Q2 2019 Earnings 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.
To ask a question press star one on your telephone keypad.
To withdraw your question press the pound key.
As a reminder, this call is being recorded Thursday August Onest 2019.
I would now like to turn the conference over to Rocky Group, <unk>, Treasurer, and Vice President of Investor Relations.
Thanks, Stephanie good morning, everyone and thank you for joining us as we review James financial results for the second quarter of 2019.
A press release was issued this morning, and the conference call materials are available on the GM and Investor Relations website.
We're also broadcasting this call via webcast.
I'm joined today by Mary Barra, James Chairman and CEO .
It is sort of the average <unk> executive Vice President and CFO at a number of other executives.
Before we begin I would like to direct your attention to the forward looking statements on the first page chart set the content of a calls will be governed by this language.
I will now turn the call over to Mary Barra.
Thanks, Rocky and good morning, everybody. Thanks for joining the call.
We achieved solid results in our second quarter on the strength of our performance in North America. Overall, we delivered net revenue of 36.1 billion.
EBIT adjusted of 3 billion EBIT adjusted margin of 8.4%.
EPS diluted adjusted of $1.64 automotive adjusted free cash flow of 2.5 billion and our ROIC adjusted of 22.7 on a trailing four quarter basis.
Strong consumer demand for full size trucks, crossovers and actually be along with our business transformation actions drove the company's profitability.
This helped offset the effects of planned heavy duty downtime ahead of our lunch and industry weakness in China.
We expect our lunch strength to continue in the second half of the year as our heavy duty truck availability improves and as we launch new crossovers and entries from our new global family of vehicles.
Looking at North America, our year over year results improved thanks in part to growing truck sales and share and second quarter Records for average transaction prices and crossover deliveries.
Later this quarter, we'll begin delivering the 2020 silverado with an optional all new Duramax cheaper turbo diesel engine that delivers best in class Highway fuel economy of up to 33 MPG.
James clear leadership in the large actually be segment continued with deliveries of current generation models up 16% year over year with lower incentives and those of our competitors.
We also performed well in our crossover segments contributing to profitability.
We unveiled the highly anticipated mid engine 2020 corvette stingray two weeks ago in California to a global audience of nearly 300000, we plan to increase production of this iconic sports car and began shipping the all new models to dealers by the end of the year.
Looking at Cadillac the brand sold more than 111000 vehicles worldwide during the quarter. The XT five continues to be the brand's best selling model globally, the new X T. Six seven passenger crossover is now on sale in North America, and China further strengthening cadillacs position in the high growth luxury LCV segment.
In the U.S. The XT six is off to a strong start ahead of its official launch dealers and media have given us very good feedback and the X T. Six brings new interest to the brand.
Cadillac is also expanding the functionality and range of its Super cruise hands free driver assistance technology in the U.S. in Canada. We are adding 70000 miles of compatible divided highway by year end CTP six owners will be able to operate super cruise on 200000 miles of highways.
More than 85% of currency to six owner said that for future vehicle consideration they would prefer or only consider a vehicle equipped with super Chris.
Give me I will provide additional details on our business transformation actions shortly but I would like to update you on the progress toward offering relocation opportunities to hourly employees at U.S. plants that I have on allocated products.
There is a job for every impacted employees today about 1700 of the 2800 employees have accepted transfers to plants supporting growth segments, and we are working actively to place more employees into open positions.
As we look at our international operations in China. The continued economic slowdown has resulted in a softer industry.
Jim China headwinds in the quarter include lower volumes significant pricing pressure regulatory changes slower sales of our outgoing models and shifting customer preferences.
Even as we launch new vehicles in Q3 and Q4, we see many of these dynamics continuing therefore, we expect equity income in the second half of the year will be generally in line with the first half.
In South America, we continue to work with our stakeholders to turn around the business and capitalize on Chevrolets 18 years of sales leadership in the region.
In addition to the actions, we're taking to strengthen our core business. We are also making important strides toward our vision of an all electric self driving future.
We've recently revealed a new digital vehicle platform that will fully integrate our electric propulsion systems Cyber security protection, if they have to active safety systems and Super cruise technology.
This platform.
Also enables more systems and the people to receive over the air software updates, including telematics chassis controls anymore.
This will deliver value and convenience to our customers.
Following its debut on the Cadillac Cts five and the 2020 Chevrolet corvette sitting right. It will expand to most of our global lineup by 2023.
We are also working to drive greater customer acceptance of east by addressing their concerns about range and charging availability.
In addition to earlier infrastructure announcements, we've made we partner with Q Merit, an online platform that links the owners with GM approved in salaries of home charging systems.
Turning to cruise and May increase secured an equity investment of $1.1 billion from a group of institutional investors, including funds and accounts advised by T. Rowe price and existing partners soft bake and Honda and a 700 million investment from GE General Motors. These additional investments now value crews at 19 billion.
We have said from the beginning that the benefit of self driving vehicles will only be realized by deploying safely and at massive scale.
For the past four years, Chris has been creating the necessary building blocks to do just that it has expanded its workforce raise billions in capital achieved deep integration with general Motors and focused on testing and development in one of the most complex urban environments.
And recently took steps toward large scale deployment of an all all electric ABS and San Francisco, we're driving conditions are 40 times more challenging than in the suburban setting.
Bruce will also increase its community engagement and continued to scale LNG infrastructure Buildout. In addition, hundreds of talented crews general Motors and Honda Engineers are developing a next generation purpose built avi that leverages, our leadership and hardware and software integration and related safety validation.
It has become clear that to successfully deploy and scale, we need to not only when the tech race, but we need to build trust with consumers and that is exactly what we intend to do.
David will now give you more details and then we'll take your questions.
Thanks, Mary and good morning, everybody. We generated Q2 results of $36.1 billion net revenue 3 billion and EBITDA adjusted 8.4% margin dollar 64, EPS diluted adjusted and 2.5 billion and adjusted automotive free cash flow.
The dollar 60 40 bps diluted adjusted includes a one cents loss from our lift and PSC revaluation.
Let's turn to North America, North America delivered EBIT adjusted of 3 billion in Q2 and 10.7% margin.
Driven by our light duty truck performance crossover performance and the impact of our cost actions.
This was partially offset by planned downtime for heavy duty pickup pickup trucks.
Lower pension income and increased depreciation.
The light duty truck performance contributed favorably to volume mix in price during the quarter.
As Mary mentioned, we're in the early stages of demonstrating the earnings power of our leading truck franchise and see additional opportunity for upside as we complete the launch of the heavy duty trucks and looking into next year. The launch of the full size to be.
The heavy duty trucks will follow a similar cadence as the light duty truck launch focusing first on the crew cab followed by the double than the regular cab models.
Retail sales of the new Chevy, Colorado, and GMC Sierra light duty crew cabs were up double digits for the second straight quarter as we continue to show additional models to dealers.
The retail market share for light duty pickup trucks improved nearly three percentage points from Q1 to 36.5% the highest in the industry.
We've done this with a very careful on strategy and a disciplined use of incentives with share growth concentrated in the over 50000 average transaction price segment.
We have leading retail share in the crew cab segment and as we continue the light duty truck rollout in Q3, and Q4, we expect share and the high value and high volume segments of the market to increase.
We also see opportunity for share improvement as we tap into profitable fleet business and launched diesel models later this year.
Switching to crossovers are crossovers performed well in the quarter with you as deliveries growing 17% year over year, a Q2 record.
We're gaining market share in the crossover segment and are seeing prop positive contribution to year over year profitability.
We will keep expanding across the portfolio with the 2020 Encore Gx and 2021, Trailblazer, which we revealed in May.
Cost pressures from increased depreciation and lower pension income were more than offset by our transformational cost savings.
Let's move to Jim International.
For the second quarter, EBIT, adjusted and GM I was down $200 million year over year, driven by lower equity income in China, partially offset by the favorable impact from restructuring actions in Korea, and continued business improvement actions and South America.
In China, Q2 equity income was down $400 million year over year from record Q2 2018 levels.
Industry in China deteriorated further in Q2, and the market experienced significant pricing pressures, including pricing disruptions from the early transition from China five to China's six emissions requirements in many provinces.
We've reduced dealer inventory by 10% in Q2 with wholesale volume and production down approximately 25% year over year, which more than offset reduction in retail sales by approximately 12% year over year.
These headwinds were partially offset by continued material and other cost performance.
In the second half of the year, we expect these ongoing headwinds to be partially offset by vehicle launches.
As a result, we expect equity income in the second half of the year to be generally in line with the first half of 2019.
In South America, we continue to make progress in the turnaround of our business. Despite the volatility in the region.
We're starting to see cost savings as a result of business improvement actions, we're undertaking together with other stakeholders.
We have a strong franchise in South America, with leading market share strong dealer network and efficient manufacturing operations.
We expect to see improvement as we progress through that remained the remainder of the year as a launch for global family of vehicles ramps and we deliver a stronger more competitive portfolio of vehicles.
A few comments on GM financial crews and our Corp segment GM financial posted record quarterly revenue of $3.6 billion in the second quarter and ABT adjusted a 500 million primarily as a result of portfolio growth.
Cruise costs were 300 million for the quarter on track with the approximately 1 billion communicated previously for the full year as we increase our head count.
Corp segment costs in the second quarter were $200 million unfavorable $200 million year over year due to approximately 170 million gain from a lift and PNC investments in the second quarter of last year and a loss of approximately $30 million in the second quarter of this year.
We continue to expect the underlying spend in the core segment to be about $1 billion in 2019.
We have made significant progress on our transformational cost savings initiatives, achieving $1.1 billion in year to date savings $700 million of which was in the second quarter.
Before I close I want to reiterate our outlook for the calendar year.
At the beginning of the year, we outlined a number of puts and takes in our outlook, including headwinds from downtime depreciation pension commodities and terrorists and weakness in China.
On the tailwind side, we discuss the full year benefit of our truck launch two to two and a half billion of transformational cost savings in 2019 growth in adjacent sees and a meaningful benefit from crossovers and the rollout of our global family of vehicles.
Since January we've experienced continued weakness in China and volatility in South America, which is offset by favorability to our previously communicated billion dollar headwind year over year from commodity and Tara.
Therefore, we are reiterating our outlook with EPS adjusted in the range of $6.50 to $7.
And adjusted automotive free cash flow in the range of four and a half to $6 billion.
As I have mentioned before this outlook as you zero performance from our investments and list or PSC and any impact from these investments is not included in our guidance.
Regarding cadence in 2019, we expect the second half of the year to be meaningfully stronger from both an EBIT and free cash flow perspective, due to a number of launches in the second half as well as cycling past the downtime in North America.
In summary, we had solid performance in Q2, and this sets us up well for strong performance in the second half. This concludes the opening comments and we will now move to the Q and a portion of the call.
Thank you to ask a question press Star then one on your telephone keypad.
To withdraw your question the pound key we'll pause for just a moment to compile the Q and a roster.
And your first question from the line of Rod Lache with Wolfe Research.
Good morning, everybody.
Good morning.
I had a few.
Questions about the guidance.
First of all that the full year guidance for free cash flow is four and a half to 6 billion. It was the first half burn of 1 billion for so that implies 5.9 to seven for in the back half and.
If we're doing our math right that that.
Excluding working capital, maybe $3 billion to $4.5 billion.
We wanted to know if that sounds about right to you and.
Hey, Mike.
Associated question is can can we extrapolate from that kind of a free cash flow run rate ex working capital, which would imply six to 9 billion annualized free cash flow.
At this point or is there some kind of seasonality or something else that we should be taking into account when you do that math.
Yes, Thanks, Rod and I think Directionally you're correct.
As you think about the second half of the year from a free cash flow perspective, the strength is going to be driven by.
EBIT improvement as well as the working capital rewind that we're going to experience.
As Weve cycled past, the downtime and extrapolating.
I don't want to provide guidance beyond 2019, but I'll give you the puts and takes we are going to continue to see benefits from our truck launch we're going to see the remaining cost savings flow through into 2020 and as you may recall, we also talked about our capital spend a tailwind from that in 2020 as well.
Partially offset by lower China equity income dividends flowing into 2020.
Yeah, I'd caution you, though extrapolating off of the second half.
There are some timing items like.
The working capital that you mentioned as well as.
First half versus second half some payments are lumped into the first half of the year and you can't really.
Do a times two in the second half, but directionally looking at the puts and takes I'd say, you're you're correct.
Okay. So and then product had sales horrid you heard us say in the beginning of the year, we have an intense focus on cash flow and cash conversion and as you as we go beyond 2019 into 2020 is going to continue to see us reiterate that as we go forward here.
Yes, it sounds like generally those those payments are are are lumped into the first half which.
That's helpful to get some color on how to think about that is it reasonable to assume that capex comes towards the low end of your guidance and you did comment in your release about the timing of China dividends being a little bit unusual this year.
What what's included in the back half from China.
We would say the remaining dividends that we have not had received from China will flow through so it's even more evenly distributed this year between first and second half then it happened last year.
And from next year perspective timings, there's as you know in the first quarter of the year, we tend to from a seasonal perspective pay out a number of.
Number of payments as well as the.
Our and ABT, one typically happens at that time so.
I'd say those two are the primary adjustments that I would think about and China dividend you can expect a against similar kind of a cadence in 2020, probably probably as he will in 2019.
Okay from a capex standpoint.
Yes from a capex standpoint, I'd say.
We.
Gave the range of eight to nine we would continue to do that obviously, there is timing between among quarters and I wouldn't read too much into that at this point in middle of the year.
Okay, and just lastly.
Your expectations for China can you just broadly talk about what the inventory situation is for you and.
You are talking about back half being flat with the first half, but the first half second quarter included significant inventory correction, so whats the underlying.
Business look like for you and what are some of the puts and takes there.
Yes sure so.
We did unwind 70000 units or so of inventory so about 10% of our inventory did on wind in second quarter, but as Mary mentioned in her comments as we think about the industry. Obviously, we've just cycle past the China five in China's six transition there is likely to have been some pull ahead and we got to watch that we just know just don't know yet and from a pricing standpoint again.
We experienced more pricing pressures in Q2, that's something to keep an eye on so as we look into the second half of the year, a slightly weaker industry and uncertain price environment, but really offset by the launches that we have significant launches into the sweet spot of the.
Of the segments with two thirds of our launches coming from crossovers. So.
All the positives from a launch perspective, we continue to expect we're keeping an eye on macro.
Great. Thank you.
Hi, Thanks for taking my question congrats on the quarter.
Thank you.
Clearly some moderation in your China profit outlook was expected given the softer volumes in the first half just curious, though if you are now calling for sequential deterioration in the industry in the back half versus the front half as previously you were looking forward to some company specific catalyst for higher profits in the back half, including a fresh and lineup introduction of the Gen platform et cetera, I would think to maybe you could cycle past some of the inventory drawdown in Twoq ahead of trying to sex. So no visibility in the market. There is low I know, but if there were flat industry sales into h. versus one HD you think in that environment, you could manage to a higher China profit in the back half.
Thats, one element, but with the intense pricing pressure as Debbie said, we don't know with the.
The intense pricing, we thought to move that China, five how is that going to carry through and then from a GM specific. These launches are very important because we are seeing the customer preference shifting as well as we have some older models and really popular segments. So.
I think its Ryan it's just too hard to say with all the volatility that size.
That we're facing right now I will tell you. The team is very focused and we have a China team that is very good at looking at every single cost opportunity. We saw that performance in the first half, we'll continue to look for that and Oh.
To increase that and then also you know we're working very closely with our partner to seize opportunities.
As there, possibly or ups or downs in the marketplace, but it's just it's too hard to predict.
To help us sort of better understand what magnitude of the earnings potential of this program was on display in the quarter can you kind of sketch out what has launched what has yet to launch a cvs high efficiency diesels, even bigger pick ups with navistar et cetera, and the relative profit potential of those various pieces.
Yeah, Ryan I'd say, if you think about the first half we started out with crew cabs as we talked about and.
Towards the second quarter, and really going into third quarter and fourth quarter is when you're going to see the rest of the light duty start to normalize so the remaining variance whether its regular or double and.
Diesel is an important factor that would to marry pointed out we're excited about that and that's going to be coming up next in the Q3 time frame.
And followed by heavy duty is if you think about the first half of the year, we took downtime of about 25000, or so units and heavy duties, which to your point. It was an offset against the light duty earnings power that we have that we saw so youre not going to see that in the second half of the year and in fact with the additional capacity that we have added for both light duty and heavy duty is you are going to start to see tailwinds from volume because we have been constrained on these as we have.
As we have been in the past few quarters and years here. So.
Plus side would be the remaining light duty varian, including diesel the heavy duty going into next year, obviously, the Cvs and.
Variance that we have so far seen in kuga.
Very helpful. Thank you.
Hi, good morning, everybody.
Just really wanted to make sure I, followed up and got that correct. We'd give you on on the truck side. So basically in the first half with the HD downtime the CV downtime HD pickups will benefit us sometime in the third quarter.
Yeah I'd say.
The cadence to do roughly gotten is right. We have not talked about the sq be timing specifically it will be early next year, but you will say I think directionally, you're correct in terms of the Tailwinds with that we will start to see in the second half of the year first you will see that in light duty to remaining variance and then go into heavy duty probably in the Q4 timeframe and obviously into next year and then you'll see the Fccs. So I'd say you are directionally correct.
Okay and is there any reason that we should think that second quarter is not a good quarter to walk off of when we think about those those those improvements I mean, it seems like this was just a very good operational quarter and then you'll get the benefit of those.
Going forward I mean is there anything.
Unusual that we should think about that wouldn't make this a good base case to work off of.
No I'd say, it's a pretty good base case, obviously, you got to adjust for the heavy duty downtime that we took in the second quarter that is not so you can extrapolate that into the rest of the year cost savings as you know we achieved a 700 million. So that's also on a pretty well on a kind of a run rate that you can continue to expect for the rest of the year.
We will probably see some tailwinds as well coming from the X T six launch.
Which we're just starting to see.
Financial I mean, obviously, it's performing very well.
We keep kind of following up on this question, but when do you see it had a maturation point, where it can start picking up some capital back up to the parent company.
Yes, I'd say that last year, you may recall, we took about 375 million of dividends from Gms.
They are still growing there they are earning assets and were.
Close to about $100 billion of learning methods.
When we think about steady state for Gms for thinking somewhere in the 125 to 130 billion dollar range for earning assets, it's going to take a couple of years for that to to take hold and the penetrations. We were running at and is in the 45% to 50% range, which is something we would like to see continue and capital we will as we as the leverage ratio continues to grind down with the equity building up an earning assets leveling off we're going to see that dividend increase over a period of time and eventually you're going to see the entire net income from GM of come back to the parent.
Got it.
Then just lastly on suppliers and we've heard a lot of noise about some slight incremental pricing pressure coming into the supply base Im just curious.
As you look at your relationship with suppliers is there any stress building in the supply base or sort of Conversely is there any more opportunity.
What's more collaborative.
And get more pricing out of the out of the system.
So as we've worked over the last couple of years to build a really strong relationship with our suppliers and focused focusing on innovation and then when we focus on on price and cost it's doing it together and looking how how can we work together to take cost out that benefits, both general motors and the supplier we're going to continue to do that and look for those opportunities and and build on that so I don't we don't I don't see any major change coming I think what you'll see us working even more closely together.
Mary I apologies, if I could sneak one more in it sounds like you got 1700 of the 20 hundredweight W. folks relocated.
I'm just curious when you think outside of the head count of the UAE W. If you could just talk about your hiring in the U.S., maybe more broadly in the growth in the Atlantic Basin I understand sort of your position in the employment picture for the U.S.
It more from a total workforce because it sounds like you've done your about almost two thirds of the way of.
Reworking, our streets and relocating these workers I'm just curious.
So on this I think we should expect for that.
I didn't hear your last comment Im sorry, Im sorry peak, particularly thinking about the growth in crews as well right. I mean could you have shipped real head count growth in certain areas. So I think you have to look at it in three three buckets and you know as we've said we have jobs for every single hourly employee in United States that was impacted by the transformation and will continue to to do those placements and then look at what is natural retirement.
And I.
Correct by the time, we get three this will be will be hiring for the needs that we have across the United States.
And we are we are hiring now to replace attrition, but maintaining the lower on the lower cost level that we've worked so hard to get in Q4 and Q1 of this year and then as it specifically relates to crews we have about 1500 employees. There now and we are working hard to hire and get to the level of about 2000 by year end and the hiring is going.
Very well there.
Great. Thank you very much.
Our next question comes from the line of Joseph Spak with RBC capital markets.
Thanks, Good morning.
Just wanted to get back into the pickup truck market dynamics I know there is there's a lot of noise out there but.
As you just laid out.
We have a lot more product to go you've added some some capacity.
I know, you're not giving 2020 guidance, but at a high level is there any reason to believe that if the market holds up that the volume on the pickup should be materially different than what you expect this year like or is there anything internally at GM like.
Maybe a quick refresh of a product or something that would that would you know.
Reinvigorate some downtime.
No we're not anticipating.
Any specific downtime related to a change over anything Joe So I'd say.
Probably can't extrapolate normal run rates, excluding downtime and plus the capacity. We've added we have been in like a ramp up type mode, and obviously, you'll get to a full line right as you cycled past the downtime so.
In a similar macro environment, and we think that again the truck market with its percentage penetration of the industry continues to be healthy and we would expect to I think you're absolutely right for the volume.
Okay.
And then secondly on GM China.
I know still challenged and you sort of mentioned this is there are some.
I guess encouragement.
It looks like it was 200 million better year over year.
And I'm, assuming FX is still probably a headwind within that so.
How do you how do we think about the opportunity and.
And I guess really Brazil, and South Korea as we go forward.
So if you just kind of cycle through from a from a credit perspective, we accomplished what we set out in the restructuring and now we continue to see that that business unit performed we still have a few markets in GMV by that we're evaluating to look at how do we.
Create a successful foundation to build on in a few of the PMI markets and then in South America, we have a very strong strong franchise. There. It it definitely is being impacted by FX and the macro situation. We continue to work with all of our stakeholders, though to take cost out and that team has demonstrated a great ability to do that and we continue to refine our our plan for that region to take into account, we think theres going to just be a continued on continued volatility I think important to note in many of these regions. Though is we are just in the process of doing the first.
Global family of vehicles that will be rolling out not only in China, but also South America, and then flow to some of these other markets I think we're going to have a very strong portfolio and vehicles in the market to take advantage as South America recovers or chicken or to continue to outperform if we keep in this market. So theres great focus on all of these markets. We are seeing improvement year over year and we'll continue to continue until we get this region to be contributing uncovered invested capital.
So just just a follow up would you classify that the.
Potential improvement in South America, more driven by the fixed cost reduction from working at those stakeholders or the launch of the Gen platforms, which as you've indicated in the past should be.
More profitable than meeting the outgoing.
I think it's both and all of them are are significant in and helping us achieve where we need to go in South America.
Our next question is from the line of each time, the Kelly with Citi.
Great. Thank you good morning, and congrats.
Thank you Jay.
Just going back to the pickup discussion just curious how.
The silverado mix trends like the LP trends are performing versus your expectations in the market is good but we are seeing some signs that the the inventory. There has been has been rising on those particular trend in Austin was coming off later in the year, but curious how you're performing thus far in the middle trends of the LTV.
Yes, I'd say tight as you know we started out the launch focusing on the crew cabs and we've been building inventory in the in the mid level like really now live in the second quarter of the year.
And the it's also important to note, we're normalizing our propulsion mix, there as well and during launch obviously, it's hard to extrapolate out of one data point on what the inventory fits your needs to be because we're still rolling all these out and they will be balancing that happens and the rest of the year as well.
And you know.
As we as I said, we once were rolling out. These other variance you will see the inventory picture starting to normalize and we have a plan looking at the end of the year to get our inventory to exactly where we want to target levels to be.
Got it that's very helpful. And then and then looking back to China and apologies if I missed this but could you share any year end inventory targets that you have as well just how this year's events might be influencing your longer term view of profitability in China.
So when we look at the inventory and we are working to be disciplined with the inventory levels, but also be prepared for the opportunities with that volatility. So at the most senior levels discussions with our partner, we're watching it very closely and giving direction to the team. So if we're going to manage it to get to the right level as we go forward I'm not going to share a specific target. When you look at it over a longer term we have a very strong franchise in China, and we have three strong global brands with Cadillac Buick and Chevrolet as well as the two domestic brands with willing in Belgium, and we think it is a very strong franchise. We think over the long term there are significant opportunities for growth and also China is very important part of our electrification strategy of seizing the opportunity in such a large market to get the scale from an LTV perspective that allows us to be better positioned I believe and in other markets like North America as we launch GB. So.
Over the longer term, we still see a very strong opportunity, especially with our global brands.
That's helpful. Just a quick one last question Mary just given the feedback you cited earlier on the Supercom system any change in plans on number of vehicle to how quickly you might roll out the supercom system or how you might go to market with the next generation Ultra crew system.
So I would just I appreciate the question and we're really excited about Super cruise in my career rarely do you see a feature in technology that has such a strong.
Uh huh support from the customer of saying I I would strongly prefer this this technology give me on my next car or I won't buy a car without it. So that's that I think is a really good endorsement of the way the technology works and the benefit and value. It provides to the customer. So we are.
In the process of rolling it out across all Cadillacs, and then we'll look for the right opportunities as we roll it out across more segments and brands in the us.
In in our portfolio and we'll do that as quickly as we can but making sure that we're focused on the safety and quality of it as we do that and then as you mentioned with ultra crews. This is a technology you saw us continue to improve it with the number of places you can use it and we're going to continue to add add capability and we're we're very excited about it and the roadmap that we have so we'll be rolling it out as quickly as we can.
With again being having a strong focus on safety.
That's very helpful. Thanks, so much.
Our next question comes from the line of Brian Johnson with Barclays.
Yes, good morning.
Want to talk a little bit about the GE M&A earnings walk supplement slide can you kind of break that $700 million formats.
Timing would seem to imply that some of those numbers.
We do look at that and then as we think about.
I would model these fees and performance and would that be that material headwind, maybe less headwind and then how do we kind of take the.
4.0, sorry was.
Cost saves and kind of look forward in the form and timing.
Yes sure so.
If you're starting with a four and a half I'll do the total company walk for you, Brian because Theres North America versus total company.
The four and a half billion as you know pertain to the total company.
In the total company walk as you can see in the cost bucket, we had performance and timing of a billion dollars $900 million positive hold $2 billion.
Out of that so the 700 that I'd referenced from the transformation cost savings is in the 900 theirs.
About a up.
Hundred issue of timing and another hundred of commercial and technical savings that are coming from our regular material cost initiatives. So.
Think of timing is about a 100 million and as you go into.
The second half of the year. This is the bucket the cost bucket is where you will see the performance show up obviously, it will be offset by the pension and depreciation and.
Amortization headwinds that we've talked about but thats, the geography of foot and from a material cost standpoint, it will be in the materials line item within the cost bucket as well.
Okay and second question as we go into the second half North America.
Lower trim levels of the light duty truck again.
How should we be thinking about the mix right.
In the second half.
Yes, I'd say overall second half.
Volume will be it will be up for says first half because of the factors that I mentioned on heavy duty being up as he will be being up and light duties as well slightly up sovaldi volume will be up and therefore mix will be there was an offsetting factor to your point it would be the other mix is rolling out, but the heavy duty negative mix element that you saw in the first half of the year will not repeat intellectually be a positive that will offset some of that and obviously the assay we aspect as well you saw it down in first half and you are not going to see that so vol mix together will be where the bulk of the improvement from each one versus HQ is going to be.
Okay and just final question.
Can you put in context cruise announcement switch.
You build as positive in terms of testing and increasing the size, but much of the tax credits on us.
Indicating that will bode taxis, whether Q waymo.
Some of the start ups are still.
He is out so maybe kind of update us on yes, we obviously see the gating factor, but just how you're thinking about timing.
Well I think anytime you're working on something that's never been done before on brand New technology, a tight timeline is likely to move around a little bit, but we do.
We have line of sight and what we need to accomplish both from the technology development, we have a very robust.
Milestones that we have to achieve and we also believe there and we're working hard to make sure. We have the right regulatory environment as well, so I'm not going to put a specific time time out there I just would say and we have line of sight and I think the significant work that we're doing to get deeper validation more miles that will achieve in the second half of this year, while working on.
Improving public receptivity are going to be very important to allow us to have a large scale deployments. So.
That would be the comments I make regarding regarding crews. So I am very pleased with the progress. The team is making continues to make their pushing very hard and this this focus on not only the technology, but the environment and the customer I think is very appropriate.
Okay. Thanks.
Our next question.
Comes from the line of Collin London.
Oh, great. Thanks for taking my question and congrats.
A quarter.
Can we think he likes the pickup.
You've lost a lot of I mean, I know you've highlighted again retail share, but you have loss share overall in the segment year to date.
What is the outlook for the second half I mean, its guidance predicated on holding your share.
From where it is now and the benefit of just.
Plants being fully up and running.
Or do you expect to regain share.
We do see a growth in share in the lower end of the ATP segment, Colin I'd say that if you look at the increased share that we've had has been in the 45 to 50 and 50000 plus type segments, obviously, the more profitable segments.
And we will we expect to hold that because we were underrepresented in these segments with our K two product and what we're really doing is like fixing that under appreciated. It up presentation. If you will as we go into two one.
So you expect normalization in the lower ATP segments.
And obviously as heavy duty to also debt will be the other positive positive as well and diesels coming in so we do expect to increase share in the second half of the year between all the other cab variance as well as HD.
How about on the.
Commercial side because.
Todd pick up I mean, I know retails, obviously always more profitable, but in pickups I imagine thats not quite lucrative I mean do you have plans to try to recapture some of that share or is it just not worth tree.
Yes, I know, we do believe that we will grow in that segment as well and as you point out of fleet in pickup trucks continues to be profitable not as much as retail, but profitable and we will absolutely continue to grow in that market as well and you know with all the capacity issues, we have had and with the launch changeover and so on and so forth that is something that has been again underrepresented in the first half of the year and that's something we will correct in the second half.
And lastly, any color. Thank you I think you mentioned your comments.
Additional guidance had about $1 billion of ex FX and commodity obviously within this quarter steel prices and other key commodities have really fallen pretty dramatically in Q2.
Does that actually results in a tailwind through the rest of the year is that one of the factors, helping offset the weak.
China.
Yes, Thats correct. So we you may remember call in January of this year, we said a billion dollar headwind in commodities, we did not talk about FX in that context commodities anteros year over year as we sit here today to your point, we have seen moderation in steel and aluminum prices specifically.
There was a couple of commodities that are still elevated but on balance we think that the of a headwind is probably closer to half of what we originally expected and that's serving to offset some of the international volatility that we're seeing and that's so that's to your point.
How the guidance comes about.
Got it all right. Thank you very much.
Our next question comes from the line of David Tamberrino with Goldman Sachs.
Great.
Maybe can we just get into very specifically your carryover pricing was I think more positive than most folks would have thought in the quarter.
And I didn't know if there are any specific products that you could call out both in North America as well as in GMV, because I think there was a $100 million favorable in both for US historically, that's typically headwinds year over year. So wanted to understand that dynamic Kerry yes. Good question, David in the international side, a lot of that is catch up effect surprising that you see in.
Brazil and in Argentina.
As you know we try to price out.
Argentina, all of our FX headwinds in Brazil in lined with the inflation there. So thats the international piece in the United States as you see our carryover.
A lot of it was driven by positivity in our car segment and as you know we have significantly ramped down our our overall love car portfolio. It used to be a headwind from a carry over pricing perspective in 2018, and as we have lower and lower up inventory there were able to maintain a price disciplined there as well that's I'd say the primary factor Cadillac is continuing to do really well so the residual value improvements that we're seeing and Cadillac are flowing through to the crossovers that we currently have on the road as well those are the two big factors I point out.
Okay, I mean that they've done a GM I side it sounds like that could continue into the back half, but for North America is that something that should continue even though you've got the wind down of passenger cars I mean looking at three to 18, you had a very strong pricing quarter, just trying to understand the dynamics there.
Yeah, I'd say we'd.
Probably continue to see the car disciplined and the inventory there winds down overtime crossover should be pretty strong as well, there's obviously, a bifurcation between small and compact crossover versus the midsize crossover so.
On the mid side, we will see a continued positive but pressures on the compact and and a smaller side. So I'd say on balance probably to your point, it's a harder comp for since last year, So maybe a little bit more of a headwind from Gary will perspective, but the car and crossover specific segments should continue to hold up.
Okay, and then Mary.
You had a couple of questions early on crews I want to dive a little bit more into that.
No it's gated by safety and regulation, what impediments are you running into from a technical and regulatory respective.
One that kind of.
Helped drive this this I won't call it a push out but.
Well, a little bit delayed timing.
From the 2019 commercial deployment and then secondly.
What's the plan to improve.
The public receptivity for large scale deployment is it something like what we've always done and seen so far with.
Technician still into vehicle behind it and getting folks use of the technology or should I be investing something else.
Well I think when we talk about deploying we our deployment will be when we can.
Have the vehicle operate safely without a safety trainer in the vehicle. So that's 0.1 I think to build on kind of the trust that were looking for a lot of that is is communications and so we have a a very well thought out a marketing plan that will be targeted to the first on city that we plan to deploy in which is San Francisco. So very focused on for people, who see the vehicles on the road today to understand them better to be able to articulate the safety in the vehicle what we're doing to what we're doing to create the safe environment and that we can really improve road safety and because of the discipline that as a navy doesn't drive follows all the road.
Laws and doesn't also driving under the influence of anything and so you're going to see us have a marketing campaign to engage the city. So they understand whats happening and they're more I think receptive to what's coming and then from a technical perspective, I would I would say just again as you are developing new technology and you have milestones that you need to meet key to ensure that the AB is going to be safer than a human driver you have to keep on making those clearly some of the enablers will be as we continue on our hiring I'm getting to the best engineers working for crews on this and I think what also has happened is everybody understands just how complex. This is to do well and to truly have the vehicle that can operate safely. So we're on that journey. The rate of iteration continues to be very strong and we'll we'll do the testing and the validation to achieve our ours are milestones well in parallel the work.
You know continuing to gain regulatory approval and I wouldn't say, there's impediments. There. It's just work that still needs to be done I think.
NASA understands the importance importance of this technology from a safety perspective, and so I think theres a line of sight to be able to get the regulatory approval and then building that trust with the consumer is going to be important those are the three.
Path that we're on together.
Our in parallel and we're going to continue to work all three aggressively.
Understood and just a follow up on the technical side.
Everything.
Underneath your control or you relying upon any.
Step change in technology from a supplier at this point noted Tim.
Everything is under our control.
Okay. Thank you Mary Thank you.
Thank you Dave.
Our next question from the line of David I'm, Sorry, Dan Levy with credit Suisse.
Hi, good morning, and thank you for taking the questions I want to start with just a couple of quick financial questions and then a strategic question.
Just first on the raw mat side, I know you talked to.
Some of those pressures.
Being mitigated if I go back to call. It last year, you had I believe in North America, something like $1 billion in commodity headwinds and now here, we are with steel back at where it was in 2017 I know that you're.
Raw mat headwinds there is other stuff in there, whether its aluminum or precious metals et cetera.
That stuff has changed differently, but why wouldn't most of that headwind that 1.4 billion headwind from 2018.
Reverse given where steel prices is overtime I know there was timing around the contracts.
Yeah, I think we are starting to see the tailwinds.
In a lot of the commodities that you were talking about Dan I'd say.
Steel, we're starting to see a pretty significant tailwinds and aluminum as well.
There's a few other commodities that I referenced earlier, particularly palladium, which is at a level that remain significantly elevated versus even what we saw in January .
And against a relatively smaller.
Purchase value, it's up it's quite a significant headwind and over time, you will see things flow through and obviously there is still uncertainty it on tariffs as well and we.
Therefore felt it's prudent to get a two way.
To a closer to half type of say a number we had $1 billion earlier and we're getting it now down to 500, we will keep watching it and flowing that through as we see the improvements come through and we also have the lagged effect that we experienced since these don't get index right away they get indexed a little later, so you'll see the improvement come through if the market continues to hold up.
Oh, not lagged effect, what's the typical timing, let's say like steel sort of stays flat with where it is right now how long would it take to fully sort of offset those headwinds is it like 18 months.
There's we have index contracts for a portion of that and we have negotiated contracts for the rest of it and thats all over.
The timing is all over the place so from an index perspective, you will see a lag of about three months and having that come through from a negotiated perspective, our contracts rollout a third a third a third type on a yearly basis. So some of this might be a bit more nuanced and negotiated so not one metric that you can apply across the board.
Got it. Thank you and then just as far as.
The U. ADW negotiations go I apologize if I missed it earlier, but have you signaling say sort of what are good.
Pull through.
Bonus amount to assume in the fourth quarter as I know.
Forward as signals.
Something Youve noted.
No we haven't I mean, we are approaching negotiations.
Looking forward to having productive discussions there are numerous topics that affect our employees and our business that we need to.
Discuss and talk about which will do and we're looking to do that constructively.
You know, making sure we can address business challenges in a way that allows us to really build a stronger future for our employees for our customers and for the for the company, which will benefit our shareholders. So that's our approach to U.S.W. negotiations and we have that signals any any specific financial.
Aspect to that.
Got it and then just want to ask a strategic question you know we look around in the Hebei landscape and we've obviously seen.
Some collaboration amongst automakers trying to.
Read the investment.
And you've taken a slightly different approach so far it's been a bit more go it alone.
Approach. So I guess my question is.
And you don't have the same considerations and that you don't have to deal with this Europe .
Doing okay being forced into this as much but would you ever consider allowing other automakers to use your platform sort of what.
VW is doing with any b. I mean would that help with scale would that help with profitability.
Well, then I would say what we are doing is we have a an arrangement with a Honda. So we have already has already partnered with us on the cell technology and some of the electric the electric vehicle components. So I think we were actually one of the first I think if not the first to do that and as we move forward. If it may we are open to working with other Oh. Please.
On leveraging it even further but we're already doing that with Honda and it definitely provides you know savings from an engineering perspective for and has scaled benefits as well.
And scale as a crucial part for reaching breakeven I assume.
Hi scale as I say, one of one of many but just scale does especially if you get to a certain level to drive the right scale is as you look at the cell and battery manufacturer.
For sure.
Got it thank you very much.
Sure.
Our next question comes from the line of Emmanuel Rosner with Deutsche Bank.
Good morning, everyone.
Good morning.
So first question around the the retreated guidance.
It's.
It's obviously a lot of moving pieces and this industry is quite volatile.
But it's also a fairly wide range, despite pretty decent line of sight that you seem to have and some of its GE M&A dynamics in the second half can you maybe just.
Remind us what the variance factors are between sort of like the high end and the low end as it relates to earnings and even more so as it relates to to free cash flow.
You know I would say I think through the call. We highlighted the fact that there is definitely some tailwinds theres also some headwinds and I think what at General Motors. We try to do is we reiterate we stated the guidance at the beginning of the year give you and I. Both remain very confident that we're going to be able to meet our commitment and so we're confident in our full year guidance, but there are it's a very dynamic environment. When you look at trade and you look at China, you look at macro conditions in some of our GM I markets. Then you look at the positives that we have with the full full size truck franchise.
And how we're moving that forward just really early days in the launch also the strength of our cross overs and the growth that we have in Cadillac. So theres definitely tailwinds, there's definitely headwinds and what we're saying is we we are committed and we have a definitely a line of sight and we'll we'll work through the variability that we see are the volatility in the second half this year to be able to deliver and maintain our guidance.
Okay. That's okay. That's helpful. Then I guess turning to your restructuring program. It's it's nice to see that you're on track for the two to two and a half billion benefit. This year. There's obviously a whole other chunk of two to two and a half expected to come next year can you maybe point us to.
Specific incremental actions that food.
To deliver these additional savings as we get into next years as a way to get comfort around them.
Well I think when we laid it out I mean, some of them are just timing of when the cross comes out but we have very detailed plans you know where the fact that when we announced it. We said this is how much will be in 19 and the balance in 20 and we're on track to achieve outages were systematically executing these plans.
One of the very first that accomplish was the the salaried headcount of Rightsizing that we did in Q4 and Q1 of this year.
But every single element and it was a third a third a third between engineering between manufacturing and in between.
SGN a so those are all on track and I think I'd I'd ask that you look at what we've been able to deliver so far and that should give you confidence that we're on track to do that for 20 as well.
Okay answer and then just finally.
The big driver of your China outlook seems to be a product launches, especially in the <unk>.
Oh profitable attractive segment can you, maybe just remind us.
Some specific examples of what's coming into effect and to the extent that so.
You will be helpful for the 2020, I think as well.
Well, we definitely have our gennum products that are coming out that are going to be very important we have some crossover vehicles also cadillac or the XT six we think it's going to be very significant. We also have some baozun products in important crossover type segments. So and then the.
Also the CTP five that will be launched there. So if you look at it there is a many sq these crossovers luxury vehicles coming out.
Across all of our brands in Q3, and Q4, but I think will position us well because what we have seen.
And why these launches are so important as I mentioned, because we are seeing customer preferences shift to more S. You'd be cross over and we also are on.
Because of the competitive nature, having an all new model will be very significant in the marketplace.
Great. Thank you.
Our next question last question comes from the line of Chris Mcnally with Evercore.
Thanks, guys.
I'm, probably going to revisit it a little bit of some of the questions already asked but.
Maybe just try it at a different angle when we look at the second half I think everyone's thinking that the relatively.
Clean view of you don't have the downtime as wrong formats are probably more more right size. When we think next year in terms of just the the walk.
Obviously have cost cuts, but just any headwinds that you can call out you talked about production and the mix but.
Some of the U a W cost do they flow through from.
Q4 next year.
Any inflationary pressures so like his DNA going to be a significant headwind again next year and then any launch costs, whether that's content or incentives you could call. It just seems that sort of bring the walk down for 2020, even qualitatively would be very helpful.
Yeah.
Obviously as Mary mentioned, it's it's hard to predict what the environment in 2020 is going to look like sitting here in the middle of 2019, I think you've captured the product related tailwinds really well.
DNA and pension income or something the two items that we have always said are going to be secularly normalizing to a higher level for DNA in a lower level for pension. So thats one item that we have actually attributed if you remember our cash conversion on one of the factors on how it's going to normalize and the fact that these these items will will continue to get to their more of a natural steady state levels, but other than that it would be speculation if I were to be thinking of any other items. I think we'll continue executing at the cost savings that Mary mentioned as well as going to be of an enabler as we look into 2020.
That's great and then maybe I can just opt to a little bit more of a secular question, it's probably not as sexy as as autonomous but one when we think about.
Aid us, particularly in North America, not not Europe , it's not mandated and if we look at the sort of the the Detroit three you've been sort of slow on the on the rollout of of what some pretty attractive technology, it's not that it's not available, but it's essentially.
Customers are still paying for it at that.
First it being standard.
Could you just maybe talk about.
The roll out of some of the low end stuff not super cruise, but I'm just basically thinking.
Maybe is there is there a chance that becomes a standard offering products similar to the way Toyota.
And some of the Japanese have rolled that out.
So we're committed to have eight us across the entire portfolio and we it's a segment by segment question that we look at to see what makes sense. Because we also want to if you have tech so much safety technology had a vehicle that the customer can't afford it and they don't get the opportunity to achieve that so we're we're trying to be very customer focused segment by segment, we clearly happened technology.
And pretty comprehensive technology safety technology, when you walk around the vehicle. We are have done some I think really good work to make sure. It's a it's not standard it's available in a first package as opposed to a last package being receptive to what.
And it really giving the customer choice. So we're going to continue to do that developed the technology you have it available across the portfolio in some cases it will be standard and then we're going to continue to really work and gain an ace and not necessarily supercuts, but I think the game changing nature of Super cruise I also I think is that it's very important that we're committed to and growing the feature and functionality of it.
Okay. Thank you much appreciated.
Thank you.
I'd like to turn the call over to maybe bar for her closing remarks.
Well, we appreciate everybody participating in the call. This morning, and as I said, so just a few minutes to go out and as we continue in the second half of the year I remain confident in our full year guidance is based on where we're at in the truck launch and the opportunities that lie ahead, especially with heavy duty models. Yet. This this year and then the strength of our cross overs as well. We're also on track as I mentioned to deliver the cost savings associated with the business transformation and with a good chunk of it already behind us and we continue to have execute well defined plans and if we step back when we recognize that there are challenges, but as we look at it the reward for overcoming these challenges and being very disciplined is that we get the privilege of working on the future of transportation of being able to lead the industry as we look at E.V., and Avi and giving customers more accessibility and more choice. So we are committed and fully working to win the race and make sure that we do create a stronger future.
Sure for General Motors that will benefit our employees, our customers and our shareholders and that side of the dedication of the entire GM team.
So thank you all very much for participating we hope you have a good day.
Ladies and gentlemen that concludes the conference call for today.
Okay.