General Motors Company (GM) — Q3 2015 Earnings Call Transcript

Thanks, Operator. Good morning and thank you for joining us as we review GM's financial results for the third quarter of 2015. Our press release was issued this morning and the conference call materials are available on the GM Investor Relations website. We are also broadcasting this call via webcast on the Internet. Included in the chart set materials published this morning, we have included the key takeaways from each chart in the notes pages in order to provide color on the results. This morning, Mary Barra, General Motors' Chief Executive Officer, will provide some brief opening remarks; followed by Chuck Stevens, GM's Executive VP and CFO. And then we will open the call for questions from the analyst community. Before we begin, I would like to direct your attention to the legend regarding forward-looking statements on the first page of the chart set. The contents of our call will be governed by this language. In the room today, we also have Tom Timko, Vice President, Controller and Chief Accounting Officer, to assist in answering any questions. Now, I'll turn the call over to Mary Barra.

Thanks, Randy, and welcome everyone. I'm glad you could join the call today, and I'm very pleased to share with you that we continue to drive strong performance and shareholder value in Q3. Let me give you some of the financial highlights. First, our revenue was $38.8 billion. Our EBIT adjusted of $3.1 billion was up $800 million year-over-year. Our EBIT-adjusted margin of 8% was up 2.2 percentage points from a year ago. Earnings per share adjusted of $1.50 was up 55% from last year. Adjusted automotive free cash flow of $0.8 billion reflects seasonality and the settlement of several uncertainties, and our 26% return on invested capital based on a trailing fourth-quarter average demonstrates that our disciplined capital allocation is paying off. Our strong year-over-year performance in the quarter was led by North America. It had $3.3 billion in EBIT adjusted with an 11.8% EBIT-adjusted margin. These are both records for North America. Regarding China, you'll recall that last quarter, Chuck and I discussed with you the slowing growth in the China market, but we shared our plans for sustaining our margin in the second half based on our strong product mix and the ongoing work to drive cross-efficiencies. So, in the quarter, we maintained strong performance. Our equity income was $0.5 billion, and we achieved a 9.8% net income margin, which is up from a year ago. Overall, strong performance in cash generation enabled us to return $4.6 billion to our owners as of October 19 through both share buybacks and dividends. In addition to the strong performance in the quarter, I want to provide a couple of updates on the progress we're making on our strategic priority. As we indicated in our Global Business Conference, we intend to lead and win in the future of personal mobility and create new revenue streams that will drive shareholder value. We are leveraging our connectivity leadership to enhance our relationship with the customer both inside and outside of the vehicle. One of the announcements we made was the Let's Drive New York City. This is a car-sharing program that uses our GM platform and app to connect Ritz Plaza tenants to GM vehicles and to Icon Parking. And we've gotten a good response. We've also announced that we plan to launch a city-wide car-sharing service in the U.S. in the first quarter of next year. Now, both of these are built on the work that we've done in the past and the success of the Opel CarUnity car-sharing app, as well as the learnings from our Google car-sharing pilot. In addition, let me talk about autonomous for a minute. We announced that we will implement a fleet of autonomous 2015 Chevrolet Volts at the Warren Tech Center next year. Not only will this accelerate our autonomous technical learnings, but it will also help us learn from an ecosystem perspective. This builds on top of our previous autonomous announcements with the launching of Super Cruise and V2V that will both be on Cadillacs next year 2017 models. And we are strengthening our relationship with the customer inside the vehicle as well. OnStar is now on four continents; North America, Europe, South America, and China. We have more customers connected to their vehicles than the rest of the industry combined. By year-end, brands on three continents will have 4G LTE technology – Cadillac in China; Chevrolet, Buick, Cadillac, and GMC in North America; and Opel and Vauxhall in Europe. Let's turn to a minute for the markets. First, in North America. Clearly, trucks, crossovers, and SUVs drove strong sales gains. U.S. retail market share in Q3 was up nearly 1 percentage point from a year ago, 16.5% compared to 15.6% in 2014. GM's share of the entire retail full-size pickup segment is approximately 40%, up 2 percentage points from a year ago. And in the mid-size pickup segment, our new Chevrolet Colorado and the GMC Canyon pickups are already earning 40% of the retail share. And we have more coming from our three-truck strategy with the redesigned 2016 Chevrolet Silverado and GMC Sierra. Not only will we have greater availability of the 8-speed transmission, we'll also have new safety features, including Lane Keep Assist and forward collision alert as well as enabling Apple CarPlay and Android Auto. Moving to Europe. We're very excited about the all-new Opel Astra. And when we launched it, we had 30,000 pre-sell orders. The Astra has segment-leading active safety technologies and connectivity with OnStar and 4G LTE and also Apple CarPlay and Android Auto are also enabled. In China, we had record sales of 2.5 million vehicles through Q3 driven by the strength of SUVs, MPVs, and Cadillac. GM's year-over-year SUV sales were up 171% in September, led by the Buick Envision and the Baojun 560. And Cadillac is up 12.4% year-to-date. At GM financial, progress towards full captive capability is accelerating. Our North America retail penetration of 32% is up 21 percentage points versus a year ago. And looking ahead, we also announced in the quarter that we plan to invest $5 billion through 2019 to enhance the Chevrolet brand in key markets of China, Brazil, Mexico, and India. This really represents a new way of addressing these markets. It represents about a 2-million-vehicle opportunity annually. What we're doing is replacing multiple legacy products with an all-new vehicle family that will have leading design and the right technology and the right value for those customers. We're leveraging our scale across the value chain to develop this new vehicle family that will require less capital, generate more volume, and drive more profitability. As we look at cost efficiencies, we continue working across the entire value chain to make sure that we are as efficient as possible so we can enhance the customer experience and also drive shareholder value. As we talked about in the Global Business Conference, we have identified $5.5 billion of savings from the 2015 to 2018 timeframe. That's from purchasing initiatives, manufacturing, driving for efficiencies, and reducing administration expenses. These savings more than offset the additional brand and technology investments that we're making. We also continue to work on the right partnerships. We announced the Navistar partnership that will allow us to provide a Chevrolet medium-duty truck in the U.S. in 2018. Not only is this a segment we're not in right now, but on the commercial side, it will help us drive adjacent sales. We continue to have a very productive partnership with Honda, focused on fuel cells. We're developing not only the next-generation hydrogen stack and storage system, but we're looking for other opportunities and the fuel cell work should be in the 2020 timeframe as what we are targeting. As strong as the third-quarter performance was, we understand and are working to mitigate the headwinds that are in several areas around the globe. South America continues to be very challenging. The Brazil market is down 27% in the third quarter versus a year ago, and there's really no clear economic recovery in sight. As we talk about China, it is quickly maturing, and we now expect average annual industry growth to be about 3% to 5% for the next few years. The China slowdown is not only affecting our business in China but also in other international operation markets outside of China because these economies are so dependent on China. This means growth will remain slow. But as I've said, as we look at the global auto industry, there will always be headwinds across the globe, and we are committing to achieving our targets. As we said in January, for this calendar year, we fully expect EBIT adjusted and EBIT-adjusted margins to be higher. We continue to be confident in our trajectory towards the 2016 goals that we've outlined. Quickly, they are in North America, and we're expecting to achieve the 10% margin this year ahead of schedule and plan to continue and sustain that performance into 2016. In Europe, we expect to be profitable in 2016, and we will earn that by capitalizing on the success of the Astra and Corsa launches that have higher variable profit. Despite the slower growth, there is still significant growth potential for China. Much of the growth will be in the tier 2 to 4 cities, which currently represents 85% of GM's volume. We will continue to focus on sustaining strong margins between 9% and 10% through the sales growth afforded by MPVs, SUVs, and Cadillac. We also have other drivers that we've outlined of continuing to drive cost efficiencies, increasing our after sales, growing captive finance, and generating OnStar and connectivity revenue. We're also taking practical steps to manage the volatility in South Africa until there is a recovery. Our progress, or our work there started in 2011 to really drive efficiencies and we continue with several additional rounds as we move forward. Despite challenges in some markets, we are capitalizing on the strengths for a record-setting third quarter, and I'm very proud of the team. This performance increases our confidence and our plan to drive shareholder value. With that, I'll now turn it over to Chuck.

Thanks, Mary. I just wanted to take a few minutes to provide some perspective on the quarter and GM's results for the first nine months of the year. In addition to the record results that we posted in Q3, we've also put up some very strong results year-to-date. EBIT-adjusted results through September grew to $8 billion, up $1.3 billion year-over-year when you adjust 2014 for the impact of recalls. EBIT adjusted margins were at 7.1%, up 130 basis points again year-over-year after adjusting for the impact of recalls. Important to note that these results are very much on plan that we laid out earlier this year. Our adjusted earnings per share for the year-to-date period nearly doubled to $3.63 compared with last year. And as you step back and look at the results, they were broad-based on a year-over-year basis with all but one of our automotive regions posting year-over-year profit improvement during the first nine months of the year. So clearly, we're on track for a very strong 2015 as we committed to deliver earlier this year. And now that we are very pleased with our performance year-to-date, we will continue to take additional actions to drive efficiencies into the business. As I covered at the Global Business Conference and Mary just mentioned, we expect to drive $5.5 billion of run rate efficiency improvements by 2018 across the entire business. These efficiencies will more than offset economics, increased investments in brand building, increased depreciation and amortization and technology costs during that timeframe. All of these costs and cost efficiencies are underpinned by operational excellence, which is our corporate initiative to drive common tools and processes, but really most importantly, a continuous improvement mentality throughout our organization, and we are getting significant traction on that even in 2015. So the GM team is very focused on finishing the year strong and really carrying that positive momentum forward into 2016 and beyond. Just a few comments on a couple of our regions. First, China. As Mary mentioned, the company sustained strong operating results in Q3, which is consistent with the guidance that we provided you back in July. Although it's clear the industry has moderated, it's also clear that the region has not fallen off a cliff, as some observers predicted. In fact, as we talked about after our Q2 earnings, industry sales began to improve sequentially as the third quarter progressed. We continue to see improved performance thus far in October. Despite the moderating industry, we generated strong performance for the first nine months of the year, $1.5 billion in equity income and 10% net margins. As we've talked about on a number of occasions, we've been able to generate these results specifically because the team in China has been proactively managing the market risks with several actions such as optimizing mix. You've seen the results with the September sales being up significantly from an SUV perspective, aggressively reducing costs by rolling out cost-down-efficiency-up initiatives and really working to manage our inventory levels and ensure that we're aligning supply and demand. We are encouraged by China's cut in the purchase tax, and we are encouraged it will provide a tailwind to the industry for the rest of the year and into 2016, but our plan is to continue to proactively manage the market risks as we've been doing to protect profitability. Our previous guidance for growth is in the low-single digit range, and our ability to sustain our strong margin performance has not changed. Our guidance for Q3 is consistent with the guidance that we provided after our Q2 earnings. Moving closer to home, clearly, North America has put up some impressive numbers for the quarter. Again, record EBIT-adjusted and EBIT-adjusted margins of $3.3 billion and 11.8%. Importantly, year-to-date, we've achieved EBIT-adjusted of $8.3 billion and a corresponding margin of 10.5%. Despite typical seasonality in Q4, increased launch costs, and other seasonal impacts like lower production due to the holidays, we are very much on track to achieve a 10% margin in the region in 2015. This is an accomplishment we will deliver ahead of our longstanding 2016 commitment. We're in the process of finalizing our 2016 planning assumptions and will provide you with additional color in January on what to expect for 2016. As Mary said, we certainly plan to deliver 10% margins again in 2016. With regard to our outlook for the remainder of this year, as I said, we're very much on plan for improved full-year profit and margin growth versus 2014. This will translate into EBIT-adjusted from a total company basis north of $10 billion for the year. South America remains challenging, and there really is no near-term macroeconomic recovery in sight. We will continue to take actions to help mitigate the negative headwinds impacting the industry and results in that region. I would just emphasize that our view is that we are highly leveraged to the recovery when it comes in South America because of the actions we've taken over the last number of years. With specific regard to capital spending and free cash flow, I'd like to provide an update. First, on the capital spending front. Due to the timing of cash payments versus the accrual of our obligations, our revised cash CapEx forecast for the year is now $8 billion compared to our previous guidance of $9 billion. We continue to expect that our capital spending accruals will be in the range of $9 billion this year, so this is just a timing issue. Although we're still finalizing next year's planning assumptions, I would not expect this change and timing to materially impact our prior guidance that cash capital expenditures would be approximately 5% to 5.5% of revenue on an ongoing basis. As I said earlier, we will provide more specific guidance in January, but from a general planning perspective, the 5% to 5.5% still applies. Although we're expecting a lower amount of capital spending this year from a cash perspective, our free cash flow forecast is still expected to be about flat compared with 2014. The cash outlays associated with our recent legal settlements will offset the lower capital spending amount, enabling us to maintain that outlook we provided after the second-quarter earnings. We remain very committed to enhancing shareholder value over time as evidenced by the $4.6 billion of capital returned to our owners thus far this year, and we will continue to execute to our transparent capital allocation framework. So that concludes our opening comments. We'll now move to the question-and-answer portion of the call.

Thanks. Good morning, and congrats, everybody.

Thank you.

Thanks, Itay.

Chuck, I was hoping you can just maybe kind of quantify the rental impact this quarter in North America on variable profits?

I would say that the impact of rental in wholesales, if you look at the wholesales on a quarter-over-quarter basis, up about $100,000. About two-thirds of that was related to rental auctions. I'm not going to give you specific input on the variable profit itself, but from a pricing perspective, the Q3 pricing, roughly $100 million of that was associated with the rental auction issue as we cycle through that.

Great. And then I know it's a little early to talk about 2016, but I'll give it a shot, and congrats, of course, on reaching or expecting to reach a 10% target this year. As we think about some of the product cycle tailwinds next year on new product mix, is it fair to say that margin expansion next year is a fair early assessment for the year versus 2015?

Itay, I am absolutely surprised that somebody would ask that question about 2016. We will provide specific guidance on that in January. Our objective, our commitment, and what Alan talked about on October 1 at the Global Business Conference is to drive this business to sustain 10% margins through the cycle. As we evaluate how the industry is shaping up and everything else for next year, we'll come back and talk about that in January. We've reached the first milestone. We expect to generate 10% for this year. Clearly, our objective is to make sure we build this business to sustain that again throughout the cycle.

Great. Just one last quick housekeeping, of the $5.5 billion of efficiencies through 2018, Chuck, just remind us how much is left of the 2016-to-2018 period? I know you're realizing some of that this year.

Yeah. I'll provide a further input on that in January as well. But if you look just one of the components of that, this year we've talked about non-raw-material performance of $2 billion. We're very, very much on track to deliver that. So, broadly speaking, it would be $5.5 billion less that – I mean, generally, so about $3.5 billion left to go.

Terrific. Thank you very much and congrats again everyone.

Yeah. Thank you.

Good morning, everybody. Congratulations.

Hey, Rod.

I had a couple of questions. I was hoping first you might be able to give us a little bit more color on the China earnings bridge. Obviously, you had a 4% decline in wholesales. I'm assuming that you experienced what you were talking about, a 5% decline in price on your Q2 call. So, if we were to construct a bridge year-over-year from 3Q to 3Q, what would the dollar impact be if we thought about some of the buckets that you usually provide like volume, price, mix, and cost?

Yeah. I'll give you the breakdown from a driver perspective, Rod, but not the specifics on the EBIT bridge. Clearly, the volume would be down, and price would be down, largely offset by mix and improved cost performance. Fundamentally, the cost performance is largely in material cost performance. We've talked before around kind of the pricing headwind year-over-year on a quarter-over-quarter basis, and it's been running generally about $100 million. That equates to – from that bridge perspective. So, volume down, price down, largely offset by improved mix, and again, you've seen that in the sales results with SUVs and Cadillac sales being up, and material cost efficiency.

You're targeting flat IO for the year, which implies a little bit of a drop in the fourth quarter. Should we be thinking that China starts to look a little bit better from a volume perspective given the stimulus? Is it the consolidated IO that's coming off? Could you just give us a little bit more feel for what you're expecting there?

As we talked about in the second quarter and we're maintaining here, we expected to sustain China performance in the second half of the year, similar to the first half of the year. So, we earned about $1 billion of equity income in China in the first half; we expect to earn in that range in the second. We're $1.5 billion in so far, so you can do the subtraction. What we said about GMIO in total, including China, is relatively comparable results year-over-year. Again, I would suggest that we're very much on plan from a China perspective.

Okay. And just lastly, two quick ones. When we – if we were to add up all of these actions that you're taking in South America, could you give us a total of what you're anticipating as the cost savings? And on North America, you mentioned you're expecting pricing flat to down. Is that a change versus what you had been anticipating previously?

For the latter question, if you go back to the discussion we had back in January, I remember a chart that I showed. It showed carryover pricing in 2015 versus 2014 from a North America perspective was going to be down. I would say what we're seeing in North America is the general pricing dynamic on a year-over-year basis is consistent with our prior guidance. Retail pricing is going to be relatively flat, and most of the year-over-year deterioration is due to the rental car issue that we were dealing with. As I think about a go-forward basis or just the fundamental market dynamics, I think stronger retail performance, but generally, overall pricing in line with what we talked about before. Relative to the South America question, where do you want me to go back to, 2011 or 2012 or just this year on a run rate basis?

Well, we see what the profitability is there, right? So, how do things improve from the run rate that you're at right now, if we were to add all these actions together?

So, assuming consistent macro conditions in 2016 versus 2015, and we're not really assuming anything different. I'm not trying to give guidance for 2016 yet, but we took out 20% of the workforce down there, both hourly and salary; that's 4,000 to 5,000 people. That action in and of itself, on a run-rate basis, is worth a couple of hundred million dollars a year. But there are other puts and takes, Rod, that I don't think you can just directly translate that into guidance for 2016. Economics are pretty significant. We have productivity. We have other actions that we'll take to improve mix. Relative to specifics for 2016, we'll have more to say in January.

Okay. Great. Thank you.

Yes. Thank you.

Okay. Thanks. Yeah, first question and back to the pricing in China, have you seen any sort of improvement in pricing as inventories appear to come down for the industry throughout Q3?

I would say that the pricing dynamic is developing as we anticipated at least through Q3. Obviously, we'll continue to monitor that as we go through Q4. As we talked about before, we expected Q4 to be better from an industry performance driven by seasonality and product launches. The product launches could change the dynamic from a pricing perspective. But I'd say, generally consistent and too early to tell if that's changing as dealer inventories are getting kind of more in line at the industry level.

Okay. Got it. And then I had a couple of questions related to the issues that Volkswagen is having in Europe. Number one is have you seen any industry-wide impact to demand overall or to demand for diesel vehicles yet, or is this still too early to tell? And also, I mean, not asking to comment, but some of the numbers being thrown around for impact of Volkswagen are very high. Does that change your – GM's thinking at all in terms of the minimum cash required to protect against any kind of catastrophes?

Let me start by saying right now, our outlook for diesel remains unchanged. I think it's too early to look and make any judgments on that. Related to – again, we're not going to comment on the VW. But I think as we've gone through and looked at the very robust planning that we did last year as we put together the capital allocation framework, we remain committed to the $20 billion.

And let's not forget, Dan, that we also have a revolver. The revolver is an emergency backstop. Total liquidity is at $32 billion, and I don't think that you can really plan your cash balance around a potential – I'm just using this in a general term, I'm not speaking specifically to Volkswagen. But a company-type event. So, just not a good use of shareholder capital.

Okay, makes sense. Thanks very much.

Good morning, guys.

Good morning.

Just a first question on North America. I mean, obviously there's a lot of strength here. And it seems like mix and price were actually a little bit of a negative. So just curious, how we should think about the contribution of new products playing into profitability in North America. I know you kind of talked about the $1,500 per copy on the new products, but obviously, a lot of people are very skeptical about that, but it seems to be coming through. Just kind of understanding what role those new products are playing and what we should expect really in the fourth quarter and maybe even going into 2016.

First, mix is unfavorable largely because of the rental auction vehicles, right? I mean, buying was favorable, $400 million roughly; mix, unfavorable, largely offsetting that due primarily to the impact of those vehicles. We are committed to the next-generation vehicles as we roll through the launch cadence being more profitable than the vehicles that they replace. Think about it, broadly speaking, if you look at the Cruise, the Malibu, the next-generation compact SUVs, the Equinox, and then the next-generation mid-crossovers, in total, that volume is more than the entire K2XX platform. We delivered with the K2XX platform an improvement in profitability, as we talked about way back in 2012, of over $1,000 a vehicle. That's generally the perspective that we're going to see and what we've talked about relative to the next product launches. So that's going to help us. Specific to your Q4 question on pricing, I think – and this is typically what happens in Q4 sequentially as you launch the new model years and everything else. I think it will be a slight favorable overall pricing environment. Retail will be up and partially offset by fleet, from the typical fleet cadence as we roll through the rental auctions.

Okay.

A large part of that retail price favorability in Q4 will be associated with the launch of the new Malibu.

Okay. And just as we think forward, I'm not asking for 2016 guidance, but I mean, you're talking about 10% margins for North America, you did 10.5% year-to-date as we look at the LTM; you're kind of in that range or maybe even a little bit better on an adjusted basis. I mean, is there some sort of negative factor that you're looking at into 2016 that's going to suppress numbers or something that's not going to repeat in 2016, or is this really just an initial guide and we should revisit this in January?

Yeah. Well, first, we're 10.5% calendar year-to-date, and if you go back and look at Q4 from a seasonal perspective, that's typically one of the weak quarters from a margin perspective due to everything that we understand: Thanksgiving holiday, Christmas holiday, a lot of marketing spend around football, and in our case this year, some launch products. For 2015, we are very confident that we're going to generate 10% margins. We're going to continue to invest in marketing to build our brands, and we're going to continue to spend engineering associated with our product launch cadence and next-generation products so that we can sustain 10% margins throughout the cycle. We will have more specific guidance around that. But the real way to think about this, John, is we're at 10% in 2015, a year early. We're going to run the business to sustain that 10% margin on an ongoing basis.

Makes a lot of sense. Then on, just on GM Financial, revenue was up 36%, EBIT up 13%. I know that's a potential area for structural improvement in EBIT over the next couple of years. When do we see sort of a linear or sort of parallel step-up in EBIT along with just a growth in revenue and loan book there? Just curious like, I mean, it just seems like at some point we're going to see a real step-up. Is that 2016, 2017, or 2018?

Yeah. I think it will be beyond 2016 as we continue to ramp up both the operations and you're taking on debt in advance of the assets. I think the real lever point will be beyond 2016, John.

Got it. Just lastly on buybacks, you've clearly gotten a lot of stuff out of the way here on the DoJ fine, a lot of the ignition switch settlements pretty much wrapped up. You're looking at a pretty strong 2016. I mean, when do you think you could reconsider more buybacks? Is that late this year or is that sometime in 2016 when you get better visibility on year-end balance sheet and liquidity and 2016 results?

We did extinguish some risks. We still have a handful of open items that we'll work to resolve as timely as we can, but done in the right way. We'll be ready to talk about that in January of next year, of where we're at from a capital allocation perspective.

Mary, what are those specific hurdles or items that still need to get resolved?

There are still a couple of investigations with the Federal Trade Commission and the SEC. Then there's also parts of the multidistrict litigation. There's still some state attorney claims, and there's also the economic loss.

Great. Thank you very much.

Thanks, John.

Hi. Good morning, everybody.

Good morning.

Hi.

First question on the pricing in North America. So, the retail pricing was somewhat negative. Can you maybe give a little bit of color on where specifically on retail you saw sort of like this pricing pressure in either segments or vehicles? And how does that reflect or not some of the U.S. market dynamics right now?

Well, let me just start at 10,000 feet Emmanuel, 11.8% margins, so that's what we generated in the third quarter. Very strong outstanding performance. Within that, there were carryover price headwinds which is typical in the third quarter as you work through and sell down your prior model year products. When you think about as we are in the launch cadence, it's no surprise that some of our vehicles are getting longer in the tooth. We continue to support those products. But you need to look at it in the context of 11.8% margins. We already talked about Q4. We talked about the calendar year from a pricing perspective. Overall, the dynamics in the industry remain reasonably rational. Overall incentive spending and incentive spending as a percent of transaction price is up slightly on a year-over-year basis. Our incentive spend as a percentage of compared to the industry average ran at 110%, which is consistent with last year. We feel reasonably good about the competitive dynamics. But we're really feeling pretty constructive on our launch cadence and the products that we'll be bringing into the market next year, which will come with favorable pricing.

Okay. That's good to hear. And then just on GMIO ex-China, maybe I'm just nitpicking here, but seemed like a slight deterioration in the last maybe versus the past few quarters. When can we expect, I guess, this region to turn to breakeven ex-China, ex other unusual items?

Yeah. We will talk more about that in January as we go through the planning. I would say that the viewpoint should be that we continue to aggressively look at all of our operations, all of our countries where we're currently not generating a return to drive efficiency, to drive structural change, to position the business for future success. We were making good progress in GMIO. The current macro situation there with the slowdown in China, which Mary talked about, is having an impact, but we will continue to take those actions and we'll provide an update on that on a go-forward basis. Thinking about the broad context from a company perspective, $3.1 billion in EBIT and 8% margins, and I think the real opportunity is once we get the rest of the regions operating very well, that will even be more accretive to what was a very strong, actually a record quarter.

I agree. Thank you very much.

Thanks.

Thank you very much. I was just wondering if we could go back into the North America accounting issue with the rental car fleet. If I heard you correctly, Chuck, you'd indicated that most of the excess of wholesale versus production was related to the rental car volumes, is that correct?

That's correct.

And then, you'd mentioned the pricing was $100 million. Is there a bigger impact on the profit side? Because if I look at the incremental operating leverage in North America, at 50%, it seems awfully strong. I know there's a lot of good things going on, but that just seemed like a really strong incremental operating leverage.

One of the things that we talked about, if you look at share performance year-to-date is our real focus on shifting our volumes out of fleet and into retail because retail is more profitable than fleet. Clearly, our objective is to drive more in retail which is more profitable.

Okay. The second question is, if we look at the IO results ex-China, you've announced restructuring actions in Australia, Indonesia, and Thailand. When should we expect to see the impact of those actions in the financial results based on the execution of the restructurings?

Yeah. More to come on that, again, in January. We're still working through the Australia actions, and those won't be completed until 2017. We're still working through the Thailand actions, and hoping the shift of moving to fundamentally a truck SUV platform there will happen through 2017. These are ongoing. I would suggest that in a more historical macro environment versus some of the headwinds we're facing this year: slowing growth in Southeast Asia, a very weak Aussie dollar, and some other challenges related to China, we would be seeing year-over-year improvement already.

Okay. Thank you. Appreciate it.

Yes.

Hi. Good morning. Three questions around commodities around Europe and then kind of a broader one around self-driving cars. First, commodities. You mentioned the material benefit in GMNA as well as globally. To what extent was that driven by the whole commodity complex being lower versus supplier value engineering efforts, and if it's mostly from the latter, working with the suppliers, as some of your commodity contracts renew, can we expect a tailwind from commodities going forward?

The overall impacts in the quarter from commodity pricing were minimal. It was largely driven by commercial performance and logistics performance. From a go-forward basis, just to provide a sensitivity on commodity, when we look at the year, I would say year-to-date, the year-over-year impact is a couple of hundred million bucks. We would expect that to be kind of the calendar year impact. Our APV or annual purchase value of commodities is about $28 billion. About 30% of that or so is indexed, which means we take the risk. A 5% movement in commodities is worth $400 million to $500 million on an annual basis, all other things being equal. As we look at 2016 versus 2015, if current commodity prices continue, I would think it would be a tailwind. But again, that will continue to work through our planning for 2016, and we will provide more guidance on that in January.

Second question, around Europe, two questions. Are you seeing any – you saw pricing firming in Q3. What impact do you see on pricing from Volkswagen's issues? Is it on the one hand, they could potentially become desperate and pull the price down or on the other hand, can you get paid for some of the value you can add to drivers?

The pricing strength in Q3 specific to General Motors and Opel Vauxhall was the launch of new products and new product pricing. Our new products are getting traction, and that's good. We would expect to see that continue as we work through the launch cadence. It is really too early to tell and too early to speculate on what could happen with the competitive dynamics in Europe. Our focus is to launch our products, deliver great products that have compelling value, continue to drive improvements in the Opel brand which, in general, under any circumstance, will provide pricing power vis-à-vis where we're at today. The overall environment could change, but at least on a relative basis, by executing our plan, we should have better pricing power than we have today.

If the consumer comes into the showroom, and on the margin goes more for gas engines than diesel engines, do you have the gas engine plant capacity to satisfy their demand?

Yes. From an industry perspective, in Europe, we're underweight diesels versus the competition. Our diesels run at about 40%, and the rest of the industry is somewhere between 50% and 70%. They certainly have the flexibility.

Okay. Great. Final question kind of around self-driving cars. We had a new entrant automaker rollout, what they're calling autopilot, last week. Can you remind us of the timing of the Cadillac Super Cruise? And then just more broadly, how do you think about how fast to get these things to the market versus making sure that they run effectively and you're not in a sort of – folks in Silicon Valley would say, throw stuff out there, and let the users beta test it. Just kind of your philosophy on that technologically.

I think, for some, with the tremendous experience that General Motors has as we look at safety and we look at integrating and – one of the reasons we announced that we, by the end of next year, will have 2017 Chevrolet Volt on autonomous fleet at our tech center is to not only advance the technology but also understand it in the ecosystem, also have tremendous exposure to our engineering team at that site. All of those things I think will point to advance the work we're doing and accelerate it from a technical and from all the other aspects that you need to have come together from an autonomous perspective. The way I look at autonomous, in general, is that there's two paths, and we're working on both. There's the path that we're on where if you look at, especially a Cadillac today, there's tremendous technology around it that is on the road to full autonomous with all the safety features and all the warnings and the ability to have forward collision braking, et cetera. When you look at Super Cruise and the V2V communication, those will both be on 2017 Cadillacs, but they'll be in the marketplace next year. We have also announced a strong partnership and the work we continue to do with Mobileye. We were their first customer. We're their largest customer. We continue to work closely with them. We're also exploring some other opportunities. I look at it as there's the evolutionary path where you're putting a technology on and customers get the opportunity to experience it. There's the revolutionary path where you go full autonomous. We're executing both. I assure you that we're doing it with a huge focus on safety as we go forward.

Okay. Thanks.

Oh, great. Thanks for taking my question, and congrats on a great quarter.

Thank you.

Can you remind us about the impact that rental pricing has had year-to-date because despite your 10%, 10.5% year-to-date margin, that was actually a pretty big headwind. Is that going to go away next year? Or is that still going to be a residual risk next year? Is that actually going to be a pretty large tailwind?

Again, think about pricing in an overall broad context. I think our guidance for the year is that pricing is going to be consistent with what we talked about back in January, which was more of a headwind in 2015 versus prior years. Year-to-date, kind of the fleet-alone impact is roughly $700 million to $800 million of negative net price. As you recall, it was $400 million in Q1, a couple of hundred million dollars in Q2, and then $100 million in Q3. We aren't ready to provide guidance on pricing going into 2016 yet, although, I would say that, overall, we would expect a net favorable positive pricing environment really driven by the launch of our new products.

Can you give any color on what you're seeing in initial demand following the stimulus in China? I mean, because you've kind of said that you think now 3% to 5% is the long-term outlook? Is this having a big help in the near-term though?

Not yet. There is, obviously, something that we continue to closely monitor. What we've seen so far in October is our retail sales are up over 10% on a year-over-year basis. It's early days in October; the industry is up, but we expected that as well. We're dealing with, in China right now, the holiday season, so there are some specific nuances from a market perspective. That's something we're going to continue to monitor. Remember, this program runs through the end of 2016. Typically, with any of these kinds of things, you may get some rollover from the tail end of September into October, but the real big bump will be near the end of next year depending on what the government decides to extend.

Yeah. And any color on Europe, can you give us the status of the Russia wind-down, the Chevy wind-down, and any color on what kind of headwind those were within this year's result?

I'm not going to talk about specific country-level profitability with Chevy Europe, but we talked about before that Russia was a fairly significant headwind and that as we move through the year, that impact would diminish. It has. From an overall GM Europe perspective, we are very much through the Chevy Europe wind-down. These have gone very well, and both the Chevy Europe wind-down and kind of the Russia restructuring plans have gone very much according to plan.

Okay. Thanks for taking my question.

Yes.

Hi. Good morning. Congrats on another great quarter.

Thanks, Ryan.

Thank you.

First question, on mix in China, I think your performance in China this quarter was better than investors expected. Our internal checks suggest enhanced pricing pressures in the country although your margin notably rose year-over-year. Can you talk about the drivers of that margin strength? How much is being driven by mix, right, by the new models, SUVs, CUV mix, traction of the Cadillac brand? How was that mix improvement accomplished, and how should we think about it tracking going forward given there seems to be a consensus that sales in China will move towards the less wealthy tier 3, tier 4 cities in the interior relative to the richer coastal cities?

First, I covered the mix question earlier, that mix and material cost performance offset kind of volume and price headwinds. If you look at the sales results, September, for example, SUV sales are up 171% year-over-year. SUVs as a percent of total China sales were at 17% versus 6% in the year-earlier period. Cadillac, up 12%. This is all very beneficial. On a go-forward basis, Matt talked about the Global Business Conference that the market and the real growth will develop and the real growth was going to come in SUVs, MPVs, and luxury. They're going to over-index. We believe that there's a significant opportunity from a mix perspective going forward. I also suggest that in the tier 2 to tier 4 cities, the launch of the Baojun brand and the expansion into SUVs provide us with a unique opportunity to take advantage of not only SUVs in the Chevrolet, Buick, and Cadillac channel, but also SUVs in the Baojun brand as growth increases in tier 2 to 4 cities. Our perspective is mix will continue to be a favorable tailwind for us going forward.

Okay. That's helpful. Thanks. And then just for my last question, let me try to approach, I guess, what some are calling dieselgate from a different perspective by folks and what it means for your previously communicated strategies. One of your DRIVE!2022 goals for Europe is to improve the perception of, and therefore the pricing of, your vehicles. We met with Michael Lohscheller in Rüsselsheim earlier in the year. It seemed the team there was already focused on the opportunity to improve Opel pricing relative to VW even before the emergence of this issue just by building better product. As you know, from your work on Cadillac in the U.S., sometimes you can build much better product, then there's sometimes a time lag between when you field the better product and when you get fully rewarded for it because you also have to change the consumer mind. Does the VW situation chip away at all at this consumer perception in Europe at least of engineering superiority associated with that brand, and so therefore play into the look-again theme relative to Opel?

If you look at the plan that we've been on to not only have a winning product in the marketplace for Opel and Vauxhall but also build the brand, there's been tremendous work done by Tina Müller, our Head of Marketing for Opel and Vauxhall, of doing just that. The metrics prove out that we have changed minds, and there is more favorability around the Opel brand. Then you look at the strong products that we have, the Corsa, the Karl, and then you look at the Astra. The Astra not only is a great vehicle from a styling and fundamentals perspective, but it has safety features that are industry-leading. It has connectivity that's not available across and also some features that are generally only available in luxury. We look at the strengths of Corsa, Karl, and the whole portfolio, and there is the youngest – approximately four years or less. We feel that we're very well positioned going into the market with these launches. We're going to work hard to earn every sale.

Okay. That's helpful. Thanks. Congrats again.

Thank you.