Q3 2020 General Motors Co Earnings Call
<unk> third quarter 2020, This conference call.
Opening remarks, all participants will be in a listen only mode.
After the opening remarks, we will conduct a question and answer session.
Oh I see question. That's Star then one on your telephone keypad.
Which I had a question for the pound key.
As a reminder, this conference call is being recorded Thursday November five 2020.
I would now like to turn the conference over to Rocky <unk>, Treasurer, and Vice President of Investor Relations.
Thanks, Dan.
Good morning, and thank you for joining us as part of your Jim's financial results for the third quarter of 2020.
This release was issued this morning, and the conference call materials are available on the GM Investor Relations website.
We're also broadcasting this call via webcast.
I'm joined here today, a James Tech Center by Mary Barra Gems, Chairman and CEO, John Stapleton, Jim's acting CFO and on the line, we have Dan Burke, President and CEO of GM financial.
We begin I'd like to direct your attention to our usual forward looking statements on the first page of the chart set the content difficult will be governed by this language I now turn the call over to me Tomorrow.
[noise] Rocky and thanks, everybody for joining the call today. This morning I'll cover a few key areas of the business I'll start with a brief snapshot snapshot of our record third quarter earnings and then I'll follow with a more in depth look at the rapid progress, we're making in electrification I'll.
I'll wrap up by touching on a regional businesses and then John will provide a deeper look at the numbers before we go to your questions.
But before I do that I know every everyone on the call as closely watching and waiting for the final vote count in the U.S. presidential election.
From our perspective General Motors is ready to work with whichever candidate certified as the winter along with their administration and the New Congress and we will continue to invest in our U.S. operations and pursue our growth initiatives, especially in the areas of electrification and economists vehicle.
I also want to take a moment to recognize the tireless efforts of our employees around the world, where they're working remotely or in the workplace. They are keeping their programs for when you're on track building every vehicle they can safely and with quality.
In addition, our suppliers are moving mountains to keep their operations open. So we can keep production going and our dealers are embracing creative new ways to interact safely with their customers for service parts and sales.
It is truly been remarkable and inspiring to see how everyone has come together to safely restart our operations with the health and safety of our teams and our customers as the number one priority.
Our multi layered approach to COVID-19 safety has proven effective in preventing the spread of disease around all of our facilities, where our protocols are followed they are working.
This is an extraordinary effort and our continued focus on employee health and safety has been important as economies begin to recover around the world.
Finally, I'm very pleased to share that GM, Canada and unit four have reached a tentative agreement on our new labor contract, which is very good news for our team our customers our dealers and our investors as you know we have been operating or full size pickup plants around the clock to meet exceptionally robust demand for the Chevrolet Silverado and the G.M.C.C.
Right and the United States and Canada.
Factors, we simply can't build enough.
Because we expect demand to remain strong we must increase our capacity that is why subject to ratification GM plans to invest approximately $1 billion Canadian dollars to bring full size pickup production back to the offshore assembly plant, well, making new investments at St. Catherine's propulsion plant and the Woodstock parts operation.
We will move very quickly we expect construction to begin on the new body shop, and flexible Assembly module at our <unk> immediately upon ratification.
When the plant comes back on line in early 2022, we will see a significant increase in our full size pickup production capacity.
Flexible and highly scalable Altium architecture battery and propulsion system, which have empowered our designers and giving them free reign to re imagine our approach to interior and exterior design.
You can see this in the powerful distinctive and beautifully executed vehicles like the GMC Hummer E B and the Cadillac lyric.
The simplicity of Altium and the use of virtual engineering have made us more agile from them from inception to production. The Hummer E. V represents the fastest vehicle development program and Gms recent history, we took reservations during its reveal and demand exceeded our expectations.
Our manufacturing strategy is also coming into sharper focus construction of the LTM cells L. L. C manufacturing facility in Lordstown, Ohio, where we will make battery cells with our JV partner Elgie Cam is ahead of schedule.
We've begun the hiring process and will add a total of 1100 jobs to the local economy.
We have also announced plans to have three plants, producing eev's factory zero in Detroit him <unk> or an assembly in Michigan and Springhill Assembly in Tennessee.
During the quarter, we shared even more detail about our roadmap to deliver EV costs comparable to internal combustion engine vehicles. For example, all of our future Eevees will draw from a family of five interchangeable drive units and three motors known collectively as Altium drive.
And we will be the first automaker to use a wireless battery management system for production electric vehicles with expanded over the air updates provided by Gm's, all new vehicle intelligent platform with the system will be upgraded overtime with new software based features via smartphone like update the system also reduces the cost and wait.
Of wiring.
Looking ahead will continue investing and advanced battery chemistry to drive even greater range at a lower cost for our customers.
We look forward to sharing even more details about R. E V portfolio and competitive advantages at the Barclays Global Automotive conference on November 19th.
Driving environment.
In the coming months, Jim Incruse intend to file an exemption petition with nitsa to deploy.
Origin vehicles without steering wheels, or pedals, we have withdrawn an earlier exemption petition that was limited to earlier generation crews ABS derived from the Chevrolet bolt platform.
Chris team is working with a Harvard trained epidemiologist and using research from various health organizations to identify measures that may help maintain a healthy right environment.
Now, let's take a look at our regional businesses in North America, we gained retail market share and drove higher average transaction prices with lower incentives our truck and full size LNG plants are safely operating on three shifts building every vehicle possible.
Our dealers are doing a great job of maximizing sales and share despite tight supply. They are using GM develop software that helps them order the highest demand fastest turning vehicle build cap configurations.
Customers response to our all new full size as GBS continues to be enthusiastic.
Bind average transaction prices for the Chevrolet Tahoe and suburban the GMC, Yukon and Yukon XL are 14% higher than outgoing models and the three closest competitors media.
Media reaction to the 2021, Cadillac escalate, which is now arriving at dealerships has been outstanding with journalists, citing its craftsmanship comfort and technology, including its 38 inch OLED display.
Unlike all of our full size issue. These were selling every escalate we can build.
This is cadillacs first escalate with available Super cruise technology for the second time. It decisively led all other active driver assistance systems in recent consumer reports testing.
Over the next three years Super cruise will be available in 20 models across our brands.
GM financial delivered record results in the quarter since its inception 10 years ago GM financial continues to grow its share of the financing business for both dealers and retail customers with very high levels of customer satisfaction.
Moving to our international operations in China. The industry continues its recovery from the impact of coated.
GM, China deliveries in the quarter grew 12% year over year. It is the first sales increase in two years and in line with overall growth we're seeing in the industries passenger vehicle market.
The luxury mid size and large issue b and multi purpose vehicle segments, where our launches have been focused experienced the strongest growth.
Importantly year to date sales of our new energy vehicle portfolio have more than doubled compared to last year.
The willing hung long many he became the best selling in China during the quarter in the next five years more than 40% of our new launches in China will be new energy vehicles.
And before I turn it over to John I have two more things to share.
First if our current recovery continues we anticipate reinstating a dividend at the appropriate level that balances various capital allocation priorities, including our investments to accelerate.
We know this is a high priority for our shareholders and we are looking at timing around mid 2021.
And finally I want to welcome Paul Jacobson, our new CFO, who is joining us from Delta on December Onest, Paul will be a great addition to the GM senior team at Delta Paul Let a global finance organization that is widely recognized as the best in the airline business.
He and his team help the company build a strong culture of teamwork and inclusion and deliver best in class customer experience operational finance and financial excellence and discipline pellet capital allocation policy.
Paul is committed to transforming this company his experience and insights will help us accelerate our momentum rapidly build scale for our vehicle electrification and autonomy technologies and position GM to deliver a world with zero crashes zero missions in zero congestion.
And I also just want to personally thank John for all the work. He has done as he did double duty for general Motors being the CFO for North America as well as the corporate CFO. He did an outstanding job in should take full credit for the results in the quarter I am grateful for his strong leadership and I know he's anxious to return back to operate.
Asians and to continue to drive the strong performance in North America. So John Thank you very much and now I'll turn it over to you.
Thank you Mary and good morning, everybody.
Third quarter was very strong, resulting in $35.5 billion in that revenue $5.3 billion EBIT, adjusted 14.9% margins $2.83 EPS diluted adjusted and 9.1 billion and adjusted automotive free cash flow.
The $2.83 EPS diluted adjusted includes a five cents gain from the revaluation of our investment in say.
Automotive liquidity remains strong at $37.8 billion at the end of Q3, demonstrating the resilience and flexibility we have built into the business over the past few years and our ability to manage through downturns and other disruptions.
In Q3, we repaid $5.2 billion of the corporate revolver draw and paid an additional 3.9 billion in October we.
We expect to pay the balance by the end of the year, while remaining at or above our target all average automotive cash balance.
We remain focused on our investment grade balance sheet as well as our capital framework targets.
Retail sales have continued to recover with Q3 industry and Jim result, down less than 5% year over year, Despite limited inventory.
Let's take a closer look at North America.
North America delivered Q3, EBIT adjusted of $4.4 billion up 1.3 billion year over year, and a 15% margin driven by strong full size SCB and pickup truck performance disciplined pricing benefits from our cost actions and non recurrence of the 1 billion strike impact in Q3 of 2019.
The launch of our all new full size as Cvs is going extremely well and country contributed favorably to the price during the quarter.
Our new full size as you. These are designed to keep GM the clear leader in a market we have dominated dirt.
During the quarter GMC Chevrolet combined had a 65% share of the retail segment and we are trending up in both share and atps as availability of the new models increase.
Dealers and customers truly appreciate the safety features advanced towing technology, and new independent rear suspension that dramatically improves passenger comfort and cargo space.
Like we did.
With our full size pickups, we are expanding model choice and trim options. This includes adding new higher spectrum like to 84 package for the GMC, Yukon and and exclusive interior for top of the range Denali models.
Similarly, we now have six distinctive models and have doubled the trim lineup for the 2021 pound suburban including the Z 71 off road package for.
For all new Sq. These also have our new vehicle intelligence platform VIP, which is on nine models now and will be on a total of almost 30 by 2023.
With an expanded capacity for smartphone like over the year software updates the VIP system enables the adoption of functionality upgrades throughout the life of the vehicle.
Like our pickups are Lcvs command higher TPS and we intentionally planned our rollout to include a rich mix of completely redesigned full size as you. These with a goal to drive profitability and enhance our segment leading market share. We started deliveries of our lcvs in Q2 and since the launch we have gained approximately three percentage points of market share.
Retail market share of our large pick ups is also strong up approximately two percentage points year to date through the third quarter with Sierra the fastest growing nameplate in the segment.
Let's move to Jim International.
For the third quarter EBIT adjusted in July was up $100 million year over year, driven by favorable price and mix continued benefits from our transformation actions and austerity measures, partially offset by weaker FX in South America.
China equity income in Q3 was flat year over year and slightly above our $200 million expected run rate.
We saw benefits from volume that the market continues to recover from H one lows.
The improved mix from recent launches, including Cadillac X T SEC CTG for CTP, five Buick enclave and Chevrolet Blazer.
And cost discipline, the benefits were offset by continued pricing pressure.
We received 500 million in dividends from our China JV in Q2, and expect the remaining 500 million to be paid in Q4.
In South America, all plants are operating in line with market demand and the team has been reducing costs to lessen the effects of the pandemic, while continuing to optimize mix and aggressively take industry leading price.
These cost measures include voluntary and involuntary staff reductions.
Salary reductions and delayed investments.
Our strong Chevrolet brand has led the market for 18 consecutive years led by Onyx. The tracker has also led the segments since its launch earlier this year so.
The success of both entries highlights the strength of our new global family of vehicle platform, which.
Which now represents about two thirds of South America volume and meaningful progress in terms of profitability and localization.
A few comments on GM financial crews in our Corp segment.
Financial posted quarterly revenue of $3.4 billion in the third quarter and ABT adjusted of $1.2 billion, primarily as a result of hi used vehicle prices contributing to gain on sale of off lease vehicles.
Reduced provision expense due to stable credit performance and lower interest expense as a result of a decline in interest rates crude.
Cruise costs for 200 million for the quarter in line with expectations and Corp segment costs for the third quarter were $100 million better than run rate due to the PSC revaluation and other onetime items.
We achieved our transformational cost savings target of $4 billion since 2018, including 200 million in Q3, we.
We expect to continue making progress on the target range of four to four and a half billion through the end of the year.
Finally, let me update you on the EBIT and cash flow scenario.
Scenario that we provided last quarter.
Going into the second half, we anticipated us light vehicle industry Saar to be in the 14 million unit range. It has been tracking much stronger and we are now anticipating light vehicle Saar in the mid to high 15 million unit range in age too with pickup truck demand specifically exceeding original expectations.
We have been selling vehicles within a few days of arriving at dealerships leading to slower inventory rebuild than anticipated.
As a result, our inventory levels will likely not reach our previous scenario of 600000 units by year end.
We continue to carefully monitor and adjust to the macro environment, which remains volatile given the evolving pandemic that is still impacting the economy. This may adversely affect demand and production timing and levels. However, with our stronger than anticipated Q3 performance driven by strength in pickup trucks full size as GBS.
And crossovers and the unanticipated benefits from Gms finance from GM financial due to the Brazilian credit performance and high used vehicle prices, we expect our HQ EBIT and free cash flow to be well above the scenario provided on our Q2 earnings call.
Given the strong performance and assuming no unforeseen production disruptions are updated each two scenario for total company EBIT is in the $8.5 billion to $9 billion range.
With Q4 weaker than Q3, due to seasonality and free cash flow levels and aged two to be in the $11.5 billion to $12.5 billion range.
I would caution against extrapolating, our HQ performance going forward as we will reintroduce engineering manufacturing and advertising costs as operations normalized.
To help you frame 2021, I would like to provide some early thoughts.
With our more detailed level of guidance to be provided in early February during our Q4 earnings call.
At a high level, comparing 2021, 2020, and an invite in an environment, where 2020 was not impacted by the pandemic EBIT performance expectations are fairly similar with some puts and takes headway.
Headwinds for 2021 compared to a normalized 2020 include increased spending as we invest in our ERP rollout and potential commodity headwinds, particularly around platinum group metals.
Opportunities in 2021 include an entire year, a full size LCD production.
Inventory build remains an opportunity, but will be dependent on market demand.
And modest ongoing cost savings from cobot austerity learnings.
Specific to free cash flow as mentioned previously the permanent in Capex. This year will lead to re time spent in 2021.
We previously communicated a capex run rate of $7 billion per year. As a result of this real time 2020 spending and a strategic decision to accelerate investments in our all electric future. We expect that our annual Capex will exceed 7 billion through at least 2023.
As Mary mentioned, we will communicate a more detailed strategy on November 19.
In summary, our Q3 results demonstrate the strength and flexibility of the business and our ability to recover quickly from a significant disruption. We have continued our focus on launch performance cash flow and improving the overall resilience of the business. We are laser focused on execution and setting them up to win in the future of mobility.
This concludes our opening comments and we'll now move to the Q and a portion of the call.
At this time, if you'd like to ask a question. Please press star one on your telephone keypad.
Our first question comes from the line of the time of Kelly with Citi.
Great. Thank you good morning, everybody and congrats.
Thanks, Jeff.
Just maybe John I appreciate the color to 2021 and I was hoping you can maybe just walk through.
North America.
The bridge there in a bit more detail and specifically kind of as we think about the Companys earnings power North America relative to where you thought it was up pretty coated just maybe walk us with some of the puts and takes there just given the strength of the of the truck franchise. This year.
Well I mean, what we are seeing specifically relative to the industry is actually quite stronger much stronger.
You know in the recent months versus what we were seeing in coded.
You can look at our bridge I think we're calling out cost savings, excluding warranty of about 700 million quarter on quarter.
I think you're asking what could stick why the translates forward I think a big chunk.
Well the of the savings really represents the austerity actions that we put in place in Q2, and where they bled into Q3 and as operations start to normalize as our plants continue to run hard we.
We will start to see some of that cost go back into the system.
In Q4 and beyond.
We did just to clarify John I guess for the 2001 comparison. So we think about the 2020 as as sort of on a more normalized ex covidien and if so could you kind of quantify what that sort of comparability should should look like.
Sure, Yes, I mentioned that.
Our 2021 could be in line more in line with pre cobot levels really not that different than what we reviewed at capital markets day back in February we.
We do have the puts and the takes we mentioned plus TV spend we mentioned potential commodity headwinds really in the platinum group metals.
The tailwinds the full year of full size as you'd be an inventory build opportunity and so potential covance cost saving so EBIT wise not that rules and different than where we were at a capital markets day on the cash side, a little different cash.
Cash side, we actually.
Delayed $2 billion of Capex spend this year that will get retimed into next year and as a result of our strategic decision to accelerate our investments we will see some of this accrete into 2021 as well.
Just lastly, maybe from Marriott strategically.
When the announcement you made throughout the quarter was the relationship with Uber to deploy easy is on right. Your network to something we talked about in the past curious if you can kind of comment on where this relationship could potentially progress over the next couple of years.
Well I think you're seeing right now where companies want to do their part from a zero emissions perspective, and so providing the that the drivers the opportunity to have a movie that is within reach and yet the Chevrolet bolt TV is an excellent vehicle.
We deployed it on.
Passed on in the REIT share environment and it was it did very well, it's very functional from that perspective. So we think it's a good offering and we're going to continue to make that available and see how we can grow that business.
Great. Thank you very much.
Our next question comes from the line of Rod Lache with Wolfe Research.
Good morning, everybody.
Hi, I was just hoping first John I apologize for being a little bit stick on this but I didn't quite understand what you actually we're guiding to for for 2021 did you say it would be similar to the roughly 10, an app billion EBIT that you are looking for this year, which obviously includes the gains that you're seeing and GM financial.
And also Colgate or did you sort of make adjustments to extract the cobot impact from that.
No I mean pre coated rod I think its capital markets day, we were guiding EPS diluted adjusted somewhere around six Bucks I think it was 5.75 to 6.25 and you can extrapolate that to our to our EBIT number as we look forward into 21, we think we could be there.
Our goal with obviously the.
The puts and takes could offset each other but not a lot is really dependent as we move forward in this uncertain world Okay.
Okay, that's clear and any color on what you.
You're expecting Fourg PMI ex China, obviously, that's still a pretty significant drag is there a reason to be a bit optimistic about that as you look out to next year.
Hi.
We look to next year is still a difficult environment I think everybody can see that in.
I think your question.
Is there any possible upside I think some of the upside that we see is we'll have a full year of of our tracker, which is yes Judy.
We'll have full year next year and really Rob we've taken quite a bit of price this year and that price will carry into next year, which will be a tailwind for us I think those are the two positives that we can point to furniture South America.
The only thing I would add Brad is also in addition to what John said you know the team has just done an excellent job of continuing to take cost out of the business. So.
The team is very hungry to deliver positive results and so they're they're committed in working day and night on that.
Okay. Thanks, Thanks for that and just lastly, Mary.
So much has happened here in the market over.
Over the past year competitively, especially with regard to electrification and I was just hoping you might be able to share with us some updated thoughts on strategy and if it's evolved at all.
Or or changed at all since the.
The March everyday and any thoughts about the.
Accelerating that the trajectory of growth in each of these is this actual expansion related tvs or any changes to the distribution strategy.
So we're going to share a lot more of our easy strategy when were at the Barclays Conference. Later this month, but I would say we haven't done a lot since March the March every day continued on aggressively on the battery technology development Im very pleased where we're at from an LTM pro.
Back, Dave we announced the LTM drive on that gives us a lot of flexibility and scale. In addition to the wireless battery wireless battery management system. So you can see there's a lot of work going on from a tech technology perspective to make sure. We have leading technology, we've shared the Cadillac a lyric energy MC Hammer E V. Both reveals.
Went exceptionally well and the customer feedback from both has been very very strong. In addition, we have announced at the 2 billion dollar investment in factory zero and Detroit Hamtramck that will be an all easy plant, we have the LTM I'm cells LLC and large town ahead of schedule and we're hiring and then.
We have the Springhill announcement, which is at about a 2 billion dollar investment as well. So when you step back and look at the potential that GM has from an easy perspective, we can leverage our iconic brands that have a relationship with customers across the country and Frank frankly across the globe leverage the technical capability.
Of the team, which I'd put against any other group the ability that we have to quickly convert our manufacturing facilities and get the scale.
And very quickly not only from a company perspective, but in building. So when you look at all those things are major goal is to make sure that we are in a leading position from getting the new vehicles out we've already talked about the fact that LTM will give us an unprofitable electric vehicles, and we think leading getting vehicles across the.
Entire market leveraging our brand is going to be very important Wesley you mentioned dealers and what I'll say.
We are working in partnership with dealers, there's already been quite a bit of transformation and we're finding that.
Some customers want to do everything on line other customers still want out literally kick. The tires are the new systems that were deploying the G.M. based systems that were deploying with our dealers are helping I also mentioned that we're leveraging systems to help dealers order the fastest moving and often most profitable vehicles. So that's improving.
Their business as well so we're working in partnership with our dealers to transform and providing excellent customer experience. The last proof point I'll give you is the GMC hammary fee, where you look at with four steps being able to make a deposit on a vehicle and improved pricing transparency. So.
Customers know exactly what they are going to pay no no no incentives discounting no haggling and this is all being done in partnership with our dealers. So there's a lot more to come here and I'm very I'm.
Very pleased with the great work that we're doing together.
Okay. Thanks.
Our next question comes from the line of Emmanuel Rosner with Deutsche Bank.
Hi, good morning, everybody good morning.
One more question on the TV strategy I really appreciate all the color today so.
So today Neos markets got has officially surpassed GM and that's the latest example high market valuations and cheap access to capital for these electric vehicle company I was hoping to get your latest thoughts on what the best way is to unlock shareholder value from your technology last quarter. You said nothing is off the table, but.
I'm.
Certainly getting a strong value from all the announcements do down the size that you.
Seems to be being kept altogether. So just your latest thoughts what's the best way to unlock shareholder value.
Well Emmanuel as I've always said, we're committed to and have taken many steps in our energy business as well as our autonomous business to maximize a and the ability to unlock long term shareholder value not not something that's going to necessarily causing a quick pop when you look at all of the assets that we bring.
To that end recognize that easy on is a propulsion system. There's many other parts of the vehicle you know we're focused on speed and whats going to what's going to drive the business and growth over the long term. So we'll talk more about it at the Barclays Conference, but our focus is absolutely on unlocking shareholder value and speed.
Need to market.
Understood.
And then a second question could you talk a little bit more about the benefits from the alliance with Honda in North America. Just curious if you could maybe detailed timeline magnitude of expected benefits what sort of.
Product lines are even being considered just anything that helps us understand the opportunity here.
Sure.
As we mentioned in September we announced a nonbinding ammo you. We continue to have discussions are making great progress on a definitive agreement and in the scope of things that we're working on our platform sharing a sharing with R&D connectivity solutions as well as purchasing so.
If you think about the items that I've just mentioned those are it can lead to significant cost savings. So we'll have more to outline as we get to a definitive agreement, but it's a pretty broad look.
At what we can do together to make us both more efficient and also make.
Make oh allow for a leading technology and NVS and platforms in the market.
And just timing wise any sense when the earliest benefits could be realized.
I think probably need to let us get the definitive agreement before I start quantifying and timing of annual if that's okay.
That's very fair. Thank you very much thank you.
Our next question comes from the line of John Murphy with Bank of America.
Hi, good morning, everybody.
I just wanted to look at it slide 17 in the supplemental.
Portion of the deck in and look at this and I mean, maybe recognize I mean, I've got data going back more than 30 years of $4.4 billion.
Even for North America is a record and a pretty strong one and I you could certainly argue there is theres some puts and takes and benefits at the current time, but it's not necessarily the greatest time in the world in North American So it it's it's pretty impressive right I mean, I don't think there should be undersold and.
Im just curious as you are looking at this I mean, John you mentioned that some of the costs.
Savings may not repeat but I think you guys indicated that you're going to $200 million.
We got $200 million in the $4 billion goal to wrap that up and youre going to four and a half billion now, but lets take out 800 million, there and see maybe thats not going to repeat and maybe knock out the price and say hey, listen the market is just so insanely high that might not repeat you're still doing well north of 10%.
EBIT margins and I'm, just curious if that logic makes sense to you and why given the strategy and the product that you might not be able to hold on that price in some of that cost go forward because I Miss any Europe, you are being very humble and understanding what you did in North America.
I guess, John I guess, a couple of comments there.
You know as we look forward we've worked hard on the four to four and a half billion. We're looking hard at what can we make step from an austerity perspective, we do have some tailwinds with the all new full size as you. These three brands.
We've we've got some strength there.
If you look at the last handful of years, we've been in launch mode really launching our T. one platform, both the silverado Sierra and the Cvs and now we're we've got the launch behind us and so going forward I mean, we're going to utilize some of that strength and you know.
I think weve talked about North America, 10% margins.
We've demonstrated in the last five years, we can do 10% and most years and even some quarters better than 10%.
Some of that though we'll actually have to use that to pay some of the acceleration of our ease.
On a go forward basis, I think Mary mentioned, we're going to go hard at this and more to come at Barclays in the middle of the month.
But I think it's a really good point, John that our North America business and especially this the strength of our full size truck platform and the franchise their full size lcvs.
Gives us an excellent opportunity to self fund our growth any vs and then leverage all the assets we bring.
Whether its manufacturing engineering technology on it. So I think we have to focus in on what it takes to really put vehicles on the road that are long term durable.
And high quality also that customers want and I think frankly, that's been a little bit under under appreciated but when you look at the earnings potential even with the adjacency you made in North America, we're going to go hard Eddie V's and demonstrate the assets that we're going to bring to it and the North America performance that China is being a bit.
Modest about allows us to do that.
Okay. That's helpful I still think you're being awful humble there but.
Let me just a second and second question on these and I understand you're going to talk about it more in the coming days, but you've made certainly comments about doing opium powertrain inside and Youve discussed cycle times being shorter so I just wonder if you could sort of clarify.
On the opium strategy, whether levels of outsourcing or in sourcing may be similar or.
Or different versus ice vehicles have been historically and then also married I mean in the press release, you did talk about cycle times being faster so that should be fair game on this call what is a faster cycle times, meaning a product cycle times mean on fees.
So I think a couple points and I'm really glad that you asked the question. So we have from an from an LCM perspective, we.
We have a very robust roadmap of how we're going to work to take cost out and really leverage the scale and the opportunity that we have a when you think about the market size that we have in North America as well as China and there's other markets that are open to open for us. So I think theres, a huge opportunity for growth in our business and.
And as we mentioned I think what you're referring to on cycle times in the past. The fact that the GMC Hammary V is the fastest vehicle development, we we've ever put on the road, we're using new technology and tools. The fact that the way. The LTM platform has been designed it's very modular so that allows for reuse of engineering that speeds up the.
Process, you know the design team had with with how the LTM platform when you're not trying to retrofit an ice platform about you start within with TV intended platform that gives you a lot of design freedom and flexibility, you're seeing that with the lyric and with the the GMC hammer and there's more to come so.
All of those things are allowing us to have a much faster.
Global vehicle development process to get the vehicles on the road and so we'll share more about that but but that those are all the elements that are allowing us to do that and yes again the mine.
Milestones, we've established and the speed at which we plan on taking cost out from the battery cost cautious and ease is all about the battery and so getting those costs down controlling what we need to control and I think you've seen.
Are a definite change at general Motors, and how we get ice vehicles versus the way, we're doing ease with controlling and having the JV on cell manufacturer. So we're rethinking every aspect of the business to make sure that it's going to allow us speed its going to allow us to have a cost base that allows us to enter many more said.
Mints.
With profitable ease into the marketplace, which I think then that represents the growth opportunity in front of us.
Could this be in the mid cycle majors are a thing of the past.
Well I think I think we have to look at that and it will be customer driven because I think if you step back and you go five six years ago mid cycle enhancements are all about the exterior and now not only do you have changes you can make to the exterior possibly faster, but also what you can do internally and with our vehicle intelligence platform and the ability to do over the air updates.
Whether it's something new that you're going to put out on a model or something that you can upgrade in a previous model to that that's all new business for us in the services side of it. So don't underestimate. The fact that I think John said, we're gonna have VIP out about 33 vehicles I think John by 2023.
And of course that will be driving our EDI vehicles as well.
Just on the dividends from China, and Gms, John what are the I mean, I think its year to date. China's 500 engine MFS 800, what do we have left just to talk about the year and I've done yes.
Yes, nothing left on Gms and the 500 remaining it from.
From China will be in Q4.
Okay, great. Thank you very much thanks.
Thanks, John.
Next question comes from the line of Justice back with RBC capital markets.
Thanks, Good morning, everyone.
Good morning.
I want to go back to the electrification question I mean, you clearly shown you done a great job managing through the past year, plus I guess with the strike in the pandemic you showed the resilience you've seen we've seen the return to solid cash flow.
I know historically, that's been a big part of your goal and investment thesis improving that conversion but.
You're also clearly talking about here accelerating investment and electrification so given what's going on in the industry in the capital markets. I think you could probably build the case that it's better for you to not sure as robust free cash flow as maybe you were sort of talking about.
A year or so ago.
I wanted to get your thoughts on that and it sounds like.
With these accelerated investments.
Maybe you could just help us a little bit about how we should think about the return on that you talked about improve speed to market, but does this actually mean, you can pull forward, bringing some of that product to market faster than initially thought.
Absolutely, we will definitely be bringing eastern market faster than what the plan was a year ago a week.
We've learned a lot in the last year and the odd that the speed at which we are developing the lyric into hammer I think are evidence of that and so we definitely will have vehicles in market more quickly with our new strategy.
Okay. Thank you.
And then.
The second one so the hummer he looks great.
I know you indicated to be profitable but.
It's also certainly an expensive vehicle.
And if we look at.
Teslas plan one of their one of their attendance was really was to use expensive vehicles, along with cost technology broaden the addressable market and again I mean to be fair right. The initial model S and X or $100000 vehicles from as well. So I guess the question for you is.
Between the Hummer and opened the electric in the catalog product.
Those are also expensive vehicle is the plan.
Similar like I know, you've got the bowl TV, but beyond that how do you think about leveraging the high end and the technology to move towards higher billing passenger cars or do you really want to stay within your sort of core segments of trucks and maybe some some lunch.
So the trajectory that we have for the LTM battery technology, we is going to allow us in this initial rollout of all tend to have vehicles and the high volume segments. So we definitely plan on you know when you think about our brands where Chevy.
Plays in the heart of the market and value, we will have entries across across our brands and across segments and into affordable high volume segments.
Okay, that's very clear thank you.
Your next question comes from the line of Adam Jonas with Morgan Stanley.
Thanks, just a couple quick questions. The first is on LTM LLC.
You're really rapidly developing the capabilities of this business at a time when there is seems to be a scarcity of of those skateboards in that kind of those that module that system with so many and trends whether their legacy engines are all new entrance that want to get get in and so obviously I think that the core business.
Core business of all the M. as it is to help GM time to market and flexibility.
But also presents an interesting third party opportunity now in addition to.
Beyond which youve, which you've disclosed as a potential customer. If you will can you can you tell us the state of any other discussions of third party supply from LTM to other manufacturers are there discussions going on even if you can't be specific are such discussions going on at this point.
So Adam one is the Honda isn't a possibility it's already a done deal about how there will be a leveraging our LTM platform for two vehicles, so and there's just more opportunity as we work with them I don't have anything specific to share right now on others, but I would just tell you. There are other conversations underway. Okay. I appreciate that Mary and just as a follow up on.
On cash return now if we think life pre Cove Ed.
This strategy you know and you laid it out very clearly in the past invest in the business fortress balance sheet profitable growth and then what's left for return to shareholders.
Free cash did you know you guys returned on order of $20 billion through share buybacks right that was money you took out of the business and adding and your investors wanting you to do and you did what they wanted and in you gave it back instead of investing in the business and am I right in thinking that post covered the world really has changed and while you still reserve the right.
Right to define what excess cash is that given the the growth opportunity ahead and managing this would perhaps even greater emphasis on fortress balance sheet post co head.
And am I thinking that while you may still give us those that that sequence or that waterfall and what's left that this is not a cash return story and any more as as much as it used to be and as much more growth story is that just conceptually the REIT emphasis here.
Yes, Adam I think you know, we're going to still follow our capital allocation strategy, which means reinvest in the business to generate appropriate returns a blended return of a return on invested capital of 20%, we're going to maintain an investment grade balance sheet and then the third pillar as you suggest was returning to shareholders I think.
What you hear as saying is we do believe that there are a number of very important programs and services that we can deploy that are going to lead to growth of general Motors I can't talk about the rest of world, but we see a huge growth opportunity for general Motors, that's why we're accelerating navies, putting the focus on service.
It is with the addition of Adam Wexler, joining the organization and so we see a growth opportunity that put focus on that first pillar, we'll still maintain it because we know we want to do the right thing for our for all of our investors, but we will be heavily focused on the growth opportunity I as and and that's facilitated by the first pillar.
Sorry.
Thanks, and I appreciate it.
[laughter].
Our next question comes from the line of Ryan Brinkman with JP Morgan.
Hi, congrats on the quarter. Thanks for taking my questions, maybe starting with a follow up on the GE M&A profitability questions earlier are you able to sort of parse out how much of the 1.0 billion of your view or contribution from lower cost in Threeq you as shown on slide 17 as related to more temporal factors such as austerity related cost savings that might reverse versus.
How much stems from a savings that are more structural in nature and and how should we think about the cost line, specifically tracking and GE M&A going forward as austerity savings normalize, but structural savings continue and I think you might also combine in this driver the higher cost of the content on new launches such as the Ltvs.
What youve suggested before might need to be netted against pricing. So any sort of dis aggregation that you might be able to provide with regard to all of the different factors in threeq that went into the the cost driver for GE M&A would be very helpful.
So on.
The way I would look at it Brian is clearly there were austerity measures that are more related to the pandemic and as the business resumed.
Manufacturing et cetera, there will be cost that we incur there will be savings as well as we demonstrated through the transformation, but what you'll also hear is saying is we are going to accelerating so some of that savings will will go against that.
Significantly improving the rollout of BBSI is going to take both engineering and capital So and I think as you look forward and try to map into 20, why do you have to factor in yes, we've made permanent savings in the way, we do business, but we're now accelerating other parts of the business and some of that savings will fund.
That sucks, the austerity will stack and we'll we'll provide more clarity around that when we get to talking about 21 and February timeframe, when we roll out fourth quarter earnings.
Okay. Thanks, and then lastly, I think I heard John say that you expect a mid to high 50 million range of U.S. light vehicle Saar in the back half of the year looking at July through October I think it's running about 15.6 million. So far in the last couple of months at 16.4 million. So just curious if you are seeing or anticipating any kind of a slow.
Down here in November and December or perhaps are just being cautious I think your guidance, which is based on wholesales is de risked a relative to the near term trend in sales just given your ability to replenish inventories going forward, but still I'd be curious to know how you're feeling about the market. If you think it's likely to continue to hold strong like in September and October.
The sixteens or or if you're concerned about I don't know any sort of risks around uncertainty due to the election or higher koby cases or something else.
No I mean, we didnt really bake.
Cobot uncertainty if you will into our Saar projection.
What we are seeing though on the retail side in particular, you know very very strong if you look at the retail Saar for each to its virtually in line with last year last year in total we had 17 and a half million units. So the the actual reduction if you will in the second half year relates more toward fleet daily rental car.
Companys fleet customers have dial back a bit, but we see you know barring a.
No major events in coated we do see continued strong retail Saar in the second half and into Q4.
That's great. Thanks, Congrats again.
Your next question comes from the line of Brian Johnson with Barclays.
Good morning, Barry.
Hello.
Talk about the strategy. So appreciate.
Oh the appetite for.
But I do when people think about the lead.
Okay.
Not just seem to be the digital cockpit.
Okay.
Okay capability.
Frequent contact.
Repriced as well, that's a little bit by software updates.
Can you give us.
So you mentioned that Xplore.
Digital transformation outside the proposed.
Yeah, we could expect to see either in the collective vehicles themselves.
Frankly, a broader lineup to keep them relevant for buyers.
Yeah, Hey, Brian Your line is got a lot of static on it. So I think I got a question and you're talking about the digital transformation, we do use to analyze it as a digital platform, we have and over the last.
Five years or so we have in stores virtually all of the software inside that gives us the opportunity to have a much better control much better integration and speed to put new offering. So we see a definite opportunity with over the air Natur Eightys, but for all of our vehicles ice vehicles as well.
Ah leverage service opportunity and build on what we have with onstar with the number of vehicles that we have connected already so we I'd say to that as a huge growth opportunity as well and both M&A.
Okay and in terms of.
Hi, Steve.
Non.
Right.
Sort of see this as.
Okay.
Okay.
Sure.
Well I mean, I think if you look at that the Cadillac escalate right now you see a you know that there's already nine vehicles that have our vehicle intelligent platform and it and that's growing and that provides us the foundation just to build on that so I think it will continue to grow the number of vehicles that we have with that.
Capability and then the services, we like I said, we have a team that's working on that right now as well. So you know if we have 30 vehicles by 2023 that have the VIP at with more following as quickly as we can that that's going to give us the opportunity to seize up the service piece of it and leverage the digital platform.
Our next question comes from the line of Dan Levy with Credit Suisse.
Hi, good morning, Thank you for taking questions.
To start first on the a commentary on the dealer stock so you're not going to get 600000, which is well understood.
But my question is that you can use to continue rebuilding your inventories of 2021.
Now seen a couple of months of sard more than $16 million basically normalized and then the 2018 19 share you are running at roughly 800000 units of gross stock on a monthly basis is up 800000, a reasonable target that we should expect you to rebuild Florida, where are you going to try to place maybe a little more conservative.
I think that will I think that was a.
Very high number we were coming off of launches and we wanted to build a little bit of inventory as we walked into the second half of last year.
I think what we're seeing now with this focus ordering approach with our dealers and dealers are learning to operate at much lower inventory levels.
They're taking cost out that allows us to take costs out I don't see the 802.
Two.
To transfer into the future we do see.
A lower number.
Okay. So we should consider just going forward, you're going to be a little here when it came to be a little more lean on the on the dealer stock levels.
Thank you and then and then a follow up.
You know there and maybe you can help us understand on the Honda Ammo you I know you said TBD on timing, but could you maybe just contextualize whats your current spending on combustion platforms, how significant the portion of the budget is and how much of that can be shared with on the just wanted to get a sense for the magnitude of price.
Product or content you have that.
Maybe less value add a little more commoditized, which people are giving as much credit for that that can be shared with Honda and that could allow you that allows you to reinvest that amount in TV.
Yeah, I will first of all I think it's also important to note. We kind of were also already sharing ERP platform. So it's hard to quantify that I will tell you that you know we are much of our capital and engineering is now over indexing in Tvs.
And and as I mentioned, we're already have sharing going on with Honda on that but I, but I think your point of for being flexible with how quickly the easy transformation will happen and having the right products from an ice perspective, as well as an easy perspective Joe.
Joining with Honda on those key platforms that may continue for a while allows us to do that much more efficiently I mean, it cuts it in half virtually for the core and then we each do our top hat. So we go to market with a very different offering. So there is tremendous tremendous savings there it's hard for me to quantify that.
Because it changes year to year based on what programs, where we're engineering launching but I will tell so I would just say there's significant cost savings available. It will be as we commonize platforms. We have already started to do that from an easy perspective, so there's potential further opportunity there and it just makes us more efficient.
And is it possible to bring other automakers into the fold on the.
Combustion.
Sharon side.
I would say anything's possible I'm you know we have to look for what makes the most sense and how healthy new program schedules a line, but we're opening to look for ways to drive efficiency across the industry, we're very open to that.
Okay, great. Thank you very helpful. Appreciate it thank.
Thank you.
Our last question comes from a line of Mark Delaney with Goldman Sachs.
Yes. Good morning, Thanks for fitting me in for the opportunity to ask a question I was hoping to ask more on on crews and the news about getting the approval to do it.
Testing well with no drivers and San Francisco, maybe you can help us better understand what are the key factors that are needed from here in order to get to commercial deployments is it just a matter of.
Time, and seeing how these deities driverless vehicles are performing and that gives you enough confidence.
As you get more data.
Just to be able to deploy or do you think theres further technical or regulatory hurdles I will need to be cleared in order to get to commercial deployment.
Well if you look at commercialization, we were going to continue our development and testing a work that we're already engaged in and then the discussions with regulators to ensure that both from a technology and a regulatory perspective, we're in a position to operate commercially when you think about what we've announced with a what was that.
We're going to do yet this year in San Francisco with the you know the testing without a a safety driver in the vehicle I think that if that's just another level of of milestones that we need to achieve and then it will be the first doing it in a complex urban environment and why that's so.
Barton is if you think about even today's ride sharing.
The the opportunity for profitability is in dense urban environments, and so being able to deploy the technology. There instead of in a suburban environment I think gives us a fast faster password pathway to commercialization and profitability the.
The <unk> and the vehicle capability will only continue and that means then the these are the area. The geo fenced area that the vehicle Canape vehicles can operate in grows as well so both will go together.
Okay. That's helpful and then a question on cash flow.
You know the kind of within that scenario. The company was discussing of relatively flattish CSRA.
The Saar on a sequential basis going forward, what would that imply for working capital as either a headwind or tailwind for Fourq, you and perhaps into 2021 as well. Thank you.
Yes for Q2, we earned 9 billion. So we've got a huge unwind Q3. It was almost dollar for dollar rewind, we generated 9.1 billion of free cash flow as we look for Q4 and beyond we're really more toward the normalized levels now not as big or hardly any impact on our managed working cap.
Well, it's already happened in Q3.
Thank you.
Thank you I'd now like to turn the call over to Mary Barra for her closing comments.
Well, thanks, everyone I really appreciate everybody's interest, especially in our easy transformation, but to sum up the quarter. It was a very strong quarter very proud of the team for the great results that were delivered and I think it demonstrates that were fully maximizing our strong new vehicle portfolio, both and crossovers full size trucks.
Emphasize that she would be obviously being helped by a recovering market.
We also greatly accelerated or even or Avi progress we've talked a lot about that this morning, and we have more to announce very soon and it does I think start to outline a very significant growth opportunity for general motors.
Overall the team has worked very hard to build an agile and resilient business I think we've demonstrated that over the second and the third quarter, we are committed to.
Not only continuing to run a strong business with all of our franchise, but also focus on growth opportunities that will create long term value for our shareholders. So I want to thank everybody again for participating and please stay safe stay healthy where your math.
Ladies and gentlemen that does conclude the conference call for today, we thank you for joining.
[music].
Hmm.
[music].