General Motors Company (GM) — Q2 2019 Earnings Call Transcript

Thanks Stephanie. Good morning everyone and thank you for joining us as we review GM's financial results for the second quarter of 2019. 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. 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 would 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 everybody. Thanks for joining the call. We achieved solid results in our second quarter and the strength of our performance in North America. Overall, we delivered net revenue of $36.1 billion, EBIT adjusted of $3 billion, EBIT adjusted margin of 8.4%, EPS diluted adjusted of $1.64, automotive adjusted free cash flow of $2.5 billion, and a ROIC adjusted of 22.7% on a trailing four-quarter basis. Strong consumer demand for full-size trucks, crossovers, and SUVs, along with our business transformation actions drove the company's profitability. This helped offset the effects of planned heavy-duty downtime ahead of our launch and industry weakness in China. We expect our launch strength to continue in the second half of the year as our heavy-duty truck availability improves and as we launch new crossovers and entries from our new global family of vehicles. Looking at North America, our year-over-year results improved thanks in part to growing truck sales and share and second quarter records for average transaction prices and crossover deliveries. Later this quarter, we'll begin delivering the 2020 Silverado with an optional all-new Duramax turbodiesel engine that delivers best-in-class highway fuel economy of up to 33 miles per gallon. GM's clear leadership in the large SUV segment continued with deliveries of current generation models up 16% year-over-year with lower incentives than those of our competitors. We also performed well in our crossover segments contributing to profitability. We unveiled the highly anticipated mid-engine 2020 Corvette Stingray two weeks ago in California to a global audience of nearly 300,000. We plan to increase production of this iconic sports car and begin shipping the all-new models to dealers by the end of the year. Looking at Cadillac, the brand sold more than 111,000 vehicles worldwide during the quarter. The XT5 continues to be the brand's best-selling model globally. The new XT6 seven-passenger crossover is now on sale in North America and in China, further strengthening Cadillac's position in the high-growth luxury SUV segment. In the U.S., the XT6 is off to a strong start ahead of its official launch. Dealers and media have given us very good feedback. And the XT6 brings new interest to the brand. Cadillac is also expanding the functionality and range of its Super Cruise hands-free driver assistance technology in the U.S. and Canada. We are adding 70,000 miles of compatible divided highway. By year-end, CT6 owners will be able to operate Super Cruise on 200,000 miles of highway. More than 85% of current CT6 owners said that for future vehicle consideration, they would prefer or only consider a vehicle equipped with Super Cruise. Dhivya will provide additional details on our business transformation actions shortly. But I would like to update you on the progress toward offering relocation opportunities to hourly employees at U.S. plants that have unallocated products. There is a job for every impacted employee. To date, about 1,700 of the 2,800 employees have accepted transfers to plants supporting growth segments and we are actively working to place more employees into open positions. As we look at our international operations, in China, the continued economic slowdown has resulted in a softer industry. GM China headwinds in the quarter include lower volumes, significant pricing pressure, regulatory changes, slower sales of our outgoing models, and shifting customer preferences. Even as we launch new vehicles in Q3 and Q4, we see many of these dynamics continuing. Therefore, we expect equity income in the second half of the year will be generally in line with the first half. In South America, we continue to work with our stakeholders to turn around the business and capitalize on Chevrolet's 18 years of sales leadership in the region. In addition to the actions we're taking to strengthen our core business, we are also making important strides toward our vision of an all-electric self-driving future. We recently revealed a new digital vehicle platform that will fully integrate our electric propulsion systems, cybersecurity protection, advanced Active Safety systems; and Super Cruise technology. This platform also enables more systems in the vehicle to receive over-the-air software updates including telematics, chassis controls, and more. This will deliver value and convenience to our customers. Following its debut on the Cadillac CT5 and the 2020 Chevrolet Corvette Stingray it will expand to most of our global lineup by 2023. We are also working to drive greater customer acceptance of EVs by addressing their concerns about range and charging availability. In addition to earlier infrastructure announcements we've made, we've partnered with Qmerit, an online platform that links EV owners with GM-approved installers of home charging systems. Turning to Cruise. In May, Cruise secured an equity investment of $1.1 billion from a group of institutional investors including funds and accounts by T. Rowe Price and existing partners SoftBank and Honda and a $700 million investment from General Motors. These additional investments now value Cruise at $19 billion. We have said from the beginning that the benefit of self-driving vehicles will only be realized by deploying safely and at massive scale. For the past four years, Cruise has been creating the necessary building blocks to do just that. It has expanded its workforce, raised billions in capital, achieved deep integration with General Motors and focused on testing and development in one of the most complex urban environments. They have recently taken steps toward large-scale deployment of all-electric EVs in San Francisco where driving conditions are 40 times more challenging than in the suburban setting. In the second half of this year, Cruise will significantly accelerate testing and safety validation of its fleet and increase the number of miles driven. Cruise will also increase its community engagement and continue to scale EV infrastructure build-out. In addition, hundreds of talented Cruise, General Motors, and Honda engineers are developing a next-generation purpose-built AV that leverages our leadership in hardware and software integration and related safety validation. It has become clear that to successfully deploy at scale we need to not only win the tech race but we need to build trust with consumers. And that is exactly what we intend to do. So to recap, we delivered a solid quarter as we begin to demonstrate the earnings power of our full-size truck business and our ongoing transformation. We are committed to our full-year outlook that includes earnings per share of $6.50 to $7 and automotive free cash flow of $4.5 billion to $6 billion. Dhivya will now give you more details and then we'll take your questions.

Thanks, Mary, and good morning everyone. In the second quarter, we achieved net revenue of $36.1 billion, with an adjusted EBIT of $3 billion, an 8.4% margin, and a diluted adjusted EPS of $1.64. We also generated $2.5 billion in adjusted automotive free cash flow. The diluted adjusted EPS of $1.64 includes a $0.01 loss from our revaluations of Lyft and PSA. In North America, the adjusted EBIT was $3 billion for Q2, with a margin of 10.7%. This was supported by strong performance in our light-duty trucks and crossovers, as well as effective cost actions. However, we did have some offsetting factors, such as planned downtime for heavy-duty pickup trucks, reduced pension income, and increased depreciation. The light-duty trucks favorably impacted our volume mix and pricing during the quarter. As previously mentioned, we are in the early stages of showcasing the earnings potential of our leading truck franchise, with further opportunities for growth as we complete the launch of heavy-duty trucks and full-size SUVs next year. The launch of the heavy-duty trucks will follow a similar timeline as the light-duty trucks, starting with crew cabs, then double cabs, and finally regular cabs. Retail sales of the new Chevy Silverado and GMC Sierra light-duty crew cabs grew double digits for the second consecutive quarter as we increased the availability of models to dealers. Our retail market share for light-duty pickup trucks improved nearly three percentage points to 36.5%, the highest in the industry. This growth was achieved through a strategic launch plan and careful incentive management, particularly in the over $50,000 average transaction price segment. We lead in retail share for crew cabs, and as we advance the light-duty truck rollout in Q3 and Q4, we expect to gain even more market share in this valuable segment. Additionally, we see opportunities for further share growth in the profitable fleet market and with upcoming diesel model launches later this year. Turning to crossovers, we saw a record 17% year-over-year growth in U.S. deliveries for our crossovers in Q2. We are gaining market share in this segment and seeing positive impacts on year-over-year profitability. We will continue to expand our crossover offerings with the upcoming Encore GX and Trailblazer models. In terms of GM International, our adjusted EBIT in GMI was down $200 million compared to last year due to decreased equity income in China, although this was somewhat balanced by positive effects from restructuring in Korea and business improvements in South America. In China, we saw a $400 million reduction in equity income year-over-year. The industry faced significant challenges, including pricing pressures from the transition to new emission standards. We reduced dealer inventory by 10% in Q2, with wholesale volume and production down about 25% from the previous year. These challenges were somewhat mitigated by better material costs. We anticipate that upcoming vehicle launches will help alleviate some of these pressures in the latter half of the year, and we expect equity income for that period to be similar to the first half. In South America, we are making progress in turning around our business, despite regional volatility. We're seeing cost savings from our business improvement initiatives. We have a strong presence in the region with good market share, a robust dealer network, and efficient manufacturing. We expect to see further improvements as we launch our global family of vehicles and enhance our competitive offerings. Regarding GM Financial, we achieved record quarterly revenue of $3.6 billion in Q2, and adjusted EBT was $500 million due to portfolio growth. Cruise incurred costs of $300 million this quarter, aligning with our projected full-year expenses of about $1 billion as we expand our workforce. Corporate segment costs increased by $200 million year-over-year, primarily due to last year's $170 million gain from our Lyft and PSA investments, contrasted by a $30 million loss this year. We still expect spending in the corporate segment to be around $1 billion for 2019. We have made solid progress on our cost savings initiative, reporting $1.1 billion in savings year-to-date, with $700 million achieved in the second quarter. In summary, we had a strong performance in Q2, setting us up well for the second half of the year. We are maintaining our outlook for the full year, which includes EPS guidance of $6.50 to $7 and adjusted automotive free cash flow of $4.5 billion to $6 billion. This outlook assumes no performance from our investments in Lyft or PSA. We anticipate a stronger second half for both EBIT and free cash flow as we launch new products and move past downtime in North America. Thank you, and now we'll move to the Q&A session.

Good morning, everybody.

Good morning.

Had a few questions about the guidance. Just first of all, the full year guidance for free cash flow is $4.5 billion to $6 billion. There was a first half burn of $1.4 billion. So that implies $5.9 billion to $7.4 billion in the back half. If we're doing our math right that's excluding working capital maybe $3 billion to $4.5 billion, wanted to know if that sounds about right to you. And my associated question is can we extrapolate from that kind of a free cash flow run rate ex-working capital, which would imply $6 billion to $9 billion annualized free cash flow at this point? Or is there is some kind of seasonality or something else that we should be taking into account if we do that math?

Yes thanks Rod. And I think directionally, you're correct. As you think about the second half of the year from a free cash flow perspective these trends are going to be driven by EBIT improvement as well as the working capital rewind that we're going to experience as we have cycled past the downtime. And extrapolating, I don't want to provide guidance beyond 2019 but I'll give you the puts and takes. We are going to continue to see benefits from our truck launch. We're going to see the remaining cost savings flow through into 2020. And as you may recall, we also talked about our capital spend tailwind from that in 2020 as well partially offset by lower China equity income dividends flowing into 2020. In fact, I'd caution you though extrapolating off of the second half there are some timing items like the working capital that you mentioned as well as first half versus second half some payments are lumped in the first half of the year and you can't really do it two times in the second half. But directionally looking at the puts and takes I'd say you're correct.

Okay. Great. And –

And also Rod you heard us say in the beginning of the year, we have an intense focus on cash flow and cash conversion. And as we go beyond 2019 into 2020 you're going to continue to see us reiterate that as we go forward here.

Yeah. It sounds like generally those payments are lumped into the first half, which – that's helpful to get some color on how to think about that. Is it reasonable to assume that CapEx comes towards the low end of your guidance? And you did comment in your release about the timing of China dividends being a little bit unusual this year. What's included in the back half from China?

We would say the remaining dividends that we have not yet received from China will flow through so it's more evenly distribute this year between first and second half than it has been last year. And from a next year perspective timing and as you know in the first quarter of the year we tend to from a seasonal perspective pay out a number of payments as well as the AR and AP rewind typically happens at that time. So I'd say, those two are the primary adjustments that I would think about. And China dividend you can expect, again a similar kind of cadence in 2020 probably as you will in 2019.

Okay.

And from a CapEx standpoint, yeah, from a CapEx standpoint, I'd say we gave a range of $8 billion to $9 billion. We will continue to do that. Obviously there's timing between among quarters. And I wouldn't read too much into that at this point in the middle of the year.

Okay. And just lastly your expectations for China, can you just broadly talk about what the inventory situation is for you? And you're talking about that half being flat with the first half. But the first half at least in the second quarter included a significant inventory correction. So what's the underlying business look like for you? And what are some of the puts and takes there?

Yeah. Sure. So we did unwind 70,000 units or so of inventory so about 10% of our inventory did unwind in the second quarter. But as Mary mentioned in her comments as we think about the industry obviously, we've just cycled past the China V and China VI transition. There is likely to have been some pull-ahead and we've got to watch that. We just don't know yet. And from a pricing standpoint, again driven by this transition, we experienced more pricing pressures in Q2. That's something to keep an eye on. So, as we look into the second half of the year, a slightly weaker industry an uncertain price environment, but really offset by the launches that we have significant launches into the sweet-spot of the segments with two-thirds of our launches coming from crossovers. So all the positives from a launch perspective we continue to expect. We're keeping an eye on macro.

Great. Thank you.

Hi. Thanks for taking my question. Congrats on the quarter.

Thank you.

Thank you.

You know, clearly some moderation on your China profit outlook was expected given the softer volumes in the first half. Just curious though if you are now calling for a sequential deterioration in the industry in the back half versus the front half. Because previously you were looking forward for some company-specific catalysts for higher profits in the back half including a freshened lineup introduction of the GEM platform et cetera. I would think too maybe you could cycle past some of the inventory drawdown in Q2 ahead of China VI. So visibility in the market there is low, I know. But if there were flat industry sales in 2H versus 1H do you think in that environment you could manage to a higher China profit in the back half?

I think that’s one aspect to consider. However, with the intense pricing pressure, it's uncertain how the changes related to China V will play out. From a GM perspective, these launches are crucial because we are noticing a shift in customer preferences, and we have some older models in popular segments. It’s difficult to predict precisely given the volatility we are currently facing. The team is very focused, and our China team is skilled at identifying every cost opportunity. We experienced that performance in the first half and will continue to seek improvements. Additionally, we are collaborating closely with our partner to capitalize on any potential market fluctuations. Nonetheless, it's challenging to make predictions at this time.

Okay. Thanks. And then just lastly for me clearly the earnings power of the new full-size truck platform was on display in 2Q. But it wasn't on full display right? Because there was still lost production during the quarter in the changeover to the heavy-duty versions the SUVs haven't launched. So to help us sort of better understand what magnitude of the earnings potential of this program was on display in the quarter can you kind of sketch-out what has launched, what has yet to launch SUVs higher-efficiency diesels the even bigger pickups with Navistar et cetera and the relative profit potential of those various pieces?

Yes, Ryan I'd say, if you think about the first half we started out with crew cabs as we talked about. And towards the second quarter and really going into third quarter and fourth quarter is when you're going to see the rest of the light-duty start to normalize so the remaining variants whether it's regular or double. And diesel is an important factor that Mary pointed out. We're excited about that and that's going to be coming up next in the Q3 time frame and followed by heavy-duty. If you think about the first half of the year we took downtime of about 25,000 or so units in heavy-duty which to your point was an offset against the light-duty earnings power that we saw. So you're not going to see that in the second half of the year. And in fact with the additional capacity that we have added for both light-duties and heavy-duties you're going to still start to see tailwinds from volume because we have been constrained on these as we have been in the past few quarters and years here. So plus side would be the remaining light-duty variants including diesel the heavy-duty going into next year obviously the SUVs and the absence of downtime as well as obviously the price and mix benefit that you'll start to see in HD and other variants that we have so far seen in crew cab.

Very helpful. Thank you.

Good morning, everybody. Just really wanted to make sure I followed up and got that correctly Dhivya on the truck side. So basically in the first half you had the HD downtime and the SUV downtime. The HD pickups will benefit us some time in the third quarter, but mostly in the fourth quarter. And then the SUV bounces back in the intro is in the first or second quarter of next year. So I mean, it looks like with these truck swings it's something well north of $0.5 billion per quarter once this all gets worked out.

Yes, I believe the timing you've gathered is accurate. We haven't specifically discussed the timeline for the SUVs, but they will be introduced early next year. Your understanding of the favorable trends we expect to see in the second half of the year is correct. You'll first notice this with the light-duty remaining variants, followed by the heavy-duty models likely around the fourth quarter and continuing into next year. The SUVs will then follow. So overall, you are indeed correct in your assessment.

Okay. Is there any reason to believe that the second quarter isn't a strong starting point when considering those improvements? This seems to have been an excellent operational quarter, and we should expect benefits from that. Is there anything out of the ordinary that might suggest this isn't a good baseline to use?

No, I'd say it's a pretty good base case. Obviously, you've got to adjust for the significant downtime we experienced in the second quarter, which shouldn't be projected into the remainder of the year. As you know, we achieved $700 million in cost savings, so that's on a sustainable run rate that you can expect for the rest of the year. We will likely experience some advantages from the XT6 launch, which we're just beginning to see, and the second half of the year should provide more positive impact in crossovers because of this. Overall, I'd say Q2 serves as a solid baseline.

Okay, helpful. Second question when we think about GM Financial, I mean obviously it's performing very well. We keep kind of following up on this question. But when do you see sort of at a maturation point where it could start taking some capital back up to the parent company?

Last year, we took about $375 million in dividends from GMF. They are still expanding their earning assets, which are nearing $100 billion. For GMF's steady state, we are targeting earning assets in the range of $125 billion to $130 billion, although it will take a couple of years to reach that level. Currently, we are operating at a penetration rate of about 45% to 50%, which we hope to maintain. As the leverage ratio decreases, with equity increasing and earning assets stabilizing, we expect to see dividends rise over time. Ultimately, all net income from GMF will return to the parent company.

Got it. Then just lastly, on suppliers, we've heard a lot of noise about some slight incremental pricing pressure coming into the supply base. I'm just curious as you look at your relationship with suppliers, is there any stress building in the supply base? Or sort of conversely is there any more opportunity to work more collaboratively with them and get more pricing out of the system?

We have spent the last few years strengthening our relationships with our suppliers and concentrating on innovation. When it comes to managing prices and costs, we are collaborating with our suppliers to find ways to reduce costs that benefit both General Motors and them. We plan to keep pursuing these opportunities and expand upon this collaboration. I don’t foresee any significant changes in this approach; rather, I believe we will work even more closely together.

Mary, I apologize if I could sneak one more in. It sounds like you've got 1,700 of the 2,800 UAW folks relocated. I'm just curious when you think outside of the headcount of the UAW, if you could just talk about your hiring in the U.S. maybe more broadly and the growth in the employment base, so I can understand sort of your position in the employment picture for the U.S.?

Are you talking about from a represented workforce or from a salaried workforce?

It sounds like you've relocated about two-thirds of the workers. I'm just curious…

So on this...

Particularly thinking about growth.

I didn't hear your last comment. I'm sorry.

I'm sorry. Particularly thinking about the growth in Cruise as well, right. I mean, because you have real headcount growth in certain areas.

So I think you have to look at it in three buckets. As we said, we have jobs for every single hourly employee in the United States that was impacted by the transformation. And we'll continue to do those placements and then look at what is natural retirement. And I predict by the time we get through this we'll be hiring for the needs that we have across the United States. So that's from a represented perspective. On the salary workforce, in general, we very carefully planned the transformation activities, not only reducing our overall salaried headcount, but also making sure we had resources in there with the right skill set. That went very well. And we are hiring now to replace attrition, but maintaining the lower cost level that we've worked so hard to get at Q4 and Q1 of this year. And then as it specifically relates to Cruise, we have about 1,500 employees there now and we are working hard to hire and get to that level of that 2,000 by year-end. And the hiring is going very well there.

Great. Thank you very much.

Thank you, good morning. I wanted to revisit the pickup truck market dynamics. There is a lot of discussion happening, but as you mentioned, you still have significant product availability. You've increased your capacity. Although you're not providing guidance for 2020, at a general level, is there any reason to think that if the market remains stable, the pickup volume would be significantly different from what you anticipate this year? Is there anything going on internally at GM, perhaps a quick product refresh or something similar, that could stimulate sales during any slow periods?

No, we're not expecting any specific downtime related to the changeover. I would suggest that you can assume normal run rates while excluding downtime and factoring in the additional capacity we've added. We've been in a ramp-up mode, and you will reach full line rates as you move past the downtime. In a similar macro environment, we believe that the truck market's penetration of the industry remains strong, and we would expect you are generally correct about the volume.

Okay. Regarding GMI and China, I understand there are still challenges, but you mentioned there is some encouragement beneath the surface. It seems we’re seeing a $200 million improvement year-over-year, and I assume foreign exchange has likely remained a challenge in that context. So how should we view the opportunities in Brazil and South Korea moving forward?

So if you just kind of cycle through from a Korea perspective, we accomplished what we've set out in the restructuring and now we continue to see that business unit perform. We still have a few markets in GMI that we're evaluating to look at how do we create a successful foundation to build on in a few of the GMI markets. And then in South America we have a very strong franchise there. It definitely is being impacted by FX and the macro situation. We continue to work with all of our stakeholders though to take cost out. And that team has demonstrated a great ability to do that. And we can define our plan for that region to take into account we think there's going to just be a continued volatility. I think it's important to note in many of these regions though is we are just in the process of doing the first global family of vehicles that will be rolling out not only in China, but also South America and then flow to some of these other markets. So I think we're going to have a very strong portfolio and vehicles in the market to take advantage as South America recovers or to continue to outperform, even if we keep in these market. So there's great focus on all of these markets. We are seeing improvement year-over-year and we'll continue until we get this region to be contributing and covering as best as we can.

Just a follow-up. Would you classify the potential improvement in South America more driven by the fixed cost reduction from working with the stakeholders or the launch of the GEM platforms which as you've indicated in the past should be more profitable than the outgoing?

I think it's both. All of them are significant in helping us achieve where we need to go in South America.

Okay. Thank you.

Great. Thank you, good morning and congrats. Just going back to the pickup discussion. Just curious how the Silverado mid-trims, like the LT trims are performing kind of versus your expectations in the market. Because we are seeing some signs that the inventory there has been rising on those particular trims. I know after a while, it is coming off later in the year. But just curious, how you're performing thus far in the middle trims of the LTs?

Yes. As you know, we began the launch by focusing on the crew cabs, and we have been building inventory in the mid-levels during the second quarter. It's also important to note that we are normalizing our propulsion mix. During the launch, it is challenging to draw conclusions from just one data point regarding the inventory situation since we are still in the rollout phase, and balancing will occur throughout the year. Once we begin rolling out the other variants, you will see the inventory situation start to stabilize. We have a plan in place to ensure that by the end of the year, our inventory reaches our target levels.

Got it. I think, that's very helpful. And then switching back to China and I apologize if I missed this, but can you share any year-end inventory targets that you have, as well as just how this year's events might be influencing your longer-term view of profitability in China?

So when we look at the inventory, we are working to be disciplined with the inventory levels, but also be prepared for the opportunities with that volatility. So at the most senior level discussions with our partner, we're watching it very closely and giving direction to the team. So we're going to manage it to get to the right level as we go forward. I'm not going to share a specific target. When you look at it over a longer term, we have a very strong franchise in China. We have three strong global brands with Cadillac, Buick and Chevrolet as well as the two domestic brands with Wuling and Baojun. And we think it's a very strong franchise. We think over the long term, there are significant opportunities for growth. And also, China is a very important part of our electrification strategy, of seizing the opportunity in such a large market to get the scale from an EV perspective that allows us to be better positioned, I believe, in other markets like North America as we launch EV. So over the longer term, we still see a very strong opportunity, especially with our global brands.

That's helpful. I just had a quick one, the last question, Mary. Just given the feedback you cited earlier on the Super Cruise system, any change in plans on number of vehicles? Or how quickly you might roll out the Super Cruise system? Or how you might go to market with the next-generation Ultra Cruise system?

So, I would just appreciate the question. And we're really excited about Super Cruise. In my career, rarely do you see a feature in technology that has such a strong support from the customers saying, I would strongly prefer this technology to be on my next car or I won't buy a car without it. So that I think is a really good endorsement of the way the technology works and the benefit and value it provides to the customer. So we are in the process of rolling it out across all Cadillacs and then we'll look for the right opportunities as we roll it out across more segments and brands in our portfolio. And we'll do that as quickly as we can, but making sure that we're focused on the safety and quality of it as we do that. And then, as you mentioned with Ultra Cruise, this is a technology you saw us continue to improve it with the number of places you can use it. We're going to continue to add capability. And we're very excited about it and the road map that we have. So we'll be rolling it out as quickly as we can, with again having a strong focus on safety.

That’s very helpful. Thanks so much.

Yes. Good morning. Want to talk a little bit about the GMNA earnings walk on the supplement slide. Can you kind of break that $700 million of performance timing? Timing would seem to imply that some of those reverse. So maybe what was that? And then, as we think about how would commodities peak in performance or would that be the material headwind, maybe less of a headwind? And then how do we kind of take the $4.5 billion-or-so restructuring cost saves and kind of look for it in this performance/timing line model?

Yes, certainly. If we start with the $4.5 billion, I will provide an overview for you, Brian, since we have North America compared to the total company. The $4.5 billion refers to the total company. In this overview, regarding costs, we observed performance and timing contributing approximately $1 billion, with around $900 million being positive, close to $1 billion. The $700 million I mentioned from transformation cost savings is included in that $900 million. There’s roughly $100 million related to timing and an additional $100 million from commercial and technical savings from our ongoing material cost initiatives. So, when we consider timing, it amounts to about $100 million. As we progress into the second half of the year, this cost bucket will reveal the performance. Of course, it will be countered by the pension and depreciation and amortization challenges we have previously discussed. That is the layout of the situation. Additionally, from a material cost perspective, it will be reflected in the materials line item within the cost bucket as well.

Okay. And second question, as we go into second half North America and the lower trim levels of the light-duty truck getting rolled out, how should we be thinking about the mix/price walks in the second half?

Overall, I expect that volume in the second half will increase compared to the first half due to the growth in heavy-duty, SUV, and light-duty segments. While there will be some offset in the mix due to other changes, the negative mix seen in heavy-duty during the first half will not occur again; it will actually become a positive factor. Additionally, the decline in SUVs noted in the first half will not continue. Therefore, the combined volume will primarily drive the improvement from the first half to the second half.

Okay. And just a final question, could you provide some context regarding the Cruise announcement, which you presented as a positive development in terms of testing and expanding the fleet size? However, much of the tech press suggested that robotaxis, whether it's a major player like Waymo or some of the startups, are still several years away. So could you update us on your thoughts regarding timing, especially considering that safety is a crucial factor?

I believe that when working on groundbreaking technology, timelines can shift. However, we have a clear understanding of our objectives in technology development and have established robust milestones. We are also actively ensuring that we have a supportive regulatory environment. While I won't specify a timeline, I can say we have a clear perspective on our progress. The significant work we are undertaking to achieve deeper validation and additional milestones in the latter half of this year, along with our efforts to enhance public acceptance, will be crucial for large-scale deployment. I'm pleased with the team's ongoing progress; they are working diligently. This focus on technology, the environment, and customer engagement is very appropriate.

Okay. Thanks.

Okay. Thanks for taking my question. Congrats on a good quarter. Can we just go back to pickup? You've lost a lot of, I mean, I know you've highlighted you gained retail share, but you have lost share overall in the segment year-to-date. What is the outlook for the second half? I mean, is guidance predicated on holding your share from where it is now and the benefit of just sort of plants being fully up and running? Or do you expect to regain share in the second?

We do see a growth in share in the lower end of the ATP segment Colin. I'd say that if you look at the increased share that we have had it's been in the $45,000 to $50,000 and $50,000 plus-type segments obviously the more profitable segments. And we expect to hold that because we were underrepresented in these segments with our K2 product. And what we're really doing is fixing that under-representation if you will as we go into T1. So you expect normalization in the lower ATP segments. And obviously, as heavy-duty rolls out that will be the other positive as well and diesels coming in. So we do expect to increase share in the second half of the year between all the other cab variants as well as HD.

And how about on the commercial side? Because on pickup, I mean, I know retail is obviously always more profitable. But in pickups I imagine the business is still quite lucrative. I mean, do you have plans to try to recapture some of that share? Or is it just not worth the chase?

Yeah. No, we do believe that we will grow in that segment as well. As you point out fleet in pickup trucks continues to be profitable not as much as retail, but profitable. And we will absolutely continue to grow in that market as well. And with all the capacity issues we've had and with the launch changeover and so on and so forth that is something that has been again underrepresented in the first half of the year. And that's something we will correct in the second half.

And lastly, could you provide some insight on the original guidance which included about $1 billion for foreign exchange and commodities? It's clear that steel prices have dropped significantly in the second quarter. Will this create a positive impact for the remainder of the year? Is this one of the elements that could help mitigate the challenges in China?

Yes, that's correct. As you may recall, in January of this year, we indicated a $1 billion headwind in commodities without mentioning foreign exchange in that context, focusing on commodities and tariffs year-over-year. Currently, we have observed a reduction in steel and aluminum prices specifically. While there are a few commodities that remain high, overall, we believe the headwind is likely about half of what we initially anticipated, which is helping to mitigate some of the international volatility we're experiencing, and that’s how we arrived at our guidance.

Got it. All right. Thank you very much.

Thank you.

Yeah. Great. Maybe can we just get into very specifically your carryover pricing was I think more positive than most folks would have thought in the quarter, and I didn't know if there are any specific products that you could call out both in North America as well as in GMI, because I think there was $100 million favorable in both, whereas historically that's typically a headwind year-over-year. So I wanted to understand that dynamic on carryover.

Yeah. Good question David. In the international side a lot of that is catch-up FX pricing that you see in Brazil and in Argentina. As you know, we try to price out in Argentina all of our FX headwinds and Brazil in line with the inflation there. So that's the international fees. In the United States, as you see, our carryover, a lot of it was driven by positivity in our car segment. And as you know, we have significantly ramped down our overall car portfolio. It used to be a headwind from a carryover pricing perspective in 2018, and as we have lowering of inventory there we're able to maintain a price discipline there as well. That's I'd say the primary factor. Cadillac is continuing to do really well. So the residual value improvements that we're seeing in Cadillac are flowing through to the crossovers that we currently have on the road as well. Those are the two big factors I'd point out.

Okay. I mean on the GMI side, it sounds like that could continue into the back half. But for North America, is that something that should continue even though you've got the wind-down of passenger cars? I mean looking at 3Q of 2018 you had a very strong pricing quarter. So just trying to understand the dynamics there.

Yeah. I'd say, we'd probably continue to see the car discipline as the inventory there winds down over time. Crossover should be pretty strong as well. There's obviously a bifurcation between small and compact crossover versus the mid-size crossover. So, on the mid-size, we will see a continued positive but pressures from the compact and smaller side. So, I'd say on balance probably to your point it's a harder comp versus last year. So maybe a little bit more of a headwind from a carryover perspective, but the car and crossover specific segment should continue to hold up.

When we discuss deployment, it will occur when our vehicle can operate safely without a safety trainer inside. This is crucial. Building the trust we aim for relies heavily on communication. We have devised a well-planned marketing strategy specifically for San Francisco, the first city where we intend to deploy. This plan is focused on helping people understand our vehicles better, conveying the safety features and efforts we are making to establish a secure environment that can enhance road safety. Our autonomous vehicle follows all traffic laws and does not drive under the influence. We will launch a marketing campaign to engage the city, so residents are informed and more receptive to our innovations. From a technical standpoint, as we develop new technology, we must achieve specific milestones to ensure our autonomous vehicle is safer than a human driver. This requires ongoing efforts, including hiring top engineers to work at Cruise. Everyone now recognizes the complexity of achieving safe operation for these vehicles, and we are committed to this journey. Our rate of progress is strong, and we will conduct testing and validation to meet our goals while also working on gaining regulatory approval. There are no significant impediments in that area; it's just work that remains to be tackled. The NHTSA acknowledges the safety importance of this technology, and we see a clear path toward securing regulatory approval. Building consumer trust is equally vital. We are pursuing these three objectives simultaneously and will continue to work on all three with determination.

Understood. And just as a follow-up on the technical side. Is everything underneath your control? Or are you relying upon any step change in technology from a supplier at this point noted?

Everything is under our control.

Okay. Thank you, Mary. Thank you, Dhivya.

Thank you, David.

Hi. Good morning. And thank you for taking the questions. I want to start with just a couple of quick financial questions and then a strategic question. Just first on the raw mat side I know you talked to some of those pressures being mitigated. If I go back to call it last year you had I believe in North America something like $1.4 billion in commodity headwinds. And now here we are with steel back at where it was in 2017. Now I know that your raw mat headwinds there's other stuff in there whether its aluminum or precious metals et cetera. And that stuff has changed differently. But why wouldn't most of that headwind that $1.4 billion headwind from 2018 reverse given where steel prices is over time?

Yeah. I think we are starting to see the tailwinds in a lot of the commodities that you're talking about Dan. I'd say steel we're starting to see pretty significant tailwinds and aluminum as well. There's a few other commodities that I referenced earlier particularly palladium, which is at a level that remains significantly elevated versus even what we saw in January. And against, a relatively smaller purchase value, it's quite a significant headwind. And over time you will see things flow through. And obviously, there's still uncertainty around tariffs as well. And we therefore, felt it's prudent to get it to a – to a closer to half type of number. We had $1 billion earlier and we're getting it now down to $500 million. We will keep watching it and flowing that through as we see the improvements come through. And we also have the lag effect that, we experience since these don't get indexed right away. They get indexed a little later. So you'll see the improvement come through if the market continues to hold up.

On that lagged effect what's the typical timing? Let's say like steel sort of stays flat where it is right now, how long would it take to fully sort of offset those headwinds? Is it like 18 months?

There's – we have indexed contracts for a portion of it and we have negotiated contracts for the rest of it. And that's over – the timing is all over the place. So from an indexed perspective you would see a lag of about three months and having that come through. From a negotiated perspective our contracts roll out a-third, a-third, a-third type on a yearly basis, so some of this might be a bit more nuanced in negotiated. So, not one metric that you can apply across the board.

Got it. Thank you. And then just as far as the UAW negotiations go, I apologize if I missed it earlier, but have you signaled in sort of what a good placeholder bonus amount to assume in the fourth quarter? Because I know Ford has signaled some kind of amount something that you noted.

No, we haven't. I mean, we are approaching negotiations looking forward to having productive discussions. There are numerous topics that affect our employees and our business that we need to discuss and talk about which we'll do. And we're looking to do that constructively making sure we can address business challenges in a way that allows us to really build a stronger future for our employees, for our customers and for the company, which will benefit our shareholders. So, that's our approach to UAW negotiations. And we have not signaled any specific financial aspect to that.

Got it. I want to ask a strategic question. In the electric vehicle landscape, we've seen some automakers collaborating on investments, but you seem to be taking a more independent approach. Given that your situation is different since you don't have to navigate Europe like others may, would you consider allowing other automakers to utilize your platform, similar to what Volkswagen is doing with NEV? Would that contribute to scaling and profitability?

Well, Dan, I would say we have an arrangement with Honda. Honda has partnered with us on cell technology and some electric vehicle components. I think we were among the first to do that. As we move forward, we are open to collaborating with other OEMs to leverage this further. We're already working with Honda, which definitely provides savings from an engineering perspective and has scale benefits as well.

And scale as a crucial part to reaching breakeven I assume on EVs?

Scale is one of many factors, but it is particularly important as you reach a certain level, especially when considering cell and battery manufacturing.

Got it. Thank you very much.

Sure.