Operator: Good morning, and welcome to the General Motors Company Q3 2026 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. We are asking analysts to limit their questions to one and a brief follow-up. To ask a question, press star, then one on your telephone keypad to join the queue. To withdraw your question, press star, then two. As a reminder, this conference call is being recorded Tuesday, 20 October 2026. I would now like to turn the conference over to Ashish Kohli, GM's Vice President of Investor Relations.
Ashish Kohli: Thanks, Amanda, and good morning, everyone. We appreciate you joining us as we review GM's financial results for the Q3 of 2026. Our conference call materials were issued this morning and are available on GM's investor relations website. We are also broadcasting this call via webcast. Joining us today are Mary Barra, GM's Chair and CEO, along with Paul Jacobson, GM's Executive Vice President and CFO. Susan Sheffield, President and CEO of GM Financial, will also be joining us for the Q&A portion. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC.
Ashish Kohli: Please review the safe harbor statement on the first page of our presentation, as the content of our call will be governed by this language. With that, I'm delighted to turn the call over to Mary.
Mary Barra: Thanks, Ashish, and good morning, everyone. I want to begin by recognizing our employees, dealers, and suppliers. It takes commitment, focus, and resilience to deliver solid results quarter after quarter and year after year in this industry. The agility, teamwork, and commitment have been exceptional, and I'm very appreciative. This year, through the Q3, we have delivered $12.3 billion in EBIT adjusted, $12.2 billion in adjusted automotive free cash flow, and $10.97 in EPS diluted adjusted, which is up more than 35% year-over-year. During the Q3, our margins in North America were 8.7%, up 2.5 percentage points year-over-year. The compelling products, technology, and services we're delivering for customers around the world makes us confident in the consistent long-term growth of our earnings and cash generation, as well as our ability to return capital to shareholders.
Mary Barra: Our track record of improved cash flow generation began five years ago, and we have responded by increasing our investment in the business and continually strengthen our balance sheet. In 2023, we began using surplus cash to repurchase shares, given our low valuation. Since that time, we have reduced our fully diluted shares by 37%. The new $20 billion multi-year authorization we announced today further demonstrates our board's commitment. As this quarter's results and our revised guidance show, our business is performing well, even with a major launch underway and the inflationary pressures we're experiencing in areas like logistics, commodities, and memory. That's because we've spent years making the business more resilient by strengthening our vehicle portfolio, developing new high-margin revenue streams, and operating with strong discipline around production, pricing, and incentives. Looking ahead, there are clear external headwinds, and in some cases, they are intensifying.
Mary Barra: While the path forward is more challenging, we continue to believe that 2027 will be another strong year and better than 2026, assuming customer demand remains strong and commodity, logistics, and other recent cost pressures moderate. On the plus side, we expect incremental benefits from warranty expense improvements, lower EV losses, growth in software and services revenue, and the launches of our next-generation Chevrolet Silverado and GMC Sierra light-duty pickups. The performance of today's Silverado and Sierra has been consistently strong because of their design, capability, technology, and innovative features. We have now achieved 19 consecutive quarters of sales leadership in the US and grown our market share by 10 full points since the current generation went on sale in 2018. Now, in their final year of production, we're seeing robust sales, share, and financial results. This speaks directly to the value we offer customers.
Mary Barra: Our new trucks build on this foundation. Their interior and exterior designs are high water marks for refinement and precision. Our trim series strategy allows us to meet customers at different price points while creating a clearer path to the higher value configurations. For example, High Country, Chevrolet's premium sub-brand, has become more premium, modern, and athletic with materials, features, and technology closer to a luxury SUV experience. Sierra Denali remains the core premium capable truck, and the Denali Ultimate is moving further into halo territory. We've also made powertrain choice a critical part of the value ladder and a mix lever. We will offer the TurboMax four-cylinder with best-in-class standard torque, our segment-exclusive Duramax inline six turbo diesel, and all new 5.7 liter and 6.6 liter V8s.
Mary Barra: Each engine is tuned to distinct performance and lifestyle needs, and we will focus on the things truck customers desire most: usable torque, smooth and predictable power delivery, fuel economy under real-world use, trailering confidence, durability under load, and refinement. To ensure quality and durability, we have put our new V8s through more than 100,000 hours of dynamometer testing, and we have completed more than 1.6 million miles of real-world on-road validation before the truck reaches customers. Production has begun at Silao, and customers should see the first trucks arrive in dealerships later in the year. Fort Wayne will follow in Q1, and we will launch the trucks at Orion in Q2. We expect to build roughly the same number of trucks in '27 as in '26, and then in '28, we will have incremental capacity to support segment and market share growth.
Mary Barra: Trucks will also be a big driver of incremental Super Cruise adoption and digital revenue as we make the technology standard on high-end Silverado and Sierra LD trims and offer on most others. We expect full-size truck Super Cruise penetration to grow 4x to 5x next year, reflecting strong customer demand and our ability to scale the technology across critical customer segments. The base is already strong and growing rapidly. Year-over-year, deferred revenue from software and services is up 40%. For the full year, we are on pace to approach $7.5 billion in deferred revenue, driven by 1 million new OnStar subscriptions and a 1 million-strong Super Cruise-equipped car park. The quality of the Super Cruise driving experience and frequent customer engagement with the technology underscores why it is so successful with customers. Our Super Cruise-equipped vehicles travel well over a cumulative 1 million miles hands-free each day.
Mary Barra: Nearly 70% of our customers use it at least once a month, and I am confident we can grow our Super Cruise installed base by close to 50% next year. I will close by recognizing the tremendous progress GM Defense has made since our last call, including several new multi-year contract awards that will help us drive annual top-line growth of more than 30% with double-digit margins. During the quarter, the Pentagon announced increased production volumes for the ISV, including a contract for the ISV utility variant. These are part of a more than $1 billion potential ISV award based on the US Army’s procurement objectives, subject to congressional appropriation. The Army has contracted with us to deliver Silverado HD-derived tactical vehicle prototypes for its ISV heavy competition. We have signed contracts with 4 customers since June for our factory-armored Suburban Shield VIP transport.
Mary Barra: Our Epic Mobile Energy system is now certified and ready for sale to customers, and we delivered our first component set to Lockheed Martin for the Patriot PAC-3 less than a month after we signed a formal contract. As Lockheed said at the time, our ability to deliver components that can traditionally take months to years to produce underscores the effectiveness of defense and commercial partnerships and our own capabilities. These are all very positive developments for our country, our partners, taxpayers, and our business. Thank you, and I will now turn the call over to Paul.
Paul Jacobson: Thank you, Mary, and good morning, everyone. Thank you for joining us. I want to begin by recognizing the entire GM team. Their hard work and consistent execution are showing up in both our operating performance and consistently in our financial results. Revenue for the quarter was a record $50 billion, up 3% year-over-year. EBIT adjusted was $4.1 billion, up 22% year-over-year, and EPS diluted adjusted was up more than 30% year-over-year to $3.70. The industry backdrop remains healthy, with a total industry SAAR in the upper 16 million-unit range in the third quarter, with resilient demand across trucks, SUVs, and fleet. Our US sales totaled more than 670,000 vehicles in the quarter. ICE sales of 645,000 were up slightly year-over-year, despite the impact of discontinued models.
Paul Jacobson: Our light-duty full-size pickups continue to perform exceptionally well in the final year of their product cycle, with sales up 9% year-over-year. This leaves us on track to lead the industry in full-size pickup sales in 2026 for the seventh consecutive year. With deliveries of our all-new light-duty trucks expected to begin in the late Q4, we plan to carry this momentum into 2027. In terms of the changeover, we have already completed four down weeks at Silao Assembly ahead of starting production of the new truck last week. To ensure a high-quality launch, production will start at measured pace and ramp up over the coming months and quarters to more normalized levels. At Fort Wayne, we are planning four down weeks beginning in mid-December, with production scheduled to restart in January.
Paul Jacobson: In preparation for the downtime, the sell down of the existing truck is on track with inventories at planned levels and incentives as a percentage of MSRP that are several hundred basis points lower than prior truck changeovers. This is part of the broader discipline with which General Motors has been operating over the past five years. With that in mind, we expect to finish the year with overall inventory in our 50-to-60-day target range. On the cash side, continued strong cash generation supports both our growth-focused investments and ongoing share repurchases, which combine nicely to drive continued EPS growth. In the Q3, we repurchased $2.5 billion worth of shares. That reduced our diluted share count by approximately 27 million shares to around 866 million, or 9% below the Q3 2025 level. So far in October, we have already repurchased another $1 billion.
Paul Jacobson: That brings our year-to-date buybacks to $6.3 billion and completes the prior board authorization. This morning, we announced a new $20 billion multiyear share repurchase authorization, representing more than 25% of our current market capitalization. The size and duration of this authorization are a meaningful statement of the board's confidence that our cash generation is sufficient to continue investing in the future of the company and returning capital to shareholders. Now let's turn to more details on our Q3 performance. Total company revenue of $50 billion was up $1.4 billion year-over-year. ICE volumes were up 8% year-over-year, while EV volumes declined as we lapped the expiration of the consumer purchase incentive in the Q3 2025 and aligned EV production with demand. EBIT adjusted was $4.1 billion, up $700 million year-over-year.
Paul Jacobson: The improvement was driven by core business performance, including a higher mix of full-size pickups and lower warranty expense, partially offset by higher commodity and onshoring costs. Adjusted automotive free cash flow was $5.9 billion, up $1.7 billion year-over-year. The improvement was driven by higher earnings and tariff timing. Regarding EV charges, as I mentioned last quarter, we moved quickly with our suppliers and partners and have substantially completed the material cash charges we expect to incur as we align our EV capacity and manufacturing footprint with changes in regulatory policy. We incurred an additional $0.2 billion of cash charges in the Q3, bringing total cash charges incurred since the end of the H1 2025 to $7.4 billion. To date, $4.6 billion of this has been paid, of which $4.2 billion was paid in 2026 to date.
Paul Jacobson: We expect to pay another roughly $1 billion in the Q4 and the remainder in calendar year 2027. As a result, free cash flow available to be returned to shareholders next year should benefit from a significant year-over-year step down in supplier EV settlement payments. Now let's move to our regional results for the Q3. North America continued its strong performance, delivering EBIT adjusted of $3.6 billion, up $1.1 billion or 43% year-over-year. Margin was 8.7%, an improvement of 2.5 points from a year ago when tariffs were first put into place. Having worked through much of that pressure, we are solidly back within our 8% to 10% margin target, a clear marker of the progress the team has made.
Paul Jacobson: The improvement was broad based but included a higher mix of full-size pickups, lower EV losses from rightsizing our capacity, and continued warranty expense reductions. These gains were partially offset by commodity inflation, including logistics and higher DRAM costs, along with higher manufacturing costs related to onshoring production to the US. OnStar Digital and Super Cruise delivered recognized revenue of over $800 million in the Q3, up 15% year-over-year. We are on track for more than $3 billion in realized revenue for calendar year 2026 and expect to approach $7.5 billion in deferred revenue by year-end. Looking forward to 2027, we anticipate another year of double-digit growth in realized revenue.
Paul Jacobson: GM International EBIT adjusted excluding China equity income was breakeven in the Q3, down $200 million year-over-year, driven by a negative $100 million mark-to-market adjustment for an investment in Momenta, along with higher manufacturing and logistics costs, partially offset by higher volume in South America and foreign exchange. China equity income was $32 million, recording its eighth consecutive quarter of profitability, a trend we expect to continue in the Q4. New energy vehicles accounted for more than 60% of GM China's Q3 sales, and the team remains focused on execution, cost efficiencies, and mix optimization to deliver ongoing profitability. GM Financial delivered EBT adjusted of $700 million and paid $250 million in dividends to GM in the quarter. Consumer credit performance remained resilient and consistent with our expectations.
Paul Jacobson: The business remains on track with its full-year EBT adjusted guidance range of $2.5 to $3 billion and to pay full-year dividends to GM at a level similar to last year, reinforcing its strategic value within the enterprise. Let's turn now to our calendar year 2026 guidance. Following another strong quarter, we're updating our full-year outlook as follows. We now expect EBIT adjusted of $14.5 to $15.5 billion, compared with our previous range of $14 to $16 billion. EPS diluted adjusted narrowed to a range of $12.75 to $13.75 from $12 to $14, reflecting the benefit of our share buybacks to date. Capital expenditures at the lower half of the $10 to $12 billion range, and adjusted automotive free cash flow in the $11.5 to $12.5 billion range, up from $9.5 to $11.5 billion. This improvement is being driven by operational excellence, lower than projected capital expenditures, and tariff timing.
Paul Jacobson: Now let me update you on a few key assumptions underlying our updated guidance. Let's start with the industry backdrop. The US market remains resilient. We expect total SAAR to be in the mid 16-million unit range for the full year, which implies approximately 16 million for the rest of the year, consistent with what we are seeing in October. In North America, we expect Q4 ICE volumes to be lower than usual, primarily due to the launch of our new full-size trucks. We anticipate a year-over-year volume headwind of approximately 35,000 full-size pickups. Headwinds from lower truck volumes in the Q4 are expected to be largely offset by tailwinds from price in North America, including benefits from the new truck launch. Year to date, North American pricing is up $400 million.
Paul Jacobson: We continue to expect a full-year pricing tailwind of 0.5% in North America, with the remainder of the benefit expected to be realized in the Q4. Turning to EVs, we remain on track to reduce losses by $1 to $1.5 billion for the full year, driven by right-sizing our EV capacity and significantly lower volumes. We expect modest additional loss reduction in the Q4 as we lap the expiration of the consumer purchase incentive last year. On warranty, following our $600 million Q3 performance, our year-to-date improvement is approximately $1.1 billion on a year-over-year basis. For the full year, we now expect warranty to be closer to the high end of our $1 to $1.5 billion in full-year improvement. Emissions-related regulatory savings are around $500 million year to date, and we expect a minimal benefit in the Q4 as we lap savings from last year.
Paul Jacobson: With respect to tariffs, we have incurred approximately $1.8 billion of tariff costs year to date, net of IEEPA reversal benefits, and we now expect gross tariff costs to come in at the low end of our $2.5 to $3.5 billion range for the full year. Finally, on the tax line, we continue to expect a 20% to 21% effective tax rate for the full year. This includes a higher tax rate in the Q4, which is expected to be in the 25% to 27% range, driven by a mix of one-time discrete items affecting timing. Now let's turn to the headwinds. As the conflict in the Middle East has continued, commodity and logistics costs have intensified since our Q2 earnings update. Copper prices are at record levels, while HRC steel prices are at four-year highs.
Paul Jacobson: Spot prices for HRC steel and copper are each up 10% to 15% since July, and approximately 50% versus last year's average. Collectively, inflation is adding approximately $400 million in incremental costs for the calendar year, with the majority of that impacting the Q4. As a result, we now expect a headwind from commodity inflation, logistics, and DRAM costs to be around $2 billion for the full year. In the Q3, we incurred approximately $700 million primarily related to commodity costs year over year, bringing the calendar year-to-date headwind to approximately $1.3 billion. Separately, we are investing approximately $1 to $1.5 billion this year to onshore production to the US, strengthen our supply chain, and expand our software capabilities. We expect these costs to continue to ramp in the Q4 ahead of additional US capacity additions in 2027.
Paul Jacobson: Finally, turning to our international operations, we expect continued ongoing softness in GM International, reflecting headwinds from the dynamic environment in the Middle East. Let's turn next to 2027. Assuming market conditions in the tariff environment remain broadly similar to 2026 and recent commodity pressures moderate, we continue to believe we can grow revenue, margins, and EBIT adjusted next year.
Paul Jacobson: It is too early to try to predict where commodity prices will land in 2027. However, if we were to simply annualize the recent incremental commodity inflation since July, it would translate into an additional $1 billion to $1.5 billion of EBIT adjusted headwind for 2027, which would result in a total headwind for 2027 of roughly $2 billion. Our growth plan is supported by our product cycle and the ongoing operational discipline that investors have come to expect from General Motors. The opportunity is centered on four key GM-specific drivers.
Paul Jacobson: First, launching our new truck flawlessly and capturing a rich mix in its first year. Second, unlocking additional capacity in full-size SUVs and high-volume crossovers. Third, growing our adjacencies in OnStar, Super Cruise, and Defense. Fourth, managing costs across warranty, EVs, fixed costs, and onshoring. The bottom line is that we have demonstrated time and again our ability to roll up our sleeves and execute. We have set a high bar for ourselves, and the team is working to deliver another year of growth for our shareholders. We have a great product portfolio that is only going to get better in 2027 and beyond. Thank you. Now we will move to the Q&A portion of the call.
Operator: Thank you. As a reminder to analysts, we are asking that you limit your questions to one and a brief follow-up so that we may get to everyone on the call. To ask a question, press star then one on your telephone keypad to join the queue. To withdraw your question, press star then two. Our first question comes from Mark Delaney with Goldman Sachs. Your line is open.
Mark Delaney: Yes. Good morning, and thank you very much for taking the question. I understand the change in the cost environment that GM is seeing heading into 2027. I am hoping you can talk a little bit more on some of the tools GM may have at its disposal in order to try and manage that, and to what extent GM could potentially utilize net pricing, to help offset with the higher cost environment, especially given your expectation for a measured ramp of the full-size pickup trucks.
Mary Barra: Well, when you look at the increases, as Paul mentioned, we saw it happen in just the last couple of months, so we really haven't had time as a team to go work to find the offsets. We do have significant tailwinds next year when we look at continued warranty improvement we're seeing this year, we believe will continue into next year. As we've said, although volume will remain roughly flat from a new truck perspective, we do think there is some price and mix opportunity there. We also see growth opportunities in OnStar and Super Cruise. We see continued improvements in EV profitability. Then we are going to continue to work at fixed costs. There's a lot of opportunity, we believe, especially as we continue to implement and leverage AI to improve the business and make it more efficient.
Mary Barra: Like this team always does, because this has happened so recently, we're going to go to work, and we'll have more to say when we give full year 2027 guidance at the end of the Q4. But we obviously have work to do, and we plan to do it.
Mark Delaney: That makes sense. My follow-up is just a clarification on what General Motors is currently assuming. You said the assumption that 2027 is a better year than 2026 does assume that cost pressures tied to commodities, logistics, and memory moderate. When you talk about moderation, do you mean that the spot prices just need to level off from current levels, or would you actually need to see spot prices decline? Thank you.
Paul Jacobson: Yeah. Hey, Mark. It's a little bit too early to call commodity prices in 2027. So what we're really trying to do here, as we said in July, where we highlighted the tailwinds and we said, assuming the environment remains consistent, we have seen a significant amount of inflation as I called out in the prepared remarks, really just in the last probably eight to 10 weeks. Should we see prices at this level, it makes that more challenging heading into next year. So we're really looking for a little bit of moderation from the most recent increase that we've seen. But as Mary said, we're continuing to work through our budget process. So we won't give any definitive guidance on the year and where it's going to come out. But obviously, it's gotten a little bit more challenging with this additional inflation that we've seen since that disclosure.
Paul Jacobson: I don't think anything has changed. The tailwinds are the tailwinds. We have a lot of mixed benefits coming in with the first year of the truck. We will continue to watch it and hopefully become what we are known for. The goal remains to grow next year as it does every year.
Mark Delaney: Understood. Thank you.
Operator: Thank you. Our next question comes from Itay Michaeli with TD Cowen. Your line is open.
Itay Michaeli: Great. Thanks. Good morning, everybody. Maybe first question just on the higher free cash flow guidance for the year. Paul, maybe talk a little bit more about the drivers there. I think you mentioned maybe lower end of the CapEx outlook as well, and how much of the strength that you are seeing this year may be sustainable into next year?
Paul Jacobson: Yeah. Good morning, Itay. Thanks for the question. A couple of things. One, we are coming in probably at the lower end of our capital. We are certainly seeing a little bit of a reduction in capital spend as everything comes online, in that $10 billion to $12 billion range. So that unlocks some free cash flow. Also, if you recall, earlier this year when we talked about the IEEPA refunds, we brought the EBIT guidance up, but we did not bring the cash flow guide up because we were uncertain. We have seen some success in getting IEEPA refunds, both in terms of our own as well as the second order from our supply base. That has contributed to some of that benefit.
Paul Jacobson: As we look forward into 2027, should we have a year, where we can grow earnings, we would expect that free cash flow would be pretty consistent, if not a little bit higher. But remember, our GAAP cash flows, so our actual sort of cash available for investment should be significantly higher as we lap the bulk of the cash restructuring work that we did on the EV side. So we are looking for a bullish year on cash generation overall, in 2027, irrespective of what we have seen with commodity inflation recently.
Itay Michaeli: That is really helpful. Thank you. As a quick follow-up, as we lap the EV restructuring and as you have a number of updates coming in 2028, curious if you could kind of share how we should think about kind of GM's break even EV volume, let us say in the 2029 timeframe, kind of latest thoughts on the path to EV profitability would be helpful. Thank you.
Paul Jacobson: Yeah, I think it is a little bit too soon to tell. As we have said, we have had a good year of EV profitability improvement, primarily from lower volumes as we have adjusted and also the fixed costs coming out of the system as we restructure. So that is a big benefit in 2026. We have said that 2027 will be a year of probably lower benefit but still maybe improvement, versus 2026. And then 2028 and 2029 as we get into LMR, and the next generation battery cells and packs, we should see another step function improvement in profitability. We are going to continue to watch volumes. We think with these oil prices and these fuel prices, that EV penetration may continue to go up, and we want to make sure we are ready for that.
Paul Jacobson: We are the number two producer of EVs in the US, and we have got a strong portfolio and one in which we are committed to improving the profitability of it.
Itay Michaeli: That is very helpful. Thank you.
Paul Jacobson: Thanks, Itay.
Operator: Thank you. Our next question comes from Dan Levy with Barclays. Your line is open.
Dan Levy: Hi. Good morning. Thanks for taking the question. One of the points in your commentary on 2027 is it talks about customer demand remaining strong, and I know this has been a constant debate in the industry. I think people are just amazed by how resilient the auto industry has been. But we are getting the latest round of questions of health to the quality of consumer with rising rates. Can you just talk about, given the latest backdrop, what your view is on the ability of the market to absorb this continued very high trim product and potentially incremental volume on your trucks as you expand capacity? Maybe just help disaggregate what we are seeing from the consumer as a whole versus the average consumer of your products.
Paul Jacobson: Yeah. Hey, Dan, I will give it a shot, and Mary can help if I miss anything here. I think as we have said now for a number of years, when you look at a lot of the consumer sentiment surveys, they really have become disaggregated from consumer behavior on the ground. That is evident in our average transaction price. It is evident in our trim mix. It is even evident in what we see in GMF, where noticeable shifts in delinquencies, defaults, et cetera. So I think the consumer has held up remarkably well. That being said, we know from that sentiment, and historically, we should continue to watch it. So it is not necessarily pessimism. It is really more an abundance of caution, of making sure that we are setting expectations against that backdrop, that we are basing that forward projection on consumer stability.
Paul Jacobson: And we think that is going to continue to be the case because we have not seen anything that indicates any weakness right now.
Dan Levy: Okay, great. Thank you. Second question is about the dynamic in China, and obviously, we have seen this sharp rise in exports from China. Maybe you can just talk about the extent to which you are participating in this sharp rise of exports. Is there any benefit to you on the cost side? Then, I know you are talking about GMI ex China moderating. How much of that is sort of the pressure of competition from Chinese OEMs in some of these other regions? What is your ability to offset that?
Mary Barra: Well, I think when we look at some of the markets where China is working, specifically from a South America perspective, we are still holding share, and we are there. There are some of our product portfolio we are exporting from China. Once a market has allowed the Chinese competition to come in, we are well-positioned to participate with that with Chevrolet products that are true to the Chevrolet brand but have that price point. So we are holding our own in South America, actually remain strong based on the portfolio. And in South America, Chevrolet is considered a premium brand. So, I think that is an opportunity for us in some other markets as well. So again, from a China perspective, I would say in country, we are really not seeing that much benefit.
Mary Barra: From our China business, we are very proud of the fact that we got to the restructuring early in China, and our business is profitable even in the depressed economy that they are seeing from an overall industry perspective. So there may be a little bit of benefit because of the opportunity from an export perspective. But bottom line, we are seeing that market tougher because of the challenges, but we are participating in the export market and maintaining share through the strength of our product portfolio.
Dan Levy: Okay. Thank you.
Operator: Thank you. Our next question comes from Joe Spak with UBS. Your line is open.
Joseph Spak: Thanks, everyone. Good morning. Paul, I just want to go back to one of your answers, I think earlier, maybe to Itay's question. I think you said when you were talking about 2027, I know it's early, and there's still a lot to be determined, but I think you said that if there's a year where you grow earnings, you'd expect free cash flow to be consistent, if not higher. I guess I'm just a little bit curious. I know distributable free cash should be higher because of EV payments, but is there something else we're not considering in sort of the free cash flow factors? If earnings would grow, why wouldn't the free cash flow also be higher?
Paul Jacobson: Yeah. Hey, Joe. So yeah, sorry if my answer was confusing. There's a couple of reasons why. Number one, if we go into 2027 with the same CapEx guided range of $10 billion to $12 billion, but we come in at the high end versus the low end, obviously, that's going to be a case where EBIT growth and free cash flow would become a little bit disconnected based on timing. Second, we do have the added benefit this year of the IEEPA tariff refunds that have come in. That's not expected to repeat. So in a like for like basis on tariff flows, there's some upside that we got in 2026 that wouldn't repeat in 2027. Generally, you see some small working capital nuances from year to year.
Paul Jacobson: But other than that, it should be fairly linear as cash flow from earnings is. The connection between cash flow and earnings is pretty constant.
Joseph Spak: Thank you for that. Second question is just, Mary, I think in the past you've said you would study hybrids and plug-ins, and I think earlier this month, Mike Anderson said you'll listen to customers and they're part of the plan. I know you don't give sort of product announcements away on these calls for competitive reasons, but can you let us know if some of that investment and spending is already occurring? Does that require additional investment? I know you have a lot of these technologies internationally, so maybe you could just tell us how you're sort of thinking about leveraging that and bringing it to scale in the US.
Mary Barra: Sure. From a hybrid perspective, we will have hybrids in our portfolio in multiple segments, the key segments that we participate. If you look at right now, a lot of where the hybrid activity is, it is in compact car, mid-size car, and minivans, which are three segments we are not a part of right now. You have to look, and that is why I think our sales continue to be so strong. In many cases, we are building everything we can. The Equinox compact SUV is fully maxed out even without a hybrid. I think we are still taking advantage, as Paul said earlier, we are well-positioned from an EV perspective as this continues. We will have hybrids. They have already been added. It is not going to be additional CapEx and engineering, and we will talk more about them as we get closer to the launch.
Joseph Spak: Thank you.
Operator: Thank you. Our next question comes from James Picariello with BNP Paribas. Your line is open.
James Picariello: Hi, good morning, everybody. Just on the Q1 pickup volumes, the expectation is for the volumes to trend flat next year. Is the expected downtime impact slated for the first quarter at the similar 35,000 unit reduction to the fourth quarter? Can you share any dimensioning of what the targeted incremental full-size SUV capacity might look like for 2027? Thanks.
Mary Barra: Well, as we said, if you look at the full-size truck, we have three assembly plants. We also have three engine plants that we're launching. We're focused on a flawless launch. It's on track right now. As we've said, we'll have the first trucks rolling out of the first plant yet this year at the very end of the year. Then we do have some downtime. We haven't specified it to the exact number of units, but we do have some downtime coming as we get the other two plants going. That's why we're saying really the volume is going to be flat from 2026 truck volumes to 2027 because we're in the middle of that launch of these six plants. As we get into '28, that's where there's an opportunity for plus side.
Mary Barra: We won't have any of the changeover downtime, and we'll also have the benefit of the Orion plant. So '28 is an opportunity for growing market share in the truck, not only in the US but globally.
James Picariello: Got it. Then as a follow-up for GMI, excluding China, what's the embedded expectation for Q4 regarding the Middle East challenges? Should we anticipate another quarter of EBIT loss? I know it's early, but how should we be thinking about this business for next year with respect to the puts and takes? Thank you.
Paul Jacobson: Yeah, James. What I would say with respect to the Middle East, it's largely a wash at the enterprise level because we're selling a lot of vehicles there that, with the right notice and with the right preparation, we can actually redirect many of those vehicles into the US, which we have. The team's done a really good job of managing that, so we're not losing volume at the enterprise level. So as long as that persists in the Middle East with that tension, I would expect that you'll see a little bit more of a lean to North America than you will international, particularly the Middle East.
Paul Jacobson: I think we are continuing to work with the team to try to mitigate as much of the international competition and deliver value in the pockets where we can and where we are really competitive, and I think the team is doing a good job everywhere else in the world being able to do that. Keep in mind that our international results were also impacted this quarter by about a -$100 million mark-to-market adjustment on Momenta. So if you actually look at the underlying business, it performed marginally better than what the results indicated.
Mary Barra: James, just to be clear, we are building the trucks in the first plant right now. They will be in showrooms by the end of the year.
James Picariello: That is
Operator: Does that conclude your question?
James Picariello: Yes. Thanks.
Operator: Thank you. Our next question comes from Andrew Percoco with Morgan Stanley. Your line is open.
Andrew Percoco: Great. Thanks so much for taking the question. I do want to come back to the 2027 bridge, and obviously, mix and pricing are clearly working in your favor with the new truck. Is there a way to also think about corporate or fixed cost savings as we get into 2027? I think this is an area where you guys have obviously been very focused. I am just curious to the extent we could get more clarity in terms of what that could look like into next year. I think, Paul, you have talked about AI integration within the organization, and just curious if some of those investments could start bearing some fruit on the cost side.
Mary Barra: Andrew, absolutely. Like I said, with the increase that we saw just in the last 8 to 10 weeks, we are even doubling down. There is active work going on across the company to really not only make sure everybody is using AI efficiently to be able to make their job more efficient and make our design processes more efficient, our manufacturing more efficient, every single function is leveraging AI. It is how do we harness that savings from a fixed cost perspective. I am not going to quantify it right now. We can do that when we get to the end of Q4 and when we officially announce guidance for 2027. Trust that there will be significant work in the fixed cost arena as we move forward. It is happening today.
Andrew Percoco: Okay, that is super helpful color. Just on the buyback announcement, curious if there is anything you can provide in terms of how we should be thinking about the cadence there. Obviously, you guys have talked about the lack of supplier payments that you have to make next year. Is that a reasonable way to think about potentially the step-ups in buyback cadence in 2027 relative to 2026?
Paul Jacobson: Yeah. Hey, Andrew, it is Paul. First of all, you are going to make me lose a bet because I thought for sure you were going to ask about digital revenues. I will take the question. On the buyback side, we do not give any forward commentary on what we are going to do on buybacks for obvious reasons. As we have talked about, we expect the actual cash flow, the GAAP cash flow to be significantly bigger year-over-year. I think, hopefully, you look at and the market sees what we did this year, because I know there was a lot of skepticism on our ability to return capital back to shareholders given the EV restructuring, and we completed that authorization ahead of all expectations. The board has demonstrated a commitment to continuing to drive shareholder value this way.
Paul Jacobson: We continue to believe that with a double-digit free cash flow yield, we are compounding the EPS growth of the company. That is no shortage of commitment of what you have seen for the last several years and expect that to continue going forward as long as the valuation remains depressed.
Andrew Percoco: Okay, that makes a ton of sense, and I will take that digital services question offline. Appreciate it.
Paul Jacobson: Okay.
Operator: Thank you. Our next question comes from Emmanuel Rosner with Wolfe Research. Your line is open.
Emmanuel Rosner: Great. Thank you so much. I appreciate all the color on the commodities and some of the assumptions. I think you said around current prices, if things stay at current level, it would probably be a $2 billion additional headwind to 2027. In order for your expectation to grow EBIT in 2027 to be realized, are you assuming this $2 billion, or should it be less than that? I understand it's early to identify the offsets that are in your control to offset some of these increased commodities. But in the past you've built a very strong track record around, call it a downturn playbook, right? The discretionary spending cuts, things that are in your control, restructuring, et cetera.
Emmanuel Rosner: Can you maybe just remind us historically, what are those things that you could have as levers, and to what extent this could be applicable in the current environment?
Paul Jacobson: Yeah. So, Emmanuel, thanks for the question. On the commodities, as we clearly stated, we would need prices to come off of these levels a little bit to have the confidence to be able to grow at this point. We're in the middle of the budgeting process, and we'll continue to work through that. Nothing specific on the headwinds or tailwinds because we don't want to get ahead of expectations and where the market is as we continue to develop that. As we've talked publicly, we approve our budget with the board in December, and we give guidance in January, and that's going to continue to be the case for 2027. If you look at past years, I think we've proven adept at getting costs out. These things take time.
Paul Jacobson: Some of them can pivot quickly, but other larger initiatives like, for example, several years ago, we did a $2 billion fixed cost reduction program that was very successful over that time period too. We are continuing to go to work. We are looking at those plans, and as we have said repeatedly, we are committed to grow earnings every year, and that is what we are going to be working towards the best we can.
Emmanuel Rosner: Okay, that is helpful. Then one quick follow-up on the improvement in this year's free cash flow guidance. I appreciate the buckets that make this up. Any way to quantify for us the piece around the IEEPA refund that is now assumed in the full-year free cash flow?
Paul Jacobson: We announced there is a $500 million credit that we took to earnings. We have gotten probably about 60% of that back to date. Then I would say roughly a similar amount from the supply base that we expect to get before the end of the year as well. Call it $600 to $800 million this year. That will continue to come in as we go through the remainder of this year.
Emmanuel Rosner: Got it. Thank you.
Operator: Thank you. Our next question comes from Michael Ward with Citigroup. Your line is open.
Michael Ward: Thanks very much. Good morning, everyone. Just to follow up on the $20 billion share repurchase. It looks like that is what you have spent the last three years, $20 billion in share repurchase. Is that number more of a timing or just an opportunistic to give you the flexibility to be more optimistic? I mean, at current trading levels and those sorts of things.
Mary Barra: Mike, we are going to follow our capital allocation framework of reinvesting in the business to generate a 20% return on invested capital, maintaining an investment-grade balance sheet. As we have done now for several years, return the rest to our owners, our shareholders. I think what we are really trying to signal is we believe the company is undervalued, so we think this is the best way to provide value for our shareholders because of it. As Paul already indicated, we are not going to put a specific timeline on it. We will be opportunistic as we have been over the last several years. I think a signal you should take from the size of it, is that it reflects our board's commitment to return cash to shareholders when we believe the shares are undervalued.
Michael Ward: Okay. On the financing front, you have stepped back leasing over the last few years. Is that a lever you are looking to pull, or is it subsidized interest rates? What are some of the things that you can pull on GMF as far as trying to make vehicles a little more affordable if that is something that is needed in the marketplace? Will you push back leasing more, or what are your long-term goals with GM Financial and what they can do?
Paul Jacobson: Yeah. Hey, Mike, and Susan's on the line too. I can start to turn it over to her, but we've obviously seen over the last few years, a lot of EV leasing. There was a lot of investment made there to help socialize that, help drive demand, and also it was structurally superior with the consumer tax credits in a lot of cases. I think the organization is pivoting. We're still very much committed to GMF and when you look at loyalty, when you look at availability for financing options for the customer, it's a great way to serve that. As we continue to look for ways to grow GMF with GM Insurance, and there's really interesting ties that we can do with the GM Rewards program. It's obviously a big lever in terms of helping to create value for consumers in different ways than just producing vehicles.
Paul Jacobson: Susan, happy to let you add.
Susan Sheffield: Yeah, I think you addressed it. We're here to support GM in moving vehicles and it's about discipline on incentive spend. I really don't have anything else to add. Thanks.
Michael Ward: Okay. Is it a concerted effort to scale back leasing, or is that something, a lever you can pull as you go forward?
Paul Jacobson: I would say, Mike, it is a balance between, it certainly is a lever and I would like to see us probably do more leasing, but it is also a lever against the incentive environment that we are in and how do we use our incentive dollars. I think our go-to-market strategy has evolved over the last several years, and it is clearly been a competitive advantage for us. We have got to use those dollars where we can, and sometimes that changes from time to time as consumer needs change, and we will be responsive to where the customer is.
Michael Ward: Perfect. Thank you very much.
Operator: Thank you. Our next question comes from Alex Perry with Bank of America. Your line is open.
Alex Perry: Hi. Thanks for taking my questions here. I just wanted to follow up on price. I guess, how should we think about the potential pricing benefit next year, compared to the last major redesign of the full size trucks? I think in 2019 you saw a very strong price realization. What are the puts and takes of using that as a case study for thinking about some of the pricing benefits next year? Thanks.
Paul Jacobson: Yeah. Hey, Alex. Thanks for the call. We've been cautious to make sure that we're not using historical heuristic models on pricing for this generation of trucks. The main difference is the current generation, the model year 2026s, are performing better than any trucks, really any vehicle program has in its last year of production. The historical step function improvements that you've seen aren't going to be there as pronounced. That being said, we should benefit from a mix benefit as we tend to produce a bit of a rich mix out of the gate as we're scaling up. That should ultimately average out over time. But just caution you against using some of the 2018, 2019 data because the current pricing environment is very different than what it was back then.
Alex Perry: Really helpful. My follow-up question was just on input costs, I guess. As we think about the impact of higher fuel prices, I guess, what specific impact is higher diesel having on the supply chain with some of the fuel surcharges we've been hearing about, and I guess also on end customer demand for some of your heavy duty platforms? Thanks.
Mary Barra: Yeah, I would say it's early with the spike that's just happened in diesel, and we'll see what happens to it. But throughout the year, our diesels are so efficient that even with the higher prices before this last spike, they were more fuel efficient, so cost of ownership was lower than buying a hybrid truck. So I think we've seen demand. We're watching it closely. I think a lot's going to happen of how long people perceive that the prices are going to be there. I think I'm excited about the new engines that we have coming because not only are they going to improve performance across the board, they also are going to drive efficiency.
Mary Barra: Again, it's too soon to tell if the diesel prices remain at this high level, but up until a month or 2 ago, we weren't really seeing an impact and we were still seeing strong demand.
Paul Jacobson: Alex, on the logistics front, it comes in pretty quickly, as you have seen, maybe a 2- to 4-week lag. We see it hit pretty quickly, and that has been a sizable component of the $400 million of pressure that we called out in the prepared remarks.
Alex Perry: That is incredibly helpful. Best of luck going forward.
Paul Jacobson: Thank you.
Operator: Thank you. Our next question comes from Tom Narayan with RBC Capital Markets. Your line is open.
Tom Narayan: Hey. Yes, thanks for taking the questions. The first one's on the competitive pressures into 2027 and the potential impacts on volume and pricing. You have a Detroit 3 peer with elevated dealer inventories, especially at its pickup truck, and we're seeing incentives pick up there. We saw Japanese OEMs taking up share, especially with hybrids. I know you just said that's not really where you play, but you also have European OEMs getting squeezed out in Europe and China because of competition from Chinese OEMs, and they're talking about coming into the US aggressively at their investor events. Is this all just par for the course or something you're concerned about?
Mary Barra: Well, if you think about when we saw the semiconductor shortage a few years back, and everyone was limited of how many vehicles they could build because of the allocations of semiconductors, we saw everybody pushing that limited supply to the United States because of the profitability of this market. I don't think it's anything new. I think we're well-positioned because of the overall strength of our portfolio and the fact that we've got a new truck coming out that takes performance across all aspects to the next level. Right now, in most of the products we build, we're capacity constrained. We're building as many as we can from a truck, SUV. I mentioned earlier, the Equinox, we can't build enough of them. We'll be relieving that as we launch the opportunity to build that in the United States.
Mary Barra: But I think that kind of competition is going to be here to stay. Specifically from a truck perspective, we've seen one of our competitors tend to have higher incentives for quite some time now. It goes up and down, but it's been years. We grew share with this truck, and we think we have a huge opportunity to, as we get past the launch, continue to grow share based on the strength of our product. When we do that, it also gives us the opportunity to continue to grow the OnStar and Super Cruise revenue. Again, I think you're accurate in what you're seeing. I think we're well-positioned because of the strength of our portfolio, and we've seen it before and have the proof points that we continue to do well.
Tom Narayan: Got it. That's a good segue on the Super Cruise to my next question. You guys are confident on Level 3 for 2028. There's a couple of German OEMs who tried Level 3, and it kind of didn't go as well. I think they had some limited consumer demand. Part of that was just their ODDs were limited. I suspect you guys are different. Just curious to hear kind of how you're able to just get a better service than maybe what they have had on their Level 3, and what makes you more confident in achieving the consumer demand there.
Mary Barra: Well, I think when we get to '28, when we launch the Escalade IQ, it will be the first. We will talk more about that tomorrow in the GM Forward event that we have. Our highway autonomous driving will be for highways, and it will not have limited ODDs. It will also carry with it the same focus we have on safety that I think everyone and customers have seen and trust, and therefore use from a Super Cruise perspective. I think they will see a very capable product. I was just in the vehicle within the last month, and from a couple of months ago when I was in, it was dramatic how confident the vehicle is on highway speeds, et cetera. I feel very good about the product that we are going to be launching. We will have more to talk about it tomorrow.
Mary Barra: I think customers will use it and want to pay for it because it will definitely improve their lives and the amount that they are going to be able to use it.
Tom Narayan: Got it. Thank you.
Mary Barra: Thank you. At this time, I would like to turn the call back to Mary Barra for her closing comments. Great. Well, thank you. Thanks everybody for your questions. As we discussed today, GM is performing very well. That has not changed. While inflation continues to be uncertain, we are working hard to continue our momentum and generate significant cash returns for our shareholders. We are making the core business stronger with strategic investments in new products, new technologies, and through improved quality and operating efficiency. We have raised our full year guidance twice this year while offsetting higher commodity, logistics, and other costs outside of our control.
Mary Barra: As we move forward over the next several years, our product portfolio will only get stronger as we complete the launches of the Silverado and Sierra light duty pickups, and then follow them with our next generation heavy duty pickups and our next generation full-size SUVs, all new Cadillac sedans and crossovers, and more. I think you can see we've got a lot coming. At the same time, we'll be expanding our capabilities in autonomous technology for highway, starting with the Cadillac Escalade IQ in '28, as I just discussed, developing cutting-edge battery technology like LMR that will help improve our EV profitability, and building even stronger relationships with customers through our digital experience. We think this is a proven strategy for creating even greater shareholder value as we move forward, and we look forward to delivering.
Mary Barra: Thank you for joining us today, and I hope everyone has a great day.
Operator: That concludes the conference call for today. Thank you for joining.
