follow our new safety protocols production ramp will be gradual starting with one shipped for a period, an increase into two or three shifts as appropriate.
So if you looked at a scenario in which global production was down 60% to 70% year over year for Q2 with an eight to 10 million U.S. Our backdrop, we can expect a total cash flow outflow of seven to 9 billion, including the cash costs and Catholic since the great, but I'd reference a bulk of.
Working capital unwind, a three to 4 billion.
Sales alone to unwind of two to 3 billion.
Mitigated by contribution from vehicle sales Aftersales Onstar, three to 4 billion, along with dividends from China, and GM financial and other liquidity actions of one to 2 billion.
In other words three quarters of the net cash outflow in Q2 can be attributed to working capital and sales alone since which demonstrates our ability to meaningfully reduce our cost drilling times its just.
Assuming the production normalize its farther in Q3, we would I think working capital to rewind on a pro rata basis, all else equal what sales allowances dependent on production and demand.
Let me reiterate these factors are inherently difficult to predict given the volatility in demand and production timing and levels.
Comment on our breakeven point.
As we previously communicated our expected North American EBIT breakeven of 10 to 11 million units is still intact.
From a free cash flow perspective, excluding managed working capital we expect to generate cash in North America, a demand levels only slightly higher than the either breakeven primarily due to pension income and capex persons depreciation levels.
On a global basis, we expect breakeven automotive free cash flow, excluding managed working capital at 25% reduced demand from 20 mid teen levels. We generally implies the U.S. industry sales 13 million units.
Couple of points on additional liquidity measures. We've taken recently as you know we do one or 16 billion of revolving credit facility. We then you don't see 64, DWR and extended the majority of but to your revolver by one year.
We also under dividends and share repurchase program and continue to look at other options to further shore up liquidity.
Before I comment on the quarter I do want to show some key metrics for the Suncoke and how they're weathering the crisis.
GM financial with go capitalize going into this.
On the underwriting standards and a history of managing successfully through downturns.
Typically GM financial is inherently cash generative during the downturn as assets liquidate faster than debt completing excess liquidity as the balance sheet strength in an environment in which they are nowhere.
GM financial leverage was 9.3 times as of March 31st bundle that 10 times manager will target as well as below that support agreement threshold or from other than a half time.
Gee enough would be able to sustain losses of approximately 2 billion at its current balance sheet side before requiring any capital under the support agreement, which yet.
Gms earnings before tax movie lower this year as credit losses are expected to increase your to do you want to have worsened and residual values decline, 7% to 10% in 2020 in line with industry expectations.
We have stress tested gms balance sheet under draconian credit and residual value law scenarios.
Literally more severe than what the industry experience during the global financial crisis.
Under a scenario doubling both the credit loss expectations and the residual values decline and 2020, GM books will not be required to contribute capital.
You can proceed 400 million dividend from GM financial in Q1 and is expected to receive cleaved another 400 million this year.
Im financial liquidity is also a robust at 20.9 billion at the end of Q1 supporting at least six months of cash needs without access to capital markets.
You into corn prices GM of strong origination and customer support initiatives are partially mitigating the impact with lower sales environment.
Now, let me frame up the quarters with both where you focusing on the underlying performance of the business.
Q1 results of 62 cents a need diluted adjusted includes the 28 cents loss from that's and P. assayed revaluation.
Q1, EBITDA just sort of 1.2 billion reflects an estimated 1.4 billion impact from dependent mix with GE, many accounting for about half of it.
China 300 million GM financial 200 million and GE am I understanding.
The adjusted automotive free cash flow in the quarter was born of 900 million, reflecting normal seasonality, partially offset by an increased dividend from GM financial nor Capex and positive working capital taught me.
The free cash flow and pack independent make is expected to be an outflow of 600 million.
Looking at North America.
Retail sales have clearly been impacted with Q1 down 10.5% and April down 35% year over year coupons pickup truck sexual in Brazilian see due to this trends supporting neutral portfolio as well as the segments trend in geography that have so far the less impacted by the pandemic.
Inventory levels are mainly and well positioned as we came out of the strike. We ended April was 550000 units of inventory.
Let's move to Jim International China, What do you income loss in Q1, but less than 200 million. Despite the reduction of wholesale more than 60% year over year, demonstrating the resilience of the China business during the downturn and the significant alternative action. So the team has taken to mitigate the Uh huh.
We're starting to see signs of recovery in China. That's production is completely we started and dealer traffic across the industry has increased 70% of flow prequaled levels at the beginning of April.
Has the effect of the vital subsides, we expect to rubber to a quarterly equity income run rate of 200 million.
We continue to like dividends to be paid from our China operations between Q2 Q4 consistent with prior years.
In South America. In addition to lower production phasing and ongoing ethics really tedmund.
We're focused on taking price leveraging our global family of vehicles and driving additional cost actions to mitigate these challenging.
A few comments some crews and of course segment.
<unk> costs were 200 million for the quarter consistent with expectations.
Corporate segment calls for 400 million negative on favorable 600 million year over year, primarily due to a net loss of 400 million from nothing you say in the fourth quarter. This year compared to a 400 million gain in our PNC and lived investments into push quarter last year.
We've made significant progress in our transformational cost savings initiatives.
<unk> point 6 billion achieved 20 team we're on track to our target of 44 billion, achieving another 300 million in Q1.
In summary, the Q1 results demonstrate that the company into this crisis, because there's an uptrend.
The actions, we're taking position us to come out of this downturn strong and allow us to capitalize on the recovery and future opportunities. The entire team is committed to executing our strategy, while continuing to have the laser focus on the cost structure, the balance sheet and coop and cash flow.
This concludes our opening comments and go moved to the Q when a portion of the coal.
As a reminder, if he would like to ask a question. Please press Star then the number one on or telephone keypad that star one to ask a question.
First question comes from a line of Rod Lache with Wolfe research.
Good morning, everybody.
Thanks for all of those details its first its about a housekeeping side I just wanted to make sure did you I heard you correctly were you, saying that the EBIT breakeven corresponds with 10 to 11 million.
You are SAR and the free cash flow breakeven corresponds with around 13 million for is that correct.
Yeah, that's correct Rod EBIT breakeven for North America attend to 11.
If you look at cash flow breakeven for North America would just be slightly higher than that and when you factor in the negative the cash burn that you have from.
International as well as the core segment, you would need more sort to cover that and that's how you get to put you mean, okay, but you were referencing North America I presume you met you equal what are the U.S. Saar for than for the North American correct. Okay. Thanks for clarifying could you talk a little bit about now that you're you're caught up.
Plotting this out there this restart what kind of trajectory are you expecting from here. Obviously, one point you were expecting to do something close to a 10% margin but.
That's going be affected by the level of production and then secondly pricing looks very good considering everything that we're seeing with respect to incentives and also the trajectory of used car prices is that something that you view as aberrational and what kind of used vehicle pricing environment have you assumed both for the.
Yeah, the auto business as well so GM financial.
Hey out all here.
Oh go ahead of you had Mary.
I shouldn't say on the margin question I think you know, we're very focused on restarting as I've mentioned will start in a very cadence and thoughtful way of first shipped and then growing to two or three shifts depending on.
The plant and the demand I think it's too early to forecast margin predictions, but what I would say is we will continue to be laser like focused on our cost structure I think through this process is going into a zero based cost environment. We have found areas, where we think we can be much more efficient as we move forward. So we'll be looking to be very.
Cash conscious as we go forward and seize the opportunity as we start building and David you want to talk about the pricing.
Yeah from a pricing perspective things have remained strong god, especially as it relates to the pick up market a lot of this tests that I referenced don't Oh. That's segment is doing a put equally well just to give you a data point there as you know the segment penetration to the overall industry Oh with CLSA.
Switching to 14% that's how it was running before the end in March you saw it go up to 18% and then in April 221 person. So the the segments continuing very strong and with the pricing remains strong as well from me used vehicle perspective, we have resumed a bunch of 7% to 10%.
Decline in a 20 or 20, and obviously, we're gonna have to see what's takes later on but Dan birth is on the call and Dan I don't know if he wants to add anything to that.
Oh, no they'll give you you're exactly right that's it.
Our assumption for used vehicle pricing is down 7% to 10%, it's really in line with industry estimates.
And in terms of how that's going to affect retail.
Obviously, the traded down little bit vehicles can be a little bit less that but as it didnt go we'll take that into account in our underwriting and loan to value analysis.
Great. Thank you.
Next question comes from a line of those facts.
RBC capital markets.
Oh, Thank you good morning, everyone.
First question I guess.
Mary I know you said you're not.
Sacrificing investments in key initiatives, but you've also detailed.
Some program delays you mentioned, some capex down on near term so even though you're clearly you know pushing forward on some key programs. It does sound like some of these refreshes might be it off the table is that really just a sort of short term thing or no given your sort of likely lower.
<unk> outlook for next couple of years, we should think about those.
Refreshes as sort of just not recurring which might improve the castle and margins on those programs.
I would look at it first of all it would be on if we look at those refreshes it would be a product by product our vehicle to vehicle decision, but mostly I would say is a delay or taking the time to be.
Look at what really is going to drive a more customer value. So some are delayed some we may receive go a little bit more but I do want to reiterate our key programs trucks full size as she movies TV Abies, we are Oh, making don't change and.
The engineering team and design teams work and these are doing tremendous work.
Hi, Thanks, and then they've yet just maybe I'm just to comment on.
No what sort of goalpost, you think you need to see to.
Starting maybe replace some of revolver is it just stability in more more visibility into into the out walking [laughter] as this experience at all change your longer term views on your cash on hand, or total liquidity thresholds.
Yeah, I would say as we as production comes back online here in the next couple of weeks Ah. That's when you would see a joke cash starting to come and I'm not just from.
Contribution from the.
The vehicle sales, but also working capital odd rewind, so we're going to see that and as we as we go forward as things stabilize we'll look to rebuild our cash balances Willis feedback the revolver I would say that the long term commitment to the strong investment grade balance sheet and.
Cash and debt levels remain on change and though we will work our way back towards so taking the and and so the environment starts to stabilize here.
Thank you.
[laughter] for next question comes from a line of each time a colleague from Citi.
Oh, great. Thank you good morning, everyone.
Good morning.
Sounds like you're finding some incremental efficiencies through the recent process I was curious if that's also might apply.
Capex going forward just talked about some of the product refreshes, but could we see.
Maybe the 6 billion rate it sounds like you wanting you to become the new normal or is that true thinking that way.
First I wouldn't necessarily multiply Q2 by four to get the overall level on because our capital is is a kind of varies by by quarter, but we'll continue to look for everything as we reevaluate and understand what the customer really wants it's going to create value for ways to not only can serve operating.
Cost engineering cost the capital as well.
Great interest there secondly, just curious how you're thinking about broadly the GMR turnaround that we spoke about back in February.
You see need for additional restructuring how do you generally viewed that trajectory.
A couple of years.
So I think the steps that we took in time went in and Australia. We're very important we see a because there's good work going on in the restructuring getting Korea continues to be on track.
Looking for recovery in the Middle East and as we move forward I think the real area of focus is South America, and we have taken significant steps over the last.
A few years to turn around that business, yeah, kicking the breakeven down by 40%.
And it continues to see the impact of into the foreign exchange. We've been actively working on what we can do from a South America perspective, specifically, focusing in Brazil, and you'll see us take even additional actions there because it's just not acceptable to performance that we have right now so it's a ariad key focus.
Great. That's very helpful. Thank you.
Your next question comes from a line of John Murphy with Bank of America.
Hi, Good morning, it's great to hear from all of you.
First.
Question, Yes, you're going through this zero cost base analysis, because you have the opportunity.
Given that's where the crisis, but I'm just curious if you also thinking about sort of the restarted production. If you think about things at the same way and if there maybe just a greater focus on restarting and pushing your pick up in as you'd be volume and baby letting some other stuff flag, meaning you know sort of in the near term.
Might have this experiment that you much it might have much stronger mix they might stick going going forward I'm, just curious how on sort of but the mix in the near term and how you might think about that long term as you go through that to restart process.
[noise] clearly, we're I'm pleased with the strength of the full size trucks, and we expect as we roll out the whole phase as she leaves out the product Oh. The media reviews of the product are quite strong. So we think it's gonna be very well received in the marketplace did that is a franchise for us and we plan on protecting and growing it so.
As we see opportunity, we're definitely going to seize it and I would say you know as you mentioned, we have found areas of savings that John as you go through a situation like this things that seem to be incredibly important when you really challenge them you find opportunities to save so we will do that and we'll be focusing on our key products franchises I don't know give me.
If he'd like to add anything.
Yeah, I would I would definitely a cool that and.
John as we think about coming back online here, we obviously have a close eye on dealer inventory by vehicle line and all the geography. This will not all of them are created equal and we have different levels of inventory in different regions. So let me come back online, we will prioritize to memories point trucks as well as.
That's the since like drums, and Oh, the mixes are the most profitable vehicles as well those geographies that are running light from an inventory standpoint, and we had the visibility into that and that's how we're going to flex it as we ramp up here.
Okay, and then just as a second question I mean, the commitments cruise seems like it is unwavering, but there's about a billion dollars you're going to.
The door without any revenue I'm just curious if your rethinking that that dollar commitment on annual basis.
The potential business monetization of it and one freezing I think you mentioned super human driving experience sounds really appealing to me I'm. You know is there's a potential that you could lead some of this technology into your existing.
Product portfolio over the next few years, if you don't see them on station you know a woman emotionally.
In the near future.
Well first I'm I'm very pleased with the progress that they're making from a technology technology perspective at crews I just reviewed that earlier. This week. So I think that Ah we are continuing to hit milestone after milestone there so I'm very.
Positive about what's happening at crews from that perspective, so I see huge opportunity and said we are commitment as she said is unwavering as it relates to bringing the technology into the.
Our fleet of vehicles on the road today, that's really occurring through Super crews and we continue to add miles at roads add features a and you'll see us as well as spread it across the portfolio starting with Cadillac and then moving to other so definitely have an aggressive plan to two further rollout and improve the capability.
Super Chris.
Yeah, one just last one real quick on on the supply base I'm, just curious how you're monitoring that if you're seeing stress in the supply base.
This is maybe an opportunity to try to you a inside the buys or push consolidation into maybe if you were stronger supplier partners that can support in tough times.
I said, we have been actively working with the entire supply chain, we have as a regular part of our process. We have a very robust supplier financial risk management process, obviously, we'd put that into overdrive as we go through this period, we've been maintaining regular communications with the suppliers and there.
Financial health as well as all the work they're doing for us related to future programs scheduling et cetera. We're also setting carefully I can present in key provisions to supply base to drive their participation and then we are have identified the high risk areas and are already working on mitigation efforts. So you know we're very pleased with the.
Partnership we went with we have that we have with the supply base over all will continue to work with them and make sure. We have a strong supply base as we move forward to start and then to continue to grow.
Great. Thank you very much.
Your next question comes from a line of Adam Jonas with Morgan Stanley.
Thanks, everybody and Diviya that that was absolutely I.
I mean.
Your knocking the cover off the ball and transparency, which is especially appreciated during times like this I just had to acknowledge that I'm sure everybody on this call. Thank you Adam.
Already had feedback on that this is outstanding.
[laughter]. So a question for for married on Oh.
On.
Working with lawmakers and governments kind of managing.
Recoveries looking beyond this there's been a increasing kind of percolation around.
Potential.
Things not limited to cash for clunkers, what things of that nature in the media I was wondering if you could share thoughts on one on where you were G.M. stands on that and maybe more importantly beyond.
Opportunities can GM in your auto brother and and sisters.
We work with governments to kind of taken industry that.
Maybe didn't have enough of a national policy and can really make the most out of the crisis to push forward things like electrification.
Sure.
So and I think it's a great question, there's really three elements as I look at it one on you know as we start producing vehicles again, we are watching demand.
And I think anything that stimulates demand in these early days, that's simple and goes directly to the customer those purchasing the vehicles I think that's going to be helpful to get people back into the market because we look a little abroad more broadly and this is something we've said all along a programs kind of a a cash for clunkers, but for older vehicles, we know that.
Every new model year, there's improvements made from a fuel economy and emissions perspective, so getting some of the oldest vehicles off the road would definitely help from an environmental perspective, and then we do think on in the you know few years out are continuing to stimulate.
Avi demand not permanently because we are on a path to profitability, but getting people into babies. So they understand the benefits. He babies as we work to have a full portfolio as well as have a robust charging infrastructure I think that's going to be important as well and we continue to have that dialogue.
With with many members out of a government.
Thanks, Mary and just a follow up.
On capital allocation now since 2012 James repurchase.
Well over 20 billion dollars' worth of stock I think at an average prices.
Over 35 Bucks there about now I'm not trying to put you on the spot here because your investors.
For the most part we're really supporting those kinds of moves.
But from today's perspective, and kind of as you assess the importance of liquidity and investing in areas, where you have advantage.
And getting back to that would you call very strong strong investment grade.
Any any comments on whether that's a world has changed and whether you would expect that perhaps that the core drumbeat of give us all your excess cash please.
Let's get back on the buyback course, when things settle that maybe maybe it's a different going forward.
Well I think it where we we remain committed to our capital allocation framework and so.
When you first look at the first pillar is to reinvest in the business to generate in a proper return greater than 20% return on invested capital we're going to continue to look for those opportunities that I'm quite excited about the opportunities we have in front of us from an easy and from that from an 80 perspective. So we'll continue to do that clearly and this demonstrates that is vitally important to have that in question.
Definitely grade balance sheet, and then we'll look to do what's right as it relates to our shareholders clearly and Oh, we need to make sure, though I think that we stick to that first pillar and what we invest in is going to generate inappropriate return. So that's our that's our thought and we remain committed to that the allocation process we outlined.
Appreciate it.
Thanks, Adam.
Your next question comes from the line of Brian Johnson with Barclays.
Oh, yes. Thank you I just want a follow up on a bit of the regional variation because of course, we're not a bottle within country or Daft area. So first on the demand side could you give us a couple things you don't one a little bit of color since we're not doing monthly sales call.
On the.
Very strong market share, 39% of large pickup trucks, which by mind outlets. This leaves a dealers at the low end up inventory b, how that varied I'm. Just overall demanded april across geographies and is the sudden Belton, Texas and Florida performing.
And then I've got one question on the production.
Yes from a from a dealer inventory and pills perspective, I would say that you cannot think or a entire country with the same brush in the geography that are not the coast brine, we're continuing to see strength in trucks, and therefore lower levels of inventory so as we.
Our back up here on May 18, our priority will be those regions of those geography instead of.
Performed really well and I'm just a from Oh from regional standpoint, as well I would say across the country. We're seeing eight commonality as it relates to people buying things online and I'll give you a data point at an industry that was down about 40%.
Schalkwyk drive was actually up 40%, so that's something that you're seeing across the board. So inventories we are watching trucks were watching and certain geographies, we're watching and that's gonna be a focus as we ramp back up here.
And in terms of the drivers of that 39% pickup truck share.
There's a perception I would say across the board sign ups.
Well I would say you should look at ATP G.M.C.C. your had record high atps at the levels of incentives that we had and Brian you've seen those are incentives ebb and flow based on what more can talk to kind of competitors hub as well and just in the April alone, which was just this last month.
Our incentives were lower than that of competition. So ATP higher discipline continues and the April incentives or another proof point that this is something that you'll see up and down but we're committed to being disciplined.
And on the production so to give NAFTA.
Focus lot on the Governor in Michigan, Midwestern States, but can you talk a little bit more about the pace of ramping up.
You're planning so allow as well as the Mexican supply base, which corn speech Arlington further north.
So we've been having regolith regular dialogue with.
<unk> from country to country level as well, both Mexico in United States as well is working with governors and key states and so that I get it. We think those have been very constructive I would also say we're able to talk about our safety protocols that has been is very well thought through three primary.
Focuses of keeping people, who are sick or potentially sick out of the plant maintaining environment and then if someone is asymptomatic and is in the plan a very targeted way to a clean and do contact tracing to limit the exposure and over the last several weeks, we've been able to demonstrate that's been quite successful.
And so we think with those protocols and communicating and sharing our plan.
We're worried a good position as we talk to country leaders in state later, so the conversation has been constructive and that's what informs our current plan on 518, obviously, we'll continue to have dialogue with our unions as well as with the government leaders to do the right thing.
Okay. Thanks.
Your next question comes from the line of Ryan Brinkman with JP Morgan.
Hi, Thanks for taking my question, which is about your inventory level in the U.S. I think when the non essential business restrictions began your lean inventory as result of last year's W. strike. It would put you in a strong relative position as it applies left needed a reduction in 2020 of wholesales relative to retail Phil just Q.
Yes, though as the production shut downs have lasted longer and retail sales have continued, albeit at a lesser rate, but would pick up leading the way I know the days on hand calculation has increased given the abnormally low sealy selling right, but as you look ahead to win the restrictions are lifted and and selling rate partly normalize how are you doing about your inventory.
The level at that point, including maybe for some of the recently better selling model such as Bulls eye trucks.
Yeah, I would say that Ryan in addition to what I already said the other data point that would give you is just coming out of the strike as you pointed out the dealers have done an exceptionally good job both selling from a low inventory, they they're selling pretty deep and they've learned to learn how to operate at <unk> at a lower inventory levels, but I would say.
It is open back up here prioritizing trucks and getting them out remains our I already among other vehicle lines. That's what we're going Oh, well go to prioritize and from a day supply upwards, but doesn't gets hot but from an absolute perspective.
We've seen L.D., especially starting to come down. So we will certainly be looking to replenish that and continue to encourage our dealers filled.
All right that's helpful. Thank you.
Your next question comes from a line of Dan Levy with credit Suisse.
Hi, Thank you.
So can you provide us with some color on the the 600 million dollar cost tailwind in GFS, North American to prescribe pardon Miss but the $500 million performance all there how much of that reflected the transformation cost saves and what types of inefficiencies inefficiencies were associated with the downstream are there any other sort of onetime.
Benefits that we shouldn't expect to occur next year.
Yeah, I would say, Dan, but the transformation related.
Savings within that number was about 300 million year over year. So that's the the goal that we laid out for our souls four to four and I have 300 additional million dollars were saved in Q1. The rest of the numbers decided I would say is timing and I would not extrapolate that into the other quarters.
Okay, No no onetime benefits from cost actions that you took that would reverse next year so to speak.
No I wouldn't I wouldn't say there was anything onetime in Q1 as you as I said about the austerity measures that were taking now you got to be careful extrapolating bad because as the production level normalizes in demand normalized since you would see some normalizing and be austerity aspect of it but the transmission we remain on.
Truck.
Great then thanks, a question on on TV in the investment, we're obviously an environment with.
Really cheap gas and regulations in the U.S. or just any use and you are obviously primarily exposed to the U.S. So you could make the case that it just lengthens the timeline if you'd be uptake of U.S. actually give you rooms take the break psaki the investment temporarily so.
As the rationale for maintaining easy investment right now simply you. This is your future and there's just no compromise on that vision even amidst these.
The precedented circumstances.
Hi, Dan I think he said it well our commitment is unwavering we think it's the right path forward and we think with the Ulta in battery platform that we have the partnership we have with Honda the strength that we have from China, where either new energy vehicles are a key part of being successful in that market positions us extremely well.
Delta to have a leadership position in east with a full.
Range and Oh, you mean vehicles. So we are looking at every possible angle to continue to accelerate our ease and our only be future.
And cheap gas and change regulations doesn't change that correct.
Well I. It again, we believe this transformation will happen over a period of time, we're going to continue also while we focus on he needs also focus on our full size as she vsan full size pick up a franchise that we have and we continue to make all those products more fuel efficient and emissions efficient as well so I wouldn't say they get it helps with.
Supporting our franchise is when you have a a low gas price from a regulatory perspective that work were being driven by what we think it's the right thing for the future and where the opportunity will be in to get there and be among the leaders.
Great. Thank you.
Your next question comes from the line of Mark Delaney with Goldman Sachs.
Yes. Good morning, Thanks for taking the question retail sales in China.
Nicely in April I think Jim said, its sales were up year over year in China last month do you think that pick up in sales in China as a potential illustration of what else could do in other countries. After travel restrictions are lifted but do you think there's something you need to the China market, that's leading to the strength and sales in that country in particular.
Yeah, Mark it's kinda, it's too soon to call, where where we think it's very good that we're seeing the recovery on in China that is more like a knee recovery, but we're not counting on that I think there are some factors, though as you look at People's desire to have their own vehicle for transportation that certainly could play into it.
Across the globe is as an opportunity. So I think it to certain to tell that were very on a positive about what we see happening in China and you know, we're even seeing on some uptick after the low in North America, specifically, United States that didn't get as low as it did in China.
I wanted to follow up on the China market in particular, we just elaborate on what do you haven't seen in terms of its market share and how you're thinking about positioning the brand of your franchise there. Thank you.
Well you know we continue to see strength with that with the luxury brand catalytic continues to grow and we're getting great point, we kinda like now that we have a full full portfolio range that we expect to see continued growth there clearly buick and I'd be looking Chevrolet our boat opportunities for us a and b with the stock.
On product portfolio that we have with launches that we've made and we'll make through this year, we expect to see strength. There and then also with our S.G.M.W. partners with the Baozun into willing brand. So when you look at it across the board, we think we're well positioned across China with the right programs and you know, we're looking to grow share in China.
This year and then move a as we move forward.
My last question comes from a line of John Saeger with Evercore ISI.
[noise], Thanks, John cigarettes, as Chris Mcnally on the on the Finco, We sold 100 million dollar charge charge off for expected credit losses, which is quite a bit lower than the charges for took last week and you can you walk us through some of your assumptions that went into that and then just clarify if you can we expect a similar hit every quarter.
This is just for Q1.
[noise] Yeah. This is Dan.
The charge in the quarter was actually closer to 250 million.
Not to 100 million Youre.
Our reserve.
That we took the seasonal adjustment at the beginning of year plus. The addition puts a retail reserve at about 4.4%.
Portfolio, which is.
I think indicative of the expectation we have to wear losses are going to go.
Over the life of the loans is give you said in her remarks, we're expecting annualize losses for 2020 to be an arranger, 2% to 2.5%.
That's what we're reserved for and.
We are certainly watching our credit metrics.
Going forward to see if that's a that estimate is going to hold true or not.
Okay that makes sense. Thanks.
Thank you I'd now like to turn the call over to marry bar for her closing remarks.
Thank you operator, and thanks, everybody again for joining.
We understand the seriousness of the multiple business actions that we have taken but we believe they are necessary to preserve our liquidity and a very uncertain environment I want to assure you that the entire management team is working to protect the business. So that the restart and recovery began we will be uniquely positioned to capitalize on new opportunity we had a true.
Record of making Swift strategic and tough decisions to ensure our long term viability and we will continue to do so.
And I just have to end hadn't seen the strength of this company has always been its people and I couldn't be more proud of what everyone has done across the globe to not only support the business and do extraordinary things, but also to support their local communities I think it just speaks to the character of the GM team.
So.
Rest assured that we will stay focused and we only do everything we can and everything we've learned to emerge as a stronger and better general motors position to create shareholder value.
Thank you very much everyone.
Ladies and gentlemen that concludes the conference call for today. Thank you for joining.
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