General Motors Company (GM) — Q1 2019 Earnings Call Transcript

Thanks, Dorothy. Good morning and thank you for joining us as we review GM's financial results for the first quarter of 2019. Our press release was issued this morning and the conference call materials are available on the GM Investor Relations website. We're also broadcasting this call via webcast. I'm joined today by Mary Barra, GM's Chairman and CEO; Dhivya Suryadevara, GM's Executive Vice President and CFO; and a number of other executives. Before we begin, I'd like to direct your attention to the forward-looking statements on the first page of the chart set. The content of our call will be governed by this language. I will now turn the call over to Mary Barra.

Thanks, Rocky, and good morning everyone. Thank you for joining. Our Q1 results are as follows: net revenue of $34.9 billion; EBIT adjusted of $2.3 billion; EBIT adjusted margin of 6.6%; EPS diluted adjusted of $1.41; our automotive adjusted free cash flow was a negative $3.9 billion; and our return on invested capital adjusted was 23.8% on a trailing four-quarter basis. These results are in line with our outlook that we shared earlier this year. Q1 seasonality, full-size SUV production downtime, and reduced volumes in China impacted our results. We remain confident that our strong new vehicle launches and clean full-size trucks, along with ongoing business transformation actions, will help us deliver our full-year commitment. Let's begin with our performance in North America. We generated the highest-ever first-quarter average transaction prices on the strength of our trucks, SUVs, and crossover segments. Our Truck 1 strategy is focused on maximizing profitability by first introducing a richer mix of popular high-margin models like crew cabs, followed by regular and double cabs. We are selling every truck we build. This strategy is also helping us grow share among higher-priced trucks at the expense of our competitors. For example, the GMC Sierra has gained four percentage points of share this year among models priced over $50,000. In addition, year-over-year Q1 average transaction prices on our all-new light-duty crew cabs were nearly $5,800 higher than our outgoing model. Our truck launch continues to be well-positioned moving forward. We expect supplies of light-duty pickups will reach an optimal mix of cab styles and trims in the second quarter. In the second half of the year, when industry truck sales typically surge, we will introduce our 2020 Chevrolet Silverado and GMC Sierra heavy-duty pickups. These are very popular with commercial customers and they contribute to adjacent sales of our light-duty pickups. As previously announced, to meet expected higher demand, we will increase heavy-duty capacity in Flint to build a higher mix of crew cab styles and trims that represent a strong profit growth opportunity. In addition, we are on track for our upcoming full-size SUV launch with the planned downtime now behind us. We intend to build on our truck leadership. And with that in mind, I want to address media coverage of the various industry partnerships around battery electric vehicles and trucks. As you know, GM has an industry-leading truck franchise and industry-leading electrification capability. I assure you we will not concede our leadership on either front. We intend to create an all-electric future that includes a complete range of EVs, including full-size pickups, and we will share additional information when competitively appropriate. Moving on to our crossover and SUV performance, we introduced the all-new Cadillac XT6, which goes on sale later this year. We are encouraged that two-thirds of the sales of the segment-leading Cadillac XT4 are to brand-new customers to the brand. The Chevrolet Trax and Equinox set Q1 records. The GMC Acadia achieved its best quarter ever, and the Buick Enclave sales are up 28% year-over-year. Dhivya will share more about our business transformation actions, but I want to update you on our progress toward offering relocation opportunities to employees at our unallocated plants. There are jobs available for all 2,800 impacted hourly employees, and more than 1,300 have already accepted transfers to plants supporting growth segments like trucks, crossovers, and other high-demand vehicles. This includes our next-generation Corvette, where just last week we announced we will add a second shift and 400 jobs at our Bowling Green, Kentucky facility. Moving to our international operations in China, as we shared earlier in the year, we expected lower volumes and equity income in the quarter due to ongoing industry pressures. We stated in January that we believed the industry would be roughly flat. There is uncertainty because of the stimulus discussion, with nothing being finalized that we believe is creating more downside than upside risk in the near-term. We need to see the final details and how this will translate into demand for autos. But specific to General Motors, we see tailwinds in the second half related to our vehicle launches. We continue to believe we are well positioned for the long-term. Our strong brands and partnerships and our favorable mix of new vehicles continues to be a distinct advantage. The first sedan from our new global family of vehicles, the Chevrolet Onix, went on sale two weeks ago. It will be joined later by the Chevrolet Tracker and the Buick Encore, two new crossovers from this family. We expect Cadillac's underlying strength in China to continue. Cadillac is updating its portfolio with a refreshed XT5 in May, an all-new XT6 in July, and the all-new CT5 sedan later this year. In South America, we have been working with stakeholders to generate appropriate returns in a challenging environment. Recently, we received meaningful concessions from all stakeholders that will enable us to invest nearly $2.7 billion over the next five years at two of our facilities in Brazil. Because we now see a viable path forward, we will build future Chevrolet models at these facilities to strengthen our leading position in Brazil. These investments were contemplated in our overall capital plan. Turning to our future mobility initiatives, this quarter we announced that we will build a second battery-electric Chevrolet model, along with the Bolt EV, at our Orion Assembly facility in Michigan, creating 400 new jobs when launched. On the self-driving vehicle front, GM Cruise will hire 1,000 employees this year, doubling its workforce as we work to safely deploy Cruise AV. So to recap the quarter, we delivered the results we expected given typical seasonality, full-size SUV downtime, and industry pressures in China. Before I turn it over to Dhivya, I do want to recognize Barry Engle, Gerald Johnson, and Julian Blissett. They all began their new roles as part of our senior leadership team this month. They are proven leaders that will help continue our transformation and position the company for long-term success. Now, let me turn it over to Dhivya.

Thanks, Mary, and good morning everybody. We delivered solid results in the first quarter of 2019 in line with our expectations as we face traditional Q1 seasonality, lower volumes in China, and downtime as we prepare for the launch of our full-size SUVs. The strong performance of our all-new Silverado and Sierra pickup trucks, and favorable impact from transformation actions offset some of these headwinds. With that, let's review the results in more detail. As Mary mentioned, we generated Q1 results of $34.9 billion in net revenue, $2.3 billion in EBIT adjusted, 6.6% margin, $1.41 in EPS-diluted adjusted and a negative $3.9 billion in adjusted automotive free cash flow. The $1.41 EPS-diluted adjusted includes a $0.31 benefit from Lyft and PSA revaluations. Excluding the impact of these items, the core automotive performance was solid and in line with our expectations. The Q1 cash burn of $3.9 billion reflects normal seasonality and is consistent with the cash flow outlook provided earlier this year. Let's turn to North America. North America delivered EBIT adjusted of $1.9 billion and 6.9% margins despite downtime for full-size SUVs, lower pension income, increased depreciation, and commodity headwinds. The performance of our all-new light-duty crew cabs, strong mature cost performance, and savings from our transformation actions partially offset these headwinds. The launch of our light-duty Silverado and Sierra trucks has been exceptionally strong, and it contributed favorably to volume, mix, and price during the quarter. As Mary mentioned, our launch strategy is focused on maximizing profitability. With our transition from old to new architectures, we released the constraint on crew cab capacity and filled the pipelines with these high-feature high-content trucks. We're seeing strong average transaction prices from the new trucks, and incentives remain disciplined. We're not growing our traditional cab and powertrain variants. We expect share in the lower-price segments of the markets to increase as the mix normalizes. We see additional opportunity for upside from the heavy-duty later this year as we launch our strongest, most capable heavy-duty ever, featuring a powerful all-new Allison 10-speed automatic transmission with a Duramax diesel engine for class-leading towing capabilities. Our crossovers also performed well in the quarter, gaining market share and were a positive contributor to year-over-year profitability. Let's move to GM International. For the first quarter, EBIT-adjusted in GMI was down $200 million year-over-year, due to lower equity income in China, partially offset by the favorable impact of restructuring actions in Korea. China equity income for the quarter was $400 million, down $200 million year-over-year, as a result of lower industry volumes and pricing pressure, partially offset by cost efficiencies. The team in China continues to manage the business with an intense focus on cost and finding other opportunities such as growth in adjacencies to mitigate headwinds. We have been taking actions to right-size our inventories in China by reducing production in Q1 by almost 20% year-over-year. We continue to work on reducing inventory through production actions, as well as retail sales increasing in the second half of the year with our 20 new launches in 2019. In South America, we continue to make progress on the turnaround of our business. We had a great franchise with leading market share, and Brazil saw its best Q1 share since 2010. In working with the unions, the state of São Paulo, suppliers, and dealers in Brazil and in Argentina, we've negotiated a historic agreement that allows us to invest nearly $2.7 billion over the next five years while reducing labor costs, indirect taxes, and material costs. These negotiations coupled with continued pricing actions and the introduction of our global family of vehicles will help us move towards generating acceptable returns in this region, despite the macro volatility. A few comments on GM Financial, Cruise, and our Corporate segment. GM Financial posted an all-time record quarterly revenue of $3.6 billion in the first quarter and EBIT-adjusted of $400 million, as a result of portfolio growth offset by expected residual value pressures. Cruise costs were $200 million for the quarter and will ramp up through the year as we continue our hiring. We expect to spend approximately $1 billion in the Cruise segment in 2019, up year-over-year as we increase our headcount. Corporate segment income in the first quarter was $200 million, including approximately $100 million favorable impact from PSA warrants and $300 million due to Lyft revaluation, after applying a liquidity haircut to reflect our six-month lock-up agreement. We continue to expect the underlying spend in the Corporate segment to be about $1 billion in 2019. Before I close, I wanted to reiterate our outlook for the calendar year. We continue to expect strong EPS-diluted adjusted in 2019 in the range of $6.50 to $7 and adjusted automotive free cash flow in the range of $4.5 billion to $6 billion. As I've mentioned before, we will face some headwinds, including moderately lower equity income in China, headwinds from commodities and tariffs to the tune of about $1 billion and depreciation and pension headwinds of approximately $1 billion. Offsetting these are a number of tailwinds, including the full-year benefit of our truck launch, a meaningful benefit from Cadillac XT4, Cadillac XT6, and Chevrolet Blazer, and the rollout of our global family of vehicles. We also continue to expect transformational cost savings of $2 billion to $2.5 billion through 2019. We have made significant progress to date on the cost savings initiative. With the savings front-end loaded, we expect to achieve a significant portion of the 2019 savings starting in Q2. Our effective tax rate assumption for the year remains in the 16% to 18% range. We expect to achieve our full-year free cash flow outlook through strong EBIT performance, a partial rewind of working capital through the balance of the year, as well as dividends from China and GM Financial. This team is committed to improving the quality of earnings and free cash flow conversion. Regarding the quarterly cadence in 2019, the first quarter is expected to be the weakest due to seasonality, full-size SUV downtime, and lower volumes in China. In the second quarter, we will take three weeks of downtime in preparation for our heavy-duty pickup launch. By the full year, heavy-duty volumes are expected to be flat year-over-year as we took a similar amount of downtime last year in the third quarter. As we take additional inventory actions in China in Q2, we expect equity income to be sequentially weaker. As we cycle past the downtime in North America and actions to address inventory in China, we expect the second half of the year to be meaningfully stronger, both from an EBIT as well as free cash flow perspective. In summary, we had solid performance in Q1 and it sets us up well for strong performance for the rest of the year. That concludes our opening comments, and we'll now move to the Q&A portion of the call.

Good morning, everybody.

Good morning.

I just had a couple of questions. One is on China. On your Q4 call, you mentioned that Q1 would be similar to Q4 as you worked on inventory. It's obviously a little bit better. But now you're talking about that inventory correction continuing into Q2 and it's sequentially weaker. I was hoping you might be able to give us some parameters or brackets around how we should be expecting the year to look and what's the magnitude of these adjustments if you were not to be correcting inventory. What's sort of the underlying profitability of the business?

Well, Rod. This is Mary. I think it's really important for us to achieve some stability from all the stimulus measures. Currently, there is a lot of volatility, and discussions happen without final decisions, leading to uncertainty for customers. We are hoping for that volatility to resolve and for decisions to be made, as we believe this is affecting our volume. We are seeing some positive signs in China. Additionally, on the GM-specific front, we have several significant product launches planned for the second half of the year, with some already starting in Q2. It's challenging for General Motors to make predictions when the industry as a whole is working to build consumer confidence regarding stimulus expectations.

And if I could add a data point, Rod. In Q4 typically, we do have a higher level of launch costs. So you saw that in Q4 of 2018, we were impacted by about $100 million additional launch costs. So stripping that out in Q1 and we did take production actions of 20% year-over-year there is still as Mary mentioned work yet to do from an inventory rightsizing perspective. And we do see a path to making progress there in Q2 this year.

Okay. Excluding the inventory correction, I mean was there an inventory correction that occurred during Q1? So would the underlying profitability be better excluding that?

We had flat inventory, with dealer inventory remaining steady at the end of Q4 of 2018 compared to Q1 of 2019. Actions were taken to address this, including a 20% production adjustment. Due to the volatility we've experienced in China, there is still more work to be done beyond what we accomplished in Q1.

Can you just switch to the pickup truck rollout? At one point you talked about a $2 billion revenue upside and some new platform, was wondering if that's still the case. There's obviously been a bit of volatility on your market share performance since you've been transitioning now with a pretty low inventory so far in the regular and double cabs. What's the status of that objective?

Yes. So if you think back at the $2 billion there were a few points we made at that time. Firstly, the crew cab capacity in our K2 was constrained and we were running at below-industry averages from a crew cab perspective. And with the T1 architecture, we were able to release that constraint so that we were able to increase our penetration from a crew cab standpoint by over 10 percentage points. So that was a huge driver as we talked about the revenue opportunity. We're very much in line from the additional revenue opportunity in crew cab mix. And frankly, you're seeing that flow through in Q4 of 2018 and Q1 of 2019 as well as that's helped us offset some of the headwinds that we are seeing. In addition to that, Rod, we do have capacity increases in T1 versus K2 that we had already built in. And from the light-duty standpoint, we were able to increase capacity by a few couple of tens of thousands units and that drove tailwinds as well that was factored into the revenue opportunity of $2 billion. So between the crew cab mix and the additional capacity we are on track for the $2 billion revenue opportunity.

Great. And just one last quick one, you gave a range of $4.5 billion to $6 billion free cash flow. It's a pretty broad range. Whatever happens in China obviously wouldn't affect that this year since the dividends would come in next year from this. So how do you see that evolving? What are the factors that would drive upside or the high end or the low end of that forecast?

Yeah. I'd say two things. Obviously, part of that is driven by the fact that we have an EPS range of $6.50 to $7. So there's the natural earnings range that comes with that. And in addition to that, as you well know, Rod, it's a working capital-intensive business, and we have $300 billion of commercial flows in and out happening every single year. And depending on production timing and of downtime actions that we're taking, typically that tends to drive volatility in working capital. So I would say it's earnings-driven range plus the working capital seasonality that typically drives the cash flow range.

Okay. Great. Thank you.

Great. Thank you. Good morning. Just can you tell us what – this was on slide 16 on the GMNA walk. This quarter I noticed that the material majors of the cost offset the majors for pricing. I think the last few quarters you were positive on that. Can you talk about the twin factors there and how you think about that relationship in the next few quarters?

Yeah. So the material on majors and the pricing on majors were typically on the light-duty truck front. And as you take a step back and look at overall K2 versus overall T1 profitability, we are able to command a lot more price from a light-duty T1 perspective compared to K2s. Mary mentioned our crew cab transaction prices, for instance, are higher significantly year-over-year. And obviously, there's content that's added in the vehicle. But from a life-cycle-to-life-cycle average perspective, Itay, that's how I would think about it in sort of quarter-to-quarter noise. I would say that were comparable from an EBIT standpoint for these trucks on a like-for-like truck basis. Obviously, there's upside coming from the mix and the volume that I talked about. But I would say the data point in one quarter is generally not indicative. It will get better between Q2 and Q4. The way to think about it is a higher variable profit perhaps offset by some of the depreciation and amortization leading to flat EBIT between the two trucks on a truck-to-truck basis through the life cycle of the entire truck.

That's very helpful. Thanks, Dhivya. And then just second question just on Cruise AV. Just how was progress in the first quarter relative to your expectation in the previous timetable for Cruise to try to deploy it by the end of the year? Just love to get an update there.

Sure. First, I think we have to step back. We are very pleased with our position and we look at this as the greatest engineering challenge of our lifetime. You look at the societal benefits that will happen when we unlock this, not to mention the multitrillion-dollar market potential. I think our approach in the way that we are doing this from a fully integrated perspective and really the only one attacking this and doing it that way and then the continued improvement in our rate of iteration, when I look at it, I wouldn't trade our position with anyone else. We have set aggressive goals for the team to motivate them to work in as fast as possible, and I think we've made remarkable progress to date. So we expect to maintain the leadership position we're in now. And we will be gated by safety. Safety will be the priority. And that's how we're looking at this.

That's very helpful. Thank you very much.

Good morning, everybody. Just a first question on the outlook of $6.50 to $7 because I think there's some confusion in the market. And if we think about that range, it excludes any revaluation from Lyft or the PSA warrants. Is that correct? Meaning on a year-over-year basis you would assume those as zero in that $6.50 to $7 range. Because I think there's some people that will think or looking at this as potential guide down with that $0.31 included. Is that correct?

That is correct. There is zero in terms of profits or revaluation tailwinds that we're assuming in our $6.50 to $7 outlook. That's core operating performance, if you will.

Got it. Okay. And then I have a follow-up question. If we look at the $1.10 operating EPS in the first quarter, when seasonalized, it would approximate a range of $5 to $6. Considering the additional product launching, which could provide some upside, I want to discuss the cost savings. The $2.5 billion would equate to about $1.75 per year. If we factor in three quarters of that, it amounts to $1.30, which brings us into the range quickly. I'm trying to gauge how much of the $2.5 billion in cost savings you anticipate realizing on a run rate basis in the second, third, and fourth quarters, assuming there was essentially nothing in the first quarter.

In the first quarter, we noted a $1 billion favorable adjustment in our performance/timing line item. Of that amount, approximately $400 million comes from transformational cost savings realized in Q1. We expect these savings to increase further in Q2, Q3, and Q4. To clarify, we projected a run rate of $2.25 billion, with estimates between $2 billion and $2.5 billion outlined earlier this year. We are on track to meet these targets. Since the cost savings are front-loaded, the run rate will closely align with our annual expectations. Looking at earnings cadence, several factors suggest stronger performance in the second half of the year compared to the first half. Notably, we already had downtime for 23,000 full-size SUVs in Q1. As for expected heavy-duty downtime in Q2, we anticipate that the production for trucks will increase in H2. We expect no further SUV downtime for the remainder of the year, and once we account for heavy-duty downtime, the total number of units produced this year should remain flat, leading to increased truck production in the second half. This increase in production, along with the transformational cost savings anticipated in the subsequent quarters and product launches such as the XT6 and Blazer, will contribute positively to our performance. Q1's results were in line with our expectations, and our guidance of $6.50 to $7 reflects this anticipated cadence, supported by specific initiatives that reinforce our confidence in achieving our targets.

That's very helpful. And then just two quick ones or one I think you meant, but I’d be so quick. But the positioning in HD currently with the current capacity, I mean, I was just wondering if you could sort of dimension sort of where you think you are in positioning and what the capacity currently is and where that is going in the second half of the year. Just maybe in some kind of numbers whether it be the capacity numbers or average transaction prices that you think you might be able to achieve or the step-up in average transaction prices just so we can understand the change in the HD business.

Yes. Between T1 and K2, we increased our light-duty and heavy-duty capacity. In fact, we are currently more limited in heavy-duty capacity than in light-duty capacity. We added approximately 40,000 units for heavy-duty and 20,000 units for light-duty. When comparing T1 to K2, transaction prices usually see an increase early in the launch phase, and we anticipate that happening. Regarding the vehicle itself, we believe it will be exceptionally strong, and we expect significant benefits in transaction prices solely due to the quality of the truck.

And just really lastly quickly. GM Financial dividend what's your expectation for this year and where do you think that goes?

The current expectation is flat GM Financial dividend year-over-year. You may recall we got $375 million last year baked into our outlook of flat expectations. We're going to have to see from a leverage standpoint and their earning assets and residual value how they pan out to see if there's any upside to that. But as of now, our outlook is $375 million.

Great. Thank you very much.

Thanks everybody. The first question is about trucks. There is clearly a very strong market for full-size and HD trucks. We're hearing from you and many competitors that demand has exceeded supply. Looking ahead, as you assess your own supply versus demand and that of your competitors, how much better can this situation become? Many on this call believe this might be the peak for trucks. I'm curious if you agree with that and whether you think it's possible to maintain this peak or if you genuinely believe there's significant potential for the industry to continue improving in terms of average transaction prices as we move into 2020.

Yes, Adam, it's Dhivya. I'll address that. We have discussed how the truck market differs significantly from the overall industry. We’ve noted factors such as the growing installed base and the increasing average age of trucks, which is happening faster than that of the general light vehicle market. We see clear indicators from our use cases where customers utilize trucks for both commercial and personal use. The fundamentals suggest ongoing strength in the truck sector. Currently, penetration stands at around 13% of the overall industry, which has remained stable over the past few years. We are optimistic about these fundamentals in relation to trucks. Additionally, we've mentioned our own strategic position, and with our new launches, we are quite confident about our T1 franchise.

It seems we are not at peak truck demand. Regarding cost savings, in an environment where global production is leveling off and China is no longer providing consistent advantages, it may be necessary to focus on costs to see a significant increase in profits. You've been proactive in addressing structural costs with the measures announced late last year. Can you provide some examples, as well as any opportunities to reduce content costs and purchasing materials? I've spoken with some competitors who mentioned that electronics and electromechanical costs for internal combustion architectures, which might be becoming outdated, are substantial. For example, in Germany, some companies report that 40% of their costs are related to electronics. While I’m not suggesting you're at that level, is there a way to mitigate these costs through design improvements and your new electric architecture, potentially allowing suppliers to contribute to the savings instead of relying solely on your efforts in production? Thank you.

Yes, Adam, I believe this is a crucial point. We are concentrating on this in every region worldwide, including the work we undertook in the first quarter in South America where the suppliers were very cooperative. We are also collaborating with them to ensure that we reduce costs and enhance efficiencies, making these cost reductions permanent. In China, there is a culture focused on increased efficiency and reduced costs, which they continue to pursue in terms of material costs and complexity reductions. We have specific initiatives in the United States aimed at cutting costs in collaboration with our suppliers rather than relying solely on them for efficiencies. I'm very encouraged by the strong relationships that General Motors has built with suppliers over the years, thanks to the efforts of Steve Kiefer and his team. We are also emphasizing innovation by involving suppliers early in the design process to leverage their best ideas, alongside focused efforts on reducing complexity and aligning with customer desires. Balancing customer satisfaction with efficiency is an ongoing challenge. These initiatives are being implemented company-wide, with project vice presidents assigned to oversee them and provide regular updates. I fully agree and we are approaching this with significant energy.

I'm sure you will, Mary. Thanks, everybody.

Thanks. Good morning, everyone. Dhivya, I appreciate the insight on the transformation savings this quarter. I just want to clarify if that excludes some of the savings related to the billing recognized from Korea in GMI.

That's right. The $400 million that I'd referenced, which is embedded in our $1 billion does exclude the Korean restructuring. So the apples-to-apples, Joe that I would think about is of the $4.5 billion that we said we were going to achieve by the end of 2020. And the $2 billion to $2.5 billion that we have laid out for this year, the portion that we have achieved in Q1 is that $400 million.

Okay. If we look at the GMNA results, they were about $700 million. Essentially, the $400 million and the $700 million represent the transformation savings, which will increase as the year progresses.

Yeah. After $400 million, GMNA receives most of the savings, although some benefits also go to the other regions. I would say that roughly half of this is related to timing. Obviously, you're comparing one quarter with another, and neither is a full run rate quarter, so there is some variability in the data.

Right. And sorry if I missed this, but any change to the commodity outlook for the year?

We had said earlier this year that we would see $1 billion headwind from commodities and tariffs. There's a few items that are tailwinds, Joe, as it relates to steel and aluminum backing up a little bit as well as delay in some of the T1 tariffs. There's also some headwinds from a palladium standpoint. And, obviously, we could see how the overall tariff environment plays out. We're still baking in the $1 billion. And as the environment changes, we will update you guys on that.

Okay. And then just quickly back to China. If we just compare versus the fourth quarter, wholesales were down like 25%, but the net income margin and JV income was up. And you mentioned some of the work and I think you also mentioned maybe some benefit from some of the adjacencies. But any more detail you could provide as to what really drove that income higher despite the big sequential decline?

I would say that during Q4, there were launch costs of about $100 million. We have taken steps to adjust our inventory, and there is nothing specific to add on that front. The adjacencies are contributing positively, along with the cost measures that Mary discussed. We are focused on managing costs in China, with amplified efforts due to the current market conditions there. Additionally, we will continue to address inventory issues into Q2, and you will see the effects of that in Q2 as well.

Okay. Thank you.

Let's return to North America and discuss pickup trucks. Currently, there seems to be a lot of inventory in this segment from your company and your two main competitors. One competitor updated their product in the first quarter, and your company is set to refresh your heavy-duty models in the second half, while they also have plans to update theirs. Additionally, a third competitor will have a mid-cycle refresh soon. I'm trying to understand where the market share gains will come for GM and how you're planning to compete, especially considering the increased supply in the market.

Yeah. Well, I'd just say from a share standpoint, it's look, we're still in the early innings from a launch perspective. And if you look at what we actually have already rolled out, its crew cabs. And as we go through the rest of Q2, we're going to see the work trucks coming in. We're going to see regular cabs, diesel, as I pointed out, as well as HD. And as Mary mentioned, we're seeing share gains in the areas where we've already rolled out. Crew cabs are up 20% year-over-year. Sierra has taken four percentage points of share. And I think you got to see the mix normalize before you can get insight from the noise that you're seeing during the transition.

Okay. So the point being that as you get through 2Q and maybe finish the quarter you'll have more normalized double cabs, regular cabs, and then your HD launching, which is where you'll see the share gains in the back half?

Yeah. I think that's a fair assumption. And, obviously, early days yet in April, but we are still feeling as we're rolling out the other variants tailwinds from a share perspective.

We are seeing growth as we enter the second quarter. We are confident in the truck, and as Dhivya mentioned, once we have the full range available and are competing across all segments, we anticipate capturing our fair share.

Understood. And then on the GMF perspective, the residual values, did those come in weaker than you expected? I think you had maybe down 4% or 5% assumed for the year. Is that still the case? Or you're seeing something a little worse a little better?

Residual values for the first quarter declined by about 2%, and we still expect a decline of 4% to 5% year-over-year. The performance for Q1 was in line with our expectations, though there were some fluctuations. In the first quarter of 2018, we had one-time items affecting our GMF figures, making it difficult to compare directly. Our earning asset growth and revenue growth in GMF are proceeding as planned. However, we are experiencing pressures from residual values and credit, and our funding plan is somewhat inconsistent. We typically go to the market for unsecured funding, which creates some timing issues with asset growth. We have funded early this year and are ahead of our unsecured plan, which is also putting pressure on our net interest margin. Overall, we expect a flat year-over-year comparison from 2018 to 2019, with a normalization occurring in the following quarters.

Okay. I understand. So even though the residual values are expected to decline throughout the year, the interest cost headwind from your prefunding will be somewhat offset as you expand your balance sheet?

Yeah.

Okay. And then lastly, I know you got asked about it earlier from a Cruise perspective. But is there any update on timing, update on thinking as to when we can expect maybe a little bit more of an unveil or further update? Because I don't think we've had one for maybe a year and a half now since that November Investor Day on Cruise.

I believe you'll see updates later this year. Overall, we are very pleased with our ongoing progress. Many underestimate the significance of the deep integration we are implementing. It's important to note that we've changed 40% of the components in the vehicle to ensure true safety systems are in place, especially since we're testing in one of the most complex environments in the United States. This combination gives us confidence in our strong position. We also have an excellent safety record. For example, our Super Cruise technology is receiving external recognition and numerous awards based on customer feedback, with users expressing disappointment if they don't have it because it's such an outstanding feature. We remain committed to developing and monitoring our safety standards. If we can launch without a driver, we will. However, I want to emphasize that this is only the beginning. There is still a lot to be done to reduce costs across all the technologies in the vehicle and to enhance its capabilities for launch in other markets to tap into a multitrillion-dollar market potential. Safety will guide our progress, and we see a significant opportunity ahead. We believe the direction we are taking and how we are developing this technology is critical.

Okay. Appreciate all, Dhivya. Thank you, Mary. Look forward to the update.

Hi. Good morning. Thanks for taking my question. Is there an update you can provide on the GM International restructuring front? When the transformation actions were announced in November, it was relayed seven plants would close. Five being in North America which were disclosed at that time, but two being I think unnamed international facilities. You've taken definitive action in Korea. China isn't the place we've really thought about you looking to reduce capacity. So should we think about South America as the next focus of your footprint actions? And how would you say you're progressing with regards to your restructuring actions in South America? And any updated thoughts on when consolidated IO might be able to reach breakeven?

So I don't have any more details to provide. I would tell you though, the plans from a GM International transformation are well underway. We just don't have anything to announce at that time, but everything is still on track.

Okay. Thanks. And then looking at slide 16 in the appendix, can you talk about some of the factors that roll up into performance/timing driver that was a $700 million tailwind? How should we think about the proportion of that cost tailwind that relates to structural factors like the transformation or maybe more transient timing-related factors?

I would estimate it to be about half and half. If you examine it, this was GM North America. From a company perspective, we had $1 billion in performance and timing. Roughly $200 million of that comes from commercial and technical savings that we usually achieve every year due to material costs. I believe this is not a transient factor; it is ongoing. Of the remaining $800 million, I would say it is divided equally between timing and transformational actions that are beginning to show benefits. The $700 million observed in North America can be largely explained by the same dynamics affecting the entire company as it rolls through North America.

Okay. Lastly, there have been many questions about the pickup truck launches, but perhaps from a different angle. There was increased media and investor focus this quarter on your market share in full-size trucks, with some noting that you are prioritizing profitability over volume. This approach has benefited GM North America's profits so far. However, I wonder if the pricing strategy may have been too strict. Can you elaborate on the nuances of this launch regarding how you view volume in relation to price and if there are any counterarguments you would present regarding market share in relation to the availability of trim levels, among other factors?

Yes. As you can see, we are undergoing a transition. The launch is progressing very well. We started with a richer mix and are already seeing strong performance in crew cabs. It's important not to judge the first quarter as indicative of the entire year's performance. As Dhivya mentioned, we will complete our entire lineup, which will provide opportunities as we move through the year, including potential in heavy-duty trucks and additional volumes. We will remain disciplined and respond to market conditions appropriately. We believe we have an exceptionally strong truck. We're in the midst of launching all aspects of it and are on schedule with our plan. We are aware of our goals regarding overall market share and are committed to achieving them with discipline. The way we've approached this launch has been carefully considered to maximize profits while ensuring we represent ourselves well and maintain high profitability across our truck offerings.

That’s it. Thank you.

Hi. I have two questions; kind of a housekeeping one again on pickups for Dhivya, then a broader question for Mary. Back to the question of the 400 pricing versus 400 materials costs, is crew cab and the higher crew cab, do you put that in the mix waterfall or into the pricing waterfall?

It's really both. As the percentage of crew cabs increases year-over-year, you will see a benefit in the mix. The reason you haven't seen that this time is because it was offset by the downtime of full-size SUVs, which negatively impacted the mix. So while the mix appears flat, it is actually a positive number being affected by the downtime situation. Additionally, any increase in price will be reflected in the pricing aspect, which should be considered alongside the costs to assess the impact on major materials.

Okay. Thank you. And a question for Mary. I mean, we've talked over the years about the cultural change you did at GM and a greater focus on cost accountability, making sure you're in the right product and geographies to drive profit. But one thing I do hear from investors is if they look at GM design, broadly speaking, both the vehicles, the interiors, the advertising it just doesn't, in some people's view, have the kind of pizzazz that you might see. I don't always like going back to Tesla, but it's not lost on some of us that one of your designers created their vehicle lineup. So just, how are you thinking about the state of design overall at GM? Is it an important differentiator? Or do you think it's more important to get capable vehicles out there and kind of play it more on the profit and the cost game? And if it is more important, what are you trying to do to kind of move it to the next level?

I believe it's extremely important to excel in this market, and design plays a significant role in that. We have a disciplined process for analyzing data to understand customer segments and their preferences regarding products. The full-size truck, Cadillac, and compact SUV like the Chevrolet Equinox each require different approaches. Therefore, we follow a rigorous development process for trucks, keeping the customer at the center of our designs. Every aspect is crucial. You mentioned advertising, and Cadillac serves as a great example of the positive changes we've implemented. Steve Carlisle can elaborate more on this, but our campaigns with Cruise have seen considerable success. In terms of brand building, we've made significant advancements across all brands, improving key brand metrics. Our focus is on creating well-designed products that are desirable and essential, along with ensuring the right content and efficiency for our customers. We aim to stand out in the marketplace with our advertising, though sometimes the most effective campaigns may not be those that receive awards.

And just back to the design process. You mentioned discipline and focus groups, but how do you allow enough space for unconventional creativity and concepts, the classic Apple innovations that people didn't realize they wanted until they experienced them?

I believe that while the design aspect may not be as strong, the technology behind Super Cruise is impressive, and that's the feedback we're receiving from our customers. Regarding design, one interesting approach we take is in the early stages of a new product, where any designer in the company can contribute ideas. We ensure that, even if a specific team is focused on a certain brand or product, all designers have the opportunity to provide input. That's how we operate. Another great example of innovation from our entire GM team is the MultiPro Tailgate found on GMC trucks, which was developed through the creativity and ingenuity of our workforce in manufacturing. We have a process for innovation that allows everyone to get involved. I've shared a couple of examples of how this occurs and the processes we’ve implemented to support and encourage it.

Okay, thanks.

Thanks, everybody. I really appreciate your participation this morning on the call. I want to close by reiterating our confidence in our full-year outlook of earnings per share of $6.50 to $7 and free cash flow between $4.5 billion and $6 billion. I think we have a track record of delivering on our commitments despite the industry macro challenges. And as Dhivya had said, this quarter was in line with our expectations. As we move forward, we're going to continue to seize every opportunity to manage what is in our control. In the United States that means we're going to focus on flawlessly launching the next Phase, the heavy-duty full-size trucks, our crossovers, and our Cadillac vehicles. We're going to work to realize the 2019 transformational cost savings that we outlined last November that are on track. And we're going to capitalize on the healthy economy in this country. Globally, we're launching an aggressive new vehicle lineup in China, and we've secured the necessary concessions to further strengthen our Chevrolet franchise in Brazil. So while, we've done much of the foundational work to right-size the business and our portfolio, we know this transformation is far from over. And we also understand what's at stake, and more importantly, the tremendous opportunity that is ahead of us. And I really believe we have the leadership team. We have the vision, the discipline, the technology, and the commitment, and culture to create this win and to create value for our shareholders. And that's what we focus on doing every day. So thank you very much. I appreciate your attention.