general motors (gm) earnings report: q2 2015 conference...
TRANSCRIPT
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
©2014TheStreet,Inc.Al l R ightsReserved Page1of21
GeneralMotors(GM)EarningsReport:Q22015ConferenceCallTranscriptThefollowingGeneralMotorsconferencecalltookplaceonJuly23,2015,10:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
RandyArickx;GeneralMotorsCompanyExecutiveDirector;CorporateCommunicationsandIRMaryBarra;GeneralMotorsCompany;CEOChuckStevens;GeneralMotorsCompany;EVP&CFO
OtherPart icipants
RodLache;DeutscheBank;AnalystJohnMurphy;BofAMerrillLynch;AnalystBrianJohnson;BarclaysCapital;AnalystItayMichaeli;Citigroup;AnalystRyanBrinkman;JPMorgan;AnalystPatrickArchambault;GoldmanSachs;AnalystEmmanuelRosner;CLSA;AnalystMikeStover;SusquehannaFinancialGroup;AnalystDanGalves;CreditSuisse;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometotheGeneralMotorsCompanysecond-quarter2015earningsconferencecall.
(OperatorInstructions)
Asareminder,thisconferencecallisbeingrecordedThursday,July23,2015.
I'dnowliketoturntheconferencecallovertoRandyArickx,ExecutiveDirectorofCorporateCommunicationsandInvestorRelations.Pleasegoahead,sir.
RandyArickx(CorporateCommunicationsandIR):
Thanks.Goodmorning.ThankyouforjoiningusaswereviewGM'sfinancialresultsforthesecondquarterof2015.
OurpressreleasewasissuedthismorningandtheconferencecallmaterialsareavailableontheGMinvestorrelationswebsite.WearealsobroadcastingthiscallviawebcastontheInternet.Includedinthechartsetmaterialspublishedthismorningwehaveincludedthekeytakeawaysfromeachchartinthenotespagesinordertoprovidecolorontheresults.
ThismorningMaryBarra,GeneralMotors'ChiefExecutiveOfficer,willprovidesomebriefopeningremarks,followedbyChuckStephens,GM'sExecutiveVPandCFO.Thenwewillopenthelineforquestionsfromtheanalystcommunity.
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
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Beforewebegin,I'dliketodirectyourattentiontothelegendregardingforward-lookingstatementsonthefirstpageofthechartset.Thecontentofourcallwillbegovernedbythislanguage.
Intheroomtoday,wealsohaveTomTimko,VicePresident,Controller,andChiefAccountingOfficer,toassistinansweringquestions.NowIwillturnthecallovertheMaryBarra.
MaryBarra(CEO):
Thanks,Randy.Welcome,everyone,tothecall.I'mgladyoucanjoinustoday.
Iamreallypleasedtobeabletotalkaboutoursecondquarter.Aswelookatit,wehavedeliveredstrongearningsgrowthinthesecondquarterandwe'vepostedanetincomeof$1.1billionandanEBITadjustedof$2.9billion.AndifyoulookacrossourregionsfromNorthAmerica,itwasstrongyear-over-yearperformanceinthequarterthatwasanchoredbyarecord$2.8billionEBITadjustedanda10.5%EBITadjustedmargin.
InEurope,wedemonstratedanear-breakevenquarter,whichgivesusconfidenceaswemoveforward,andinChina,wecontinuedwithstrongperformancedespite,asweallknow,amuchmorechallengingmarket.
Forthecalendaryear,weareonplantoincreaseourearningsandmargins,andconsistentwiththat,weexpectourEBITadjustedforthesecondhalftobehigherthanthe$5billionEBITadjustedwe'vepostedthroughJune.Sowiththisfoundation,weareconfidentinourabilitytoachieveour2016target.
Tojustquicklylookatthequarter,ourrevenuewas$38.2billion;ourEBITadjustedwas$2.9billionandthisisthesecond-highestquarterlyresultonrecord.Ourearningspershareadjustedwas$1.29,up122%overlastyear,andouradjustedautomotivefreecashflowwas$3.3billion,verystrong,upfrom$1.9billionayearago.
Wehavealsocommittedthateachquarterlybroadcastorearningsbroadcastwewilltalkaboutourreturnoninvestedcapital.Ourtrailingfourth-quarteraverageis23.4%andIthinkitdemonstratesourdisciplinedcapitalallocationispayingoffaswelookacrosstheglobeonhowweinvest.
Withourstrongperformanceinthecashwehavegeneratedithasenabledustoreturnmorethan$3billiontoourownerssofarthisyearthroughthesharebuybacksthatweannouncedearlythisyearaswellasdividends.AndIamalsopleasedthatFitchreaffirmedourperformancebyraisingGMandGMFinancialtoinvestmentgrade.
SobeforewegetintotheQ&A,Iwanttocouplewiththisstrongfinancialperformanceandjustgiveyouacoupleofexamplesofthingsthatweareworkingonandcontinuingtodotoachievethestrategicprioritiesthatwelaidoutlastyear.
First,aswelookattechnologyandinnovation,wedohavealotgoingon.OneexamplethatIdon'tthinkalotofpeopleknowaboutiswehavejustcompletedaridesharingprojectatGoogle'sheadquarterswherewehad50ChevroletSparkEVs.WelearnedatremendousamountofridesharingfromawholeecosystemperspectiveandalotofthoselearningsaregoingintotheCarUnitycarsharingappthatisbeinglaunchedwithOpelinEurope,whichallowsconsumerstorenttheirvehiclestoothers.Sothat'sjustoneexampleinwhattheurbanmobilityspace,aspeoplecallit.
Fromaconnectivityspace,wecontinuetogrowOnStarand4GLTE,andwehaveover1millionvehiclesontheroadtodaywith4GLTE.WewillalsoseeOnStarenterEuropewiththelaunchof--whenwelaunchtheOpelCorsaandwithOnStarwe'llenterBrazilaswelaunchtheChevroletCruze.
IthinkanotherimportantareainthisspaceiswithourGMsmartphoneintegrationtechnology.Itallows
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
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yoursmartphone,whetheritbeAppleorAndroid,toprojectcertainthingsthatyouareveryusedtousingonyourphoneontothecar;noteverything,butsomekeyareas.Thisisreallylisteningtocustomersandputtingthematthecenter.Andyouaregoingtoseeusexpandthistoglobalmarketsveryquickly.
SoIthinkyoucanexpecttocontinuetoseeGeneralMotorsbeveryaggressivewhenwelookatthetechnologyandinnovationwearebringingintothevehicleandforthewholeownershipexperience.
Let'smovetoanotheroneofourstrategicpriorities,oractuallytwo:earningcustomersforlifeandbuildingstrongbrands.Letmejustgiveyouacouplehighlightshere.
Fromaqualityperspective,NorthAmericawewonfourJ.D.PowerinitialqualitysegmentawardsfortheChevroletMalibu,Equinox,Silveradolight-dutytruck,andtheSpark,andChevrolethad10modelsinthetopthreeoftheirsegments.JustthisweektheyalsoannouncedtheJ.D.PowerAPEALStudy.Again,we(technicaldifficulty)performancewithfoursegmentawardwinnersanddemonstratingcontinuedimprovement.
Fromasalesmomentumperspective,withChevroletandGMCfull-sizedpickupsthatmomentumwascontinuing.Sharewasupto38.5%forthequarterandthatisa2.9%year-over-yearimprovement.Wealsorevealedadditionalproductswiththe2016ChevroletCruze,theCamaro,andtheCamaroconvertible,andtheyallreceivedverypositivereviewswiththosevehicles.
InChina,weachievedrecordfirst-halfretailsalesof1.7millionvehiclesandwegainedmarketshare.Ithinkit'sveryimportant,andIknowwewillhavetheopportunitytotalkmoreaboutChinaaswegothroughthecallhere,butveryimportantan83%increaseinSUVsalesandrecordsalesforBuick,Cadillac,andourBaojunbrand.
AndjustaninterestingfactwiththeBaojunbrand--andthisactuallyisalaunchthatisinJuly,sothirdquarter.ButtheBaojun560,whichisanSUV,withinthefirst24hoursoflaunchwehad15,000orders.Again,wewilltalkmoreaboutChina,butsomeimportantprogresswasmadeinthesecondquarter.
AtGMFinancialourNorthAmericaretailpenetrationgrewtoalmost30%,upfrom10%ayearago,andit'simportanttonotethesecondquartermarkedthefirstfullquarterinwhichwehavepositionedGMFasour
exclusiveleaseprovider.SoIthinkitdemonstrateswearewellunderwaywiththeGMFstrategythatwehaveoutlined.
Aswelookatdrivingcoreefficiencies,youwillseethroughthedeckandalsointhecommentsthatChuckandIwillmakeaswegothroughtheQ&A,therehasbeenalotofworkdonejusttocontinuallyhavedisciplineindrivingefficienciesintoeveryaspectofourbusiness.Butanotherwaytodrivecoreefficienciesispartnering.
AverygoodexampleofthatisarecentagreementwithIsuzuintheUStoproducethelowcabforwardtrucksforChevrolet,andthiswillbeginnextyear.Thisisreallyimportantbecauseitgivesusabroadersuite,whichisveryimportantforthecommercialcustomersthattheywantone-stopshopping.Sohavethisnotonlyasanopportunitytohavethistruck,butalsowebelievewillhelpussellmorefull-sizepickups.
SobeforeIturnthecallovertoChuck,Iwouldliketospendaminuteortwotalkingaboutour2016targets.Webelievetheresultsinthefirsthalfoftheyeardemonstratethatweareontracktoachievethe2016commitmentswehavemade.IfyoulookatNorthAmerica,ourpotentialforachievinga10%EBITadjustedmarginin2016isevidencednotonlybywhatwedidinQ2,butwitheightstraightquartersnow
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
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ofyear-over-yearmarginexpansion.Andontopofthatwe'vegotsomeimportantlaunches.
WealsoprojectthattherewillbecontinuedhighdemandfortrucksandSUVsandourthree-truckstrategyisreapingstrongbenefits.ThatisevenbeforetherefreshedSilveradoandSierrapickupswithnewpowertrainenhancementshitthedealershipslaterthisyear.Aswelookat2016,ourlaunchscheduleagainisaggressive.Wewillhavereplacementsforthehigh-volumeChevroletCruzeandtheChevroletMalibu.Andremember,aswetalkedabout,thosehaveanestimatedvariableprofitimprovementofabout$1,500perunit.
WhenyoutalkaboutEuropeandachievingourgoalnextyeartohavebreakevenperformance,againwearegettingclosertothatgoal.WiththeAstralaunchlaterthisyear,wewillhavefullavailabilityofbothourhigh-volumeCorsaandAstrain2016.Andtolookatthat,thosetwomodelsrepresentabout50%ofourvolumeinEurope.And,again,weexpectthattheestimatedvariableprofitimprovementwillbeabout$900fortheCorsaandaboutover$1,200fortheAstra.
ChuckisgoingtotalkaboutChinaabitmore,butIwanttomakeacouplepoints.First,weexpectamorevolatilemarketinChinaasgrowthmoderates.Ithasn'tchangedourlong-termviewofChina.Wecontinuetobelievethatthemarketwillgrow.There'sestimatestoabout35millionunitsoverthenext10-to15-yearperiod.
Wearewell-positionedrightnowinthatmarketandwewanttocontinuetobewell-positionedtocapitalizeonthatgrowth.WehaveaverystrongpartnerwithSAIC.WeareseeingthebenefitsofwhatwearedoingwithCadillacandthegrowth--evenadditionalgrowth.WehavesubstantialgrowthopportunitieswiththeCadillacbrandandyouwillseeacrossallofourbrandswe'regoingtocontinuetohaveaveryaggressiveproductcadence.
Havingsaidthat,though,Ithinkaswelookatamarketasitrapidlymaturesweneedtolookatotherwaystocontinuetodriveperformance.AndinChinawearealsodoingthatthecaptivefinancecapabilitythatwearegrowing,ourincreasedaftersales,andOnStar.Again,wearegoingtolookatmultiplewaystocontinuetodrivethemomentuminChina,recognizingthattherehasbeenachange.
Insummary,averystrongquarterwithanEPSadjustedof$1.29.Weareconfidentasweexecutethroughthisyearandintonextyear.
Iwilllookforwardtoyourquestions,butrightnowI'mgoingtoturnitovertoChuck.
ChuckStevens (EVP&CFO):
Thanks,Mary.Ijustwantedtotakeacoupleofminutesthismorningtoprovidesomeperspectiveonthequarterandthefirst-halfresults.
Inadditiontoagreatsecondquarter,wealsohadaverystrongfirsthalffortheCompany.ProfitabilityEBIT-adjustedresultsforthefirsthalfgrewto$5billion,up$600millionyear-over-yearwhenadjustingfortheimpactofrecallslastyear.And,importantly,EBIT-adjustedmarginsforthefirsthalfwereat6.7%,up110basispointsyear-over-year,againadjustingfortheimpactofrecalls.Greatresultsandresultsthatareverymuchonplan.
Theresultswerebroad-based,withallbutoneofourautomotiveregionspostingyear-over-yearprofitimprovementduringthefirsthalfoftheyear.Andalthoughweareverypleasedwiththestrongperformanceyear-to-date,wecontinueandwillcontinuetotakeactionstofurtherpositiontheCompanyforlong-termsuccess.
Forexample,thesecondquarterincludeda$300millionassetimpairmentchargeforGMThailand.Thischargewaslargelyrelatedtoongoingstrategicactionstoreconfigureandrestructureourbusiness,
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
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includingfocusingoncoretruckandSUVbusinessinThailand.Webelievethattheseactionswillpositionthecountryforlong-term,sustainedprofitabilityanddrivereturnoninvestedcapitaltothetargetlevelsthatwewanttoachieve.
TherestructuringactioninNorthAmericaannouncedduringthequarterisanotherexampleofusreconfiguringthebusinesstoimproveourlong-termprofitability.
IwouldliketospendafewminutesonChina.Byfar,thatisthebiggestconcernbeingraisedbyourinvestorsandthebiggestconcernsarearound,obviously,themoderatinggrowthinChinaanditspotentialimpactonGM.Soletmeprovidesomecommentaryonthattopic.
Atthebeginningoftheyear,wehadareallyplannedforsomeindustrymoderationandincreasedpricecompetition.Ourinitialassumptionsasweentered2015were6%to8%industrygrowthoveralland3%pricedeteriorationonayear-over-yearbasis.Ithasbeencleartousforsometimethatthemoderationisstrongerandthepricingenvironmentmorechallengingthanweanticipated.
However,Ithinkit'simportantthatdespitethesedevelopments,wegeneratedverystrongperformanceinthesecondquarterandthefirsthalfoftheyear.$1billioninequityincomeinthefirsthalfoftheyearwith10.1%netmargins,whichrepresentsmarginexpansiononayear-over-yearbasisandamuchmoredifficultenvironmentinChina.
Wewereabletogeneratetheseresultsspecificallybecausewehadbeenveryproactivelymanagingthemarketriskswithseveralactions,suchasfurtheroptimizingmixbyincreasingproductionsofourSUVs.Marymentionedyear-to-dateSUVsalesareup83%versus2014.TheteamsinChinahavebeenaggressivelyreducingcostsbyrollingoutcost-down/efficiency-upinitiativesandwehavebeenworkingcloselywithourdealerbodytomanageinventorylevels.
Clearly,onthebackoftheseproactivemeasures,basedontheresultsthatyousawinthesecondquarterandthefirsthalf,wewereabletooffsetmarketandpricepressurestocontinuetodeliverstrongearnings.Ithinkitisimportantalsotopointoutthat[GMW's]BaojunportfoliocontinuestoexpandandthatprovidesGeneralMotorswithauniqueopportunityintheChinamarkettocompetestronglywithdomesticOEMportfolios,andparticularlyintheTier2,3,and4citiesandparticularlyinthefast-growingSUVandMPVsegments.
Lookingforward,weareexpectingcontinuedmoderationofindustrygrowthandweexpectthemacroeconomicvolatilitytocontinue.Frankly,basedonthecurrentenvironment,wenowexpecttheindustryinChinatogrowforthefullyearinlowsingle-digitrangeversus2014.Anddespitesomewhatanemicgrowthinthefirsthalfoftheyear,fromanindustryperspectivearound1%,ourlowtomidsingle-digitgrowthforecastisunderpinnedbyseveralfactors.
First,thelaunchcadencebyseveralOEMs,includingGeneralMotors,thatwillintroducenewmodelsinthesecondhalfoftheyear,whichshouldspurdemand.Next,seasonality.TypicallythesecondhalfinChinaisthestrongerhalf,drivenbynationalholidaysinthefourthquarteroftheyear.
Andthen,finally,thepotentialrecoveryfromthecurrentreactiontothevolatilitiesinthestockmarket.Clearly,JuneandthusfarinJulythere'sbeenprettysignificantheadwindsonayear-over-yearbasis.Wedon'tanticipatethatthatisgoingtocontinuethroughtheyear,butthatissomethingwe'regoingtohavetomonitor.
Despiteourrevisedindustryoutlook,weexpecttosustainourfirst-halfperformancethroughouttherestoftheyear.Specifically,increasemarketshareandsimilarequityincomelevels.
Thereareanumberofdriversthatgiveusconfidenceinouroutlook,whichincludeournewlaunches,
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
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liketheBuickVeranoandBaojun560SUVthatMarymentioned;continuedsuccessoftheEnvision,whichisexceedingourexpectationsandcontinuestogrowonayear-over-yearbasis;andfurthergrowthinCadillac.
Second,improvedmixagaindrivenbyrecentlylaunchedproductsliketheBuickEnvision,theBaojun730,andtheBaojun560.Again,aswementioned,SUVsalesareupover80%year-over-yearandtheBaojunbrandsalesareup370%onayear-over-yearbasis.
Third,furthercostactionsandefficiencyimprovements.Ithinktheteamdemonstratedinthefirsthalfoftheyeartheabilitytobeagileandaddressheadwindsandactively,proactivelymitigatethose.Again,basedonourresults.
Ithinkit'salsoimportanttorememberthatourfirst-halfresults--andwetalkedaboutthisinthefirstquarter--werenegativelyimpactedbyplantdowntimeandlaunchcostsaheadofnewproductintroductions.WealsorecognizedoneoftheareascausingelevatedconcernsinChinarelatestopricing,andletmeprovidesomecontextinhowwethinkaboutthatasitrelatestoGM.
AsImentionedbefore,inthepastwehadexperiencedcarryoverpricereductionsofabout3%onayear-over-yearbasis,andgenerallywewereabletolargelyoffsetthatthroughmaterialcostperformance.For2015,giventheincreasedpricingpressures,weareexpectingpricereductionsinthe5%to6%range,giveortake,andobviouslythisissomethingwewillmonitorclosely.
Asageneralruleofthumb,a1%carryoverpricereductionatSGMisworthabout$100millionofequityincomeforGM,absentanymitigatingactions.AndIthinkthat'simportant:absentanymitigatingactions.SimilartoQ1andQ2,wewillcontinuetolookforopportunitiesandweplantofindopportunitiestooffsetthosepriceheadwinds,includingimprovedmixandcostefficiency.
AsImentioned,you'dexpecttheteamisworkinghardonthecostsidetoensureweprotectourprofitability.Wearehighlyfocusedonthat.
Sobottomline,werecognizethemarkethasbecomemorechallenging,butweareconfidentinourplanandwe'retakingthenecessaryactionstohelpmitigatetheseheadwinds.Finally,withregardtoourtotalcompanyoutlookforthebalanceoftheyear,weareverymuchonplanforimprovedfull-yearprofitandmargingrowthversus2014,verymuchonplaninthefirsthalf.ThiswilltranslateintoEBITadjustednorthof$10billiononatotalcompanybasisandourexpectationsarethesecondhalfisgoingtobegreaterthanthefirsthalf.
Andtherewillbeassuredlyputsandtakesversusouroriginalexpectationsaswemovethroughtheyear.Therehavebeenalreadyputsandtakesversusouroriginalexpectations,ifyoulookatSouthAmericaandsomeotherdevelopments,but,overall,weexpectaverystrongoutcomefortheCompanyforthefullyear.
Sothatconcludesouropeningcomments.Wewillnowmovetothequestion-and-answerportionofthecall,thanks.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)RodLache,DeutscheBank.
RodLache (Analyst-DeutscheBank):
Goodmorning,everybody.Thanksforthat--allthoseinsights,especiallyonChina.Washopingyou
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
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mightjustclarifyafewthingsforus.
Oneis,Chuck,that1%isabout$100million.Lastyearthatwasa$44billionrevenuebusinessunconsolidated,soIwouldthinkthat1%isover$400millionandwemightgethalfofthat.Sowhatarewemissingthere?
Iwouldimaginethatyourfixedcostsisupalittlebitjustgiventheincreasingcapacity.Canyoumaybecommentonmaybewhatthesensitivityisforevery1%movementinvolumeforyou,justgivenhowyourmixhasshiftedtoday?
ChuckStevens (EVP&CFO):
Yes,letmetalkaboutthepricefirst.ThepriceandthepriceimpactislargelyisolatedtoSGM.GivenSGMW'spositioninthemarket,theirstrengthinthecommercialvehiclesegment,wearenotseeingthesamekindofheadwind.It'sreallyaroundSGM,soIthinkthatcarvesoffapieceofthe$44billion.
Secondly,thatiscarryoverprice.So,similartoallothermarkets,aswelaunchnewproductstheyarenotfacedwithayear-over-yearpriceimpact.Sothatwouldbetheotherdriverofthat,Rod;whythatis$100millionversusjusttaking1%of$44billion.Ihopethatansweredyourquestion.
Clearlyonyourfixedcostside,yes,aswementionedinthefirstquarterandeveninthefirsthalf,there'ssomeincrementalcostsaroundmanufacturingassociatedwiththelaunch,incrementalD&A,butthere'sstillopportunitiestodriveimprovementinfixedcostsinindirect,inSG&A,indrivingoverallefficiency.AndthatiswhattheteamisveryfocusedoninChina.
Again,fromanoverallindustryperspective,itreallydependsonultimatelyhowthatplaysout.Ourviewrightnowisthatinthatlowsingle-digitgrowthinindustry,wewillseeareasonableimprovementinpassengervehiclesandmoreheadwindsincommercialvehiclesinthecontextofthatoverall.Sothere's--thathasabitofanimpactonmutingtheimpactonouroverallresults.
Myperspective,Rod,whenlookingonayear-over-yearbasis,thebiggestrisktousorthebiggestriskfromaChinaperspectiveisreallypricingmorethanindustrywhenwelookattheoverallpicture.
RodLache (Analyst-DeutscheBank):
What'sthesensitivityfora1%moveinvolume?Andcanyougiveusmaybealittlebitofinsightinto--?Youmentionedtwosourcesofgrowth.OneistheTier2through4regionsandsomeofitiscomingfromthenewproduct.WhatistheexposuretodaytoTier2through4andwhatkindofvolumeswouldyouexpectfromsomeofthesenewproducts?
ChuckStevens (EVP&CFO):
IfyoulookatouroverallvolumeinChina,roughlyhalfofitisSGMandhalfisWuling,broadstrokes.AndwithinWulingisBaojun,sothevastmajorityofWulingsalesareinTier2,3,and4citiesandBaojunbrandisup370%year-over-year.Sothatkindofgivestheideaoftheopportunitythatwehaveinthosecitiesandtheexpectedimprovementthere.
ThepressureintheTier1citiesisreallywheretheforeignOEMsdominate.That'swherethepricepressureisandthat'swheresomeofthevolumepressureisaswell.
RodLache (Analyst-DeutscheBank):
Sowhatisthesensitivityfora1%move?Istherearuleofthumbthatwecoulduse?
ChuckStevens (EVP&CFO):
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
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Iwouldthink,ifittranslatedintoafulldollarofrevenueit'sgoingtobekindofsimilartothepricesensitivity.Hardtolookatthatwithoutfactoringinmixandwhere--Ican'tcomeupwithageneralruleofthumb,Rod,onthatbecausethere'sdifferentdrivers.Itdependsagainwherethat1%wouldfall.
RodLache (Analyst-DeutscheBank):
Okay,onelastthing,ifImay.IknowI'mtakingtoomuchtimehere.ButinNorthAmericayouaredoingsomeprettyimpressivemargins,especiallyinlightofthefleetpricingandrestructuringcostsandrecallthatyouhad.
Thereareanumberofthingsthatyouhavesaidbeforethatareinyourcontrol,likeproductmaterialcostdeclines,andsomeofthatseemstobecomingthrough.Whatshouldwebethinking,ifyoucanjustrefreshourmemory,intermsofthecostreductionexpectation,netcostreductionforthisyearandnextinNorthAmerica?
ChuckStevens (EVP&CFO):
Iwilltalkaboutmaterialcostsoncarryoverthusfarandoverall[GPSE].Fromacorporateperspective,wegeneratedabout$1.1billionofyear-over-yearimprovement,roughly$600millionto$700millionofthatwasinNorthAmerica.Ourexpectationswouldbewewouldseethatcontinueintothesecondhalfoftheyear.
Overallfixedcosts.Againfromacompanyperspective;year-over-yearlooktoberelativelyflattoslightlyup.Wecontinuetodrivealotofefficiencywithoperationsexcellence.Sooverallcost,againexcludingthematerialcostsonnewmajorkindofproductprograms,willbedown;fromamaterialcostperspective,relativelyflatfixed.AndIthinkthatisalsoconsistentforNorthAmerica.
RodLache (Analyst-DeutscheBank):
Samecadenceintonextyear?
ChuckStevens (EVP&CFO):
WewilltalkaboutnextyearwhenwecomeoutandtalktoyouinJanuary.
RodLache (Analyst-DeutscheBank):
Okay.Thanks,guys.
Operator :
JohnMurphy,BankofAmerica.
JohnMurphy(Analyst-BofAMerrillLynch):
Justafirstquestiononslide14onNorthAmerica.Ithinkyouguyshadalludedtoabouta$300millionhitinauctionsforsomerecallaction,similartowhatwesawinthefirstquarterwhereitwasalittlebitlarger.Ifweweretobackthatout,thatwouldprobablyaddabout1.1%tothe10.5%thatyouguysprinted.
Isthataboutright,Chuck?Isthatwhereyoushakeout?
ChuckStevens (EVP&CFO):
Themathiscorrect,John.Whenyoulookatjustthatdriverofthebusiness,look,theresultsinNorthAmerica,10.5%margins.Ithinkmarginspeakforthemselvesandclearlyoneoftheheadwindsthatwehadtooffsetinthequarterwasthatauctionissueandthelossatauctionissueonfleet.
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
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Butaswemovethroughtherestoftheyeartherewillbeputsandtakesaswell,butclearlythecoreoperatingperformanceinNorthAmericawasverystronginthesecondquarter.
JohnMurphy(Analyst-BofAMerrillLynch):
I'mjusttryingtounderstand;ifweweretobackoutthoserecallactions,aswellastherestructuring,youprobablywould'vebeendoingmorelikea12.4%margininNorthAmerica.Obviously,therewillbeputsandtakesaswegothroughtherestoftheyearandgointo2016,butImeantheongoingunderlyingperformanceisevenstronger.Although10.5%isimpressive,itlooksliketheunderlyingperformanceisevenstrongerthanwhatisgenerallyperceivedandI'mjusttryingtomakesureweunderstandthatright.ButIthinkthat'skindofaboutwherethemathshakesout.(multiplespeakers)
ChuckStevens (EVP&CFO):
Icertainlywouldn'tdisputeyourmath.MymessagewouldbefirsthalfoftheyearNorthAmericagenerating9.7%EBITmargins,whichtomedemonstratesthatweareverymuchonthepathtoasustained10%marginobjectivein2016.Soweareverypleasedwiththeresultssofar.
JohnMurphy(Analyst-BofAMerrillLynch):
Okay.Thenjustaquicksecondquestion;ifwethinkaboutSouthAmerica,a23%dropinvolume,yettherewasalmostnochangeinEBIT.I'mjustcurious,forthatEBITlinetoturnintherightdirection,whatwouldittake.Becauseyouareholdingthelineona23%dropinvolume;couldwebeseeingsomesmallconservationcomingfromSouthAmericaonaverysmallvolumerecovery?
ChuckStevens (EVP&CFO):
Thisgoesback--andwe'vetalkedaboutthisbefore.Thisgoesbacktotheactionswestartedtoexecutein2012andhavebeenconsistentlyexecuting,andthatistocontinuetodriveefficiencyinthebusinessmodelinSouthAmerica.AndtheteaminSouthAmericadidanoutstandingjobearlierthisyearwhenwesawtheindustryperformanceandthegrowthandsomeoftheheadwindsinBrazilspecificallybutnowkindofspreadingthroughtherestoftheregion,tookvery,veryproactiveaction.WetalkedaboutthatabitwiththeQ1release.
We'vecutourworkforce,hourlyandsalaried,by20%.We'regoingtoseethebenefitofthatinthesecondhalfoftheyearandgoinginto2016.Frankly,IwouldexpectforSouthAmericatoseesecond-halfresultskindofsimilartolastyear,whichisrelativelyclosetobreakeven,evenunderthecurrenteconomicsituation.
Hardtopredictwhat'sgoingtohappen,butunderthecurrenteconomicsituationIthinkyou'regoingtoseekindofthesamecadenceaslastyear.AndmytakeawayiswearehighlyleveragedtoanyrecoveryinSouthAmericaandIthinktheactionswehavebeentakingoverthelastfewyearswillputusinpositiontoquicklygetintoapositiveprofitpositionthere.
JohnMurphy(Analyst-BofAMerrillLynch):
SimilarlyonEurope,itwasagoodperformancebutthere'saproductlaunchinthesecondhalfoftheyearandmaybesomemorerestructuringthatmightgoon.Howshouldwethinkabouttheremainderofthisyear?Becauseitlookslikeyouaregettingtobreakevenalreadyandjustcuriousifyoucouldholdthelineonthatinthesecondhalf,orarethereothereventsthatmightchangethepicturethere.
ChuckStevens (EVP&CFO):
Again,second-quarterresultsisanotherproofpointthattheunderlyingbusinesshasthecapabilityand
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weareverymuchontracktoour2016commitments.Typically,ifyoulookatEuropeseasonally,Q3isgenerallyweakerthanthesecondquarterjustbecausethere'sbroad-basedshutdownsacrossthewholeindustryandallthecountries.Soseasonalitywouldsuggestsomeheadwindsinthesecondhalfversustheperformanceinthesecondquarter.
Andaswetalkedabout,biglaunchwiththeAstra,sotherewillbesomelaunch-relatedcosts,bothmanufacturingandpotentiallymarketing,aswetailoutoftheyear.Butformeitwasvery,verypromisingandveryoptimisticbasedontheresultsinthesecondquarterthatwearedevelopingandexecutingtoour2016commitment.Theresultsarestartingtobeaproofpointaroundthat.
JohnMurphy(Analyst-BofAMerrillLynch):
Great.Andthenjustlastlyonthebuybackprogram.Ijustwantedtomakesureyouguyshavea10b5-1programinplacesoyoucanbuythroughtheblackoutperiod.Also,isthatrunoffsortofagridoristherearealprograminplacesowhenthestockdropsthereissignificantlymorebuyback?Justtryingtounderstandhowthatprogramisbeingrunandifthere'sanyblackoutperiod,oryoucanjustrunstraightthroughthequarter.
ChuckStevens (EVP&CFO):
Wehavea10b5-1program.Itwillrunthroughthenextwindow,whichwillopensomewherearoundJuly28.Wedohavesomewhatofabuilt-inflexibilitywherewecanincreasetheamountofsharesthatwearebuyingwithinthatprogramdependingontheperformanceofthestock.
Overallonstockbuyback,consistentwiththecommitmentsthatwemadewhenwerolledoutthecapitalallocationframework,we'vebeenaggressive.We'vebeenaggressivewithintheoverallobjectivetodriveourtargetcashdownto$20billion.Boughtback$2.1billionthusfarofa$5billionprogramandwe'regoingto,asaggressivelyandprudently,aspossiblecontinuetoactbecauseclearlyourstockisundervalued.
JohnMurphy(Analyst-BofAMerrillLynch):
Reallygoodquarter.Thankyouverymuch.
Operator :
BrianJohnson,Barclays.
BrianJohnson (Analyst-BarclaysCapital):
InChinacanyougiveusasense--?Youcommentedonretailversuswholesaleinthequarterinthecomments,butjusthowthatbreaksupfrombrandandanyvisibilityyoucangiveusintodealerinventory.
ChuckStevens (EVP&CFO):
Whatclarityareyoulookingforonretailversuswholesalebybrand,Brian?(multiplespeakers)secondquarter?
BrianJohnson (Analyst-BarclaysCapital):
Whichbrand--?Yes,inthesecondquarterwhichbrandsdidwholesalesrunaheadofretail?Wherediditlagandjusthowareyouthinkingaboutthatbalancebetweenthetwo?
ChuckStevens (EVP&CFO):
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IfIlookatquarter-over-quarterbroadstrokesinthesecondquarter,retailwasdownslightly1.4%;wholesalewasupslightly1.4%,soreasonablybalanced.Whereweareseeinggoodperformanceonayear-over-yearbasisinthesecondquarteronretail,importantlyCadillacandBaojunandinSUVs,whichareupnorthof80%.Andthatsamedynamicholdsonwholesales.
Butfromadealerinventoryperspective,clearlyattheendofsecondquarterassaleskindoftrailedoffourinventorypickedup.We'renotwayoutofrangeofourtargetthatpickedupabout20,000unitsandwewillworkaswegothroughthesecondhalfoftheyeartomakesurewealignsupplyanddemand.Wewanttomakesurethatweproactivelymanagethatwithourdealersandwehavebeendoingthatinthefirsthalfoftheyear,soalittlebitoutofbalanceattheendofthesecondquarterbutnotsignificantly.
BrianJohnson (Analyst-BarclaysCapital):
Okay.SecondquestiononChina;youhavetalkedaboutnewGMkindofoperatingmodelsandthedisciplineweareseeingcomingthroughinNorthAmericaandEurope.HowisthatdifferentinChina,giventheJVstructure?Andthenhowdoyou--intermsofthecostreductionsyouneedinlightofthedeterioratingpricingsituation,justhowquicklycanyougetyourJVpartneronboardwithsomeofthosemovesandhowdoesitactuallywork?
MaryBarra(CEO):
Ithinkitworksverywell.Thepartnersworkday-to-day,eventhe--theseniorleadershipoftheteamisveryclosetoourSAICpartners.Andsoweveryproactively,aswestartedtoseethingschange,togetherworkedtolookforefficiencies,lookedtoseizeopportunitiesintheSUVmarket.Again,withtheportfoliothatwehave.
Wejustlaunchedthe560,whichisaveryimportantproductforBaojun,anSUV.Sofromtheportfoliotomanagingmixtolookingforopportunities,weworkonanintegratedbasisday-to-daywithaverystrongrelationship,sothere'snoextrahurdletheretogoafterthat.
BrianJohnson (Analyst-BarclaysCapital):
Areyouabletomovequicklyshouldyouneedtoadjuststaffinglevels?
MaryBarra(CEO):
I'msorry,Ididn'thearthequestion.
BrianJohnson (Analyst-BarclaysCapital):
Wouldtheybeabletomovequicklytoadjuststaffinglevelsor(inaudible)enterprisetootherbarriersthere?
ChuckStevens (EVP&CFO):
SAICisagreatpartnerandvery,verycommerciallyminded,so--andwehavedemonstratedthat.Wehaveregularmeetings;theywerejustinDetroitearlyinJunefortheSGMBoardmeetingandwewerethereinApril,sowearetotallyalignedonwherethisbusinessneedstogo.
MaryBarra(CEO):
WhatIwouldalsosayis,inadditiontohavingagreatrelationshipwithapartnerwhereweaggressivelylookatthechallengesinthemarketplaceandhowtomanagethebusinessappropriately,ourheadofChina,MattTsien,wasintownlastweek.AndChuck,myself,Dan,andothersspentanincredibleamountoftimemakingsurewehaveagoodreadofwhat'shappening,whattoexpect,andtheactionsweneed
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totakeagaintostayinfrontofit.
BrianJohnson (Analyst-BarclaysCapital):
Okay.Andthenfinalquestion,NorthAmerica.Justalittlebitofrentalcaraccounting.Wholesaleswereaheadofproduction.Wasthatthereturnoftherentalcar?DidthatactuallycontributetoEBITDAnetofthepriceimpactorwasthatkindofawash?
ChuckStevens (EVP&CFO):
Well,you'rerightonthefirstpart;wholesalesbeinggreaterthanproductionlargelywasdrivenbyauctiondisposalsofrentalvehicles.Generally,ifyoulookattheoverallEBITimpact,therentalvehiclesdon'tcontributealottothebottomline,sothatextrawholesalewasnotrealaccretivetoearningsinthequarter.Infact,obviouslytheauctionlosshadabitofheadwindimpactforus.
BrianJohnson (Analyst-BarclaysCapital):
Okay,thanks.
Operator :
ItayMichaeli,Citi.
ItayMichaeli(Analyst-Citigroup):
Great,thankyou.Goodmorningandcongratulations.JustaquestiononChinaagain.
Chuck,withtheoutlookIthinkforkindofflattishequityincomesecondhalfoftheyear,whatdoesthatcometointermsoftheChinamarginfor2015?Andthenanyupdatedthoughtsaroundtheprior9%to10%mid-decadeandbeyondtargetsthatIthinkyoutalkedaboutforChinaattheinvestorday?
ChuckStevens (EVP&CFO):
Ouroutlookfortheyear;you'rerightwiththemathonceagainthatit'sgoingtobe--sustainedperformanceinthesecondhalfoftheyearwouldputourequityincomeintherange,giveortake,of$2billion.WehavenotmovedoffofourmarginobjectivesinChinaof9%to10%netmargins.Firsthalfoftheyearwegenerated(technicaldifficulty)percent,sowe'renotmovingoffthat.Andwehavenotmovedoffourlonger-termguidance,mid-guidanceoncontinuing9%to10%margins.
Clearly,wewillcontinuetocloselymonitorthemarketinChina.Wewillcloselymonitorthedevelopmentsthroughtherestofthisyearandpotentialimplicationsoverthenextcoupleyears,butwehaven'tchangedourvieweitheronthisyearorgoingforwardyet.
ItayMichaeli(Analyst-Citigroup):
That'sveryhelpful.ThenjustmovingalongtoRussia.Anyupdateonhowthatwinddownisgoing,maybehowweshouldthinkaboutroughlymodelingthatinto2016?
ChuckStevens (EVP&CFO):
Theexecutionisgoingverywell,verymuchaccordingtoplan.AndasItalkedaboutinQ1whenweannouncedthis,IwouldexpecttheimpactofRussiaandEuropeanresultstodiminishaswegothroughtheyear.And,frankly,lookingatQ3,Q4it'sgoingtoberelativelyimmaterialbasedonourcurrentview.SowewillhavewoundthroughthoseimplicationsaswefinishtheselldownandtheregularcommercialoperationsthatarestillimpactingEBITDAadjusted.
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ItayMichaeli(Analyst-Citigroup):
Gotit,terrific.ThenjustlastquestiononCapExandcashflow;itdoesseemlikeCapExisrunningIthinkbelowtheoriginalguidancefortheyear.Iknowyougotsomeproductlaunchesinsecondhalfoftheyear,butloveanupdatethere.Andalsoyou'restilllookingforfreecashflowtobekindofflattishthisyearversuslastyear.I'mnotsureifthereisanupdatethereaswell.
ChuckStevens (EVP&CFO):
Sure.Capitalspendfirsthalfoftheyear$3.4billion,whichwasrelativelyconsistentwithlastyearfirsthalf.We'vegotprettysignificantlaunchesasyouthinkabouttherestoftheyear:Astra,Cruze,Malibu.Wecertainlyexpectcapitalspendingandthecashassociatedwiththattoincreaseinthesecondhalfoftheyear.
Wearenotmovingoffofour$9billionguidancefortheyearyet,Itay.Wewillcontinuetomonitorthataswegothroughtheyear.
AsItalkedaboutfreecashflowbefore,Isaidflattoslightlyup.Basedontheperformancewe'veseensofar,Iwouldn'tnecessarilychangethatperspective,butImightunderlineoremphasizeslightlyuponayear-over-yearbasis.Ourperformancesoncashflowisabitaheadofplan,soweareoptimisticthatwewillbeabletodobetterthanweanticipated,butwearenotchangingtheoverallguidanceyet.
ItayMichaeli(Analyst-Citigroup):
Great.Thankssomuchforallthedetailtodayandcongratsagain.
Operator :
RyanBrinkman,JPMorgan.
RyanBrinkman (Analyst-JPMorgan):
Goodmorning.Congratsonthequarter.MaybejusttohonebackinonChinaagain,butkindofdovetailingonthatearlierSouthAmericadiscussion.
YouhaveprovenveryskilledattakingoutcostinSouthAmericawhenvolumedeclinesandtheteamthereisclearlyveryusedtothat.ButinadownsidescenarioinChina,whatdoyouthinkdecrementalmarginslooklike?Idon'tknowthatthere'sreallyaprecedentthatwecanpointtheinvestorsto.
SoI'mcuriouswhetheryouengageinthetypeofdownturnplanninginChinalikeIknowthatyoudoinNorthAmerica.Anycolorwouldbehelpfulwhetherregardtoflexibilityoflabor,abilitytore-timethecapacityexpansion,stuffofthatsortintheoff-chancethatwedoseenotjustaslowingbut,infact,arealpotentialdownturn.
ChuckStevens (EVP&CFO):
First,asMarymentionedearlier,Ryan,wecontinuetoexpectChinatogrow.Wehaven'tchangedourlong-termviewofChinatobesomewhereintherangeof$35millionandwearenottheonlyonesthatdothat.
Yes,clearlywelookatdownturnscenarios.Welookatpotentialimplicationsthatgrowthisn'tasaggressiveaswethoughtitwasandinarapidlymaturingmarketthere'sgoingtobeincreasedvolatility.Wearenotanticipatingayear-over-yearsalesdeclineyet,butclearlythatissomethingthatwemodelandwelookattheopportunitiestooffsetthatandwhatthatwouldbe.I'mnotreadytosharethatatthispointintime,butwedothatacrossthewholecompanyacrossalltheregions.
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Iwouldsaythatwehavenotmovedoffourguidancefortheyearandwehavenotmovedoffour9%to10%guidancefor2016andbeyondatthispointintime.And,asImentionedearlier,wewillcontinuetomonitorthesituationthereandifsomethingchangesthenwewillcommunicateitappropriately.
RyanBrinkman (Analyst-JPMorgan):
Okay,great.Thanks.ThenhowdoyouthinkGMispositionedinChinarelativetosomeofthechangestakingplaceinthemarket?YoutalkedaboutthetrendtowardSUVsandCUVs.WhataboutthetrendtowardagreaterportionofthesalestakingplaceinthoseTier3,4,5citiesorinteriorofthecountry,awayfromsortofShanghaiwhereyouarereally,reallystrong?
Perhapsyoucanshareareyoubuildingoutyourdealernetworkanydifferently?Didyoualreadyanticipatethesechanges?WhatareyoudoingtoremainassuccessfulinChinaasyouhavebeenbutinadifferentenvironment?
MaryBarra(CEO):
Ithinkifyoulookevenacoupleyearsback,IthinktheSGMWteamwasverygoodatlookingtoseetheshiftsthatwerecomingwiththecreationoftheBaojunbrandandthennotonlypassengervehiclesfromthecommercialvehiclesthattheyaresogoodatbuildingtotheSUVs,andwiththeMPVthatwewillrolledoutandnowtheSUVthatcomingout.SoIthinkitwasanticipatingwherethemarketwasgoing.
Andthatsomethingalso,withthepartnerandtheseniorleadership,welookandtrytolookoverthehorizontoseewherethemarketisgoingtobe,wheretheopportunityis.Thenthatisaverycapableteamfromanexecutionperspective.Theyhaveaverygood,strongbrandreputationacrossthecountry.
IfyoulookatthisBaojun560SUV,ithas,I'dsay,someprettysubstantialtechnologyinitwhenyoulookatconnectivity,whenyoulookatcrash,whenyoulookatthematerialstrategywithhighstrengthsteel.SoIthinkweareverywell-positionedandIthinksomewhatuniquelypositionedinthatwehavesuchaveryimportantpartnershipwithaverystrongdomesticmakerintheChinamarket.
RyanBrinkman (Analyst-JPMorgan):
Okay.Andthenjustlastquestion.Iknowyouareoftenlimitedinwhatyoucansayrelativetolabornegotiations,butIwouldjustobservethatitseemslikeyouannouncedin2QatremendousamountofinvestmentinjobsandfactoriesintheUnitedStates.AndIcouldn'thelpbutnoticethatthesewereaheadof,ratherthaninconjunctionwith,thelabornegotiationsandsortofstoodincontrasttoFord,whichactuallyduringtheperiodoftimethatyouweremakingtheseannouncements,talkedaboutmovingsmallcarproductiontoMexico.
SomaybeyoucouldjustcommentastowhetherthisisareflectionofyourstrongrelationshipwithUAWthatyoudon'tneedtotiethesenegotiationsinconjunction--theseannouncementsinconjunctionwiththenegotiationsandthatyoudoexpectagoodoutcomewiththepartnersthatmaintainsorevenenhancesyourcompetitiveness?
MaryBarra(CEO):
Again,I'mnotgoingtocommentonthespecifics,butIthinkwhenyoulookatit,weareworkingwiththeUAWandhavingconversationsonadailyandweeklybasis.Andsowearegoingtolookatwherewehavecapacity[announcement]expansion,newproductinvestmentstomake,andwelookatdoingthatattherighttime.It'sacontinualcycle.
Iwouldsayoneofthetakeawaysisit'sacontinualdiscussion,but--andIthinkwehaveimprovedtherelationshipandbothpartiesworkhardtodothat.Thatisnottosaythatthereisnotissuesthatwehave
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gottosolve.Weareactivelyworkinganddoingthatandusingourcreativeandconstructiveproblem-solvingtolookattheissuesandfindtherightsolutionthatisgoingtobegoodfortheCompanyandhelpusimproveourcompetitiveness,aswellasbesomethingthatisgoodfortheworkforce.
BecausetheUAW--asyoustepbackasidefromthenegotiations,weworkjointlytogetheronsafetyandIthinkoursafetyleadershiprepresentsthat;thequalityworkwearedoing.Andwearetakingthattothenextlevel.
Whenyoulookattheschemingthatwehavedoneourplantstobeabletogetmoremidsizetrucksandeverysinglefull-sizetruckandSUVout,againthat'sdoingthatinpartnership.Sothatisthefundamentalsoftherelationship.We'llworkthroughtheissues.Again,weareconstantlytalkingsoit'snotasitmayhavebeeninthepastthatit'ssavingthingsupforthenegotiation.ButIdon'twanttounderemphasizethatwedohavesomeimportantworktodoandweareonit.
RyanBrinkman (Analyst-JPMorgan):
Okay,that'sgreattohear.Thanksandcongratsagainonthegreatquarter.
Operator :
PatrickArchambault,GoldmanSachs.
PatrickArchambault (Analyst-GoldmanSachs):
Thankyou.Goodmorningandcongratsontheresults.AcoupleofChinaquestionsandthenonekindofbroaderproductquestion.
JustIthinkitwashitonalittlebitinRyan'squestion,butthemiximpact;howwethinkaboutitnet-netsomeofthetrendsthataregoingon?It'sobviousthatyouarehavingalotofsuccessintheTier2andTier3citieswhereWulingandBaojunaredoingvery,verywell,right?Butontheflipside,youhavethemoretraditionalSGMproductsthataremorecoastalthatonewouldthinkarehighermargin--theyarecertainlyhigherrevenue--thatareflattishanddownincertainmonths.
AndthenIguessoverlayingthatyouhavethisSUVtrend.SoI'mjusttryingtothinkaswe--forgettingaboutcostsavesforasecond,justaswethinkaboutthevariableimplicationsofthosetrends,wheredoesthatpushmarginsaswegoforward?
ChuckStevens (EVP&CFO):
Ithink--andlet'sbifurcatejustabitbetweenSGMandSGMW,andwetalkedaboutitbeforewhenwetalkedabout2015andwhatweexpectedtodo.Pricingheadwinds--and,clearly,theyaremorechallengingthanwethought--wouldbeoffsetbymix,mixdrivenbySUVsandCadillacgrowth.WeareseeingbothofthatintheSGMchannel,thegrowthinSUVsup80%andCadillacisupyear-over-year.Wealwayslookedatthatnotonlyfor2015,butbeyondasawaytocontinuetomaintainthemarginsinChina.
SGMW,Ithinkyouhavetwoimplications.YouhavethepassengercargrowthintheBaojunbrandthatisreallygoingtohelpusinTier2,3,and4citiesandyouhaveSUVs.AndtheSUVmarketissplitbetweenkindofpremiumSUVs,likeBuickEnvision,theTraxasanexample,EncoreandotherproductssoldintheTier1cities,andthelowercostSUVs,whichareabiggrowthdynamicinTier2and3and4.
SoSUVsapplytobothTier1andTier2,3,and4cities.CadillacappliestoTier1.Thatmixiswhatisgoingtohelpusmaintainthose9%to10%margins,assumingconditionsnormalizeasweexpecttheywillandgetbackonagrowthtrajectoryinChina.
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PatrickArchambault (Analyst-GoldmanSachs):
Okay.Itsoundslike,despitethefactthatsomeofthelocal-orientedstuffisdoingwaymorethanyouwouldhavethought,it'sstillwithintherealmofbeingabletostickwiththatmixstatement.
Oneotherquestionon--justtheimpactofcreditinChina.Itakeitthat'scapturedinGMFratherthaninyourChinaoperatingsegment.Haveyouguyskindofdisclosedanorderofmagnitudethere?BecauseIcanimaginethatthatisprobablystartingtogetimportant.
ChuckStevens (EVP&CFO):
Onthefinancecompanyequityincome?
PatrickArchambault (Analyst-GoldmanSachs):
Correct,yes.
ChuckStevens (EVP&CFO):
Yes,thatwillbeinGMFinancial'sresultsanditwillbeGMFinancial'sresultsthattheypublishlatertoday.Broadstrokes,it'sabout$25millionofbenefitinthesecondquarteronourequityshareinGMF.
PatrickArchambault (Analyst-GoldmanSachs):
Gotit,helpful.Andthen,Mary,maybemoreofaproductquestion.
There'snoquestionthatfromatechnologyperspectivethere'satremendousamounthappening,everythingdowntothe4GLTEstuffthat'sbeingrolledoutaggressivelytotheSuperCruisefornextyear.Butthere'sbeenalotwritteninthelastweekactuallyjustaboutsomeofthesecurityconcernsandsoIwasjustwonderinghowyouwerethinking--.Youguysprobablyhavethemostaggressiverolloutofconnectedcarsofalmostanybodyandwaswonderingjusthow--whatkindofsecurityprotocolsyouareabletoputinplacetomakepeoplecomfortablethatthoserisksaremanageable.
MaryBarra(CEO):
Goodquestion,andit'ssomethingwehavebeenworkingonforacoupleyearsnowandveryactivelyinthewaythatwelookatthewholesystemandthelevel--.Reallywhenyoulookatcybersecurityyou'vegottolookatlevelsofsecurity,becauseyoulookatvehiclesontheroadtoday,theyareontheroadfor11years.Andsoaswemoveintoaworldthathasmoreconnectivityyou'vegottomakesurenotonlydoyouhavemanylayersofprotectioninthedesignofthevehicle,butthenalsowhat'sveryimportantisourover-the-aircapabilityaswell.Thatifsomethinghappensyouareabletoquicklygoinandpreventandcorrectifthat'snecessary.
Sowehave--wenamedlastyearourchampion,namingaChiefProductSecurityOfficer,JeffMassimilla,whoisonourteam,wholivesandbreathesthiseveryday.We'vepartneredwithexternalexperts.Weregularlydotesting,butthisisanareayouhavetostaydiligentonandkeeplookingbecauseit'sacrossallofindustry.Wetakeitveryseriously;weworkhardatiteverydayandit'sakeyfocus.
PatrickArchambault (Analyst-GoldmanSachs):
Okay,terrific.Thanksalotforalltheperspectives.
Operator :
EmmanuelRosner,CLSA.
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EmmanuelRosner (Analyst-CLSA):
Goodmorning,everybody.WantedtoaskyoufirstaboutthepricingenvironmentintheUS.ObviouslyinyourNorthAmericanearningsworkitseemslike,focusingontheretailside,pricingwassortofslightlynorthofflat,whichisobviouslyaprettygoodperformance.Atthesametime,whenIlookatslidenumber12andyoubringbacktheATPincentiveinformationfromJ.D.Power,itseemslikeyourincentivesaresortoflikejustbeensteadily,butfastincreasingthroughoutthequarterfromlike10%ofATPinthefirstmonth,11%,andthen12%finallyinJune.
AndthenfromwhatweheardsofarinJuly,there'sbeenalsoincreasedincentives,particularlyonthetruck.WouldyoubeabletocommentonareyouseeingsortofadeteriorationofUSpricingoraneedtoaddincentiveinspecificsegments?
ChuckStevens (EVP&CFO):
Iwillgiveabroadperspective.Overall,intheUSindustrythisyearourexpectationsare,onaretailbasis,arelativelybenignpricingenvironment.Wetalkedaboutthatwhenwetalkedaboutcarryoverpricingbackatthebeginningoftheyearandthat'splayingout.AndIwouldexpecttoseepricingimproveaswemovethroughtherestoftheyearandstarttolaunchsomeofthenewproducts.InQ3,Q4,orearlyQ4,thecarryoverpricingdynamicwillcontinueasithasbeeninthefirstpartoftheyear.
Fromanincentivespendingperspective,thatwill--asapercentoftransactionprice,thatwilltogglebackandforthdependingonspecificgo-to-marketstrategiesatanypoint.Myexpectation,Emmanuel,fortherestoftheyearwouldbethatwewillbeattherunratewehavebeenfortheentireyear,somewhereintherangeof10.5%to11%forthebalanceoftheyear.Overallindustryhasbeendisciplined.Wehavebeendisciplinedandwe'regoingtocontinuetobedisciplined,buttherecanbesomevolatilitywithinanindividualmonthforsure.
EmmanuelRosner (Analyst-CLSA):
Okay,that'sgreattohear.ThenmysecondquestionisonChinaactually.WhenIthinkaboutChinaItotallyagreewithyouthereissomevolatilitynowandobviouslystillaveryexcitingmarketforthelong-term.
Thepartthatsortofworriesmeinthemidtermismoretheamountofcapacitythat'scominginintoChina.AndsowhenIlastmetyourChinateam,itsoundedlikeyouwantedtoincreaseyourcapacityfrom4millionunitsto5millionunitsoverthenextfewyears.Isthatstillthegoal?Andtotheextentthatyouwouldseeapronouncedslowdown,doyoustillhaveroomtosortofpullbackonsomeofthesecapacityadditions?
MaryBarra(CEO):
Absolutely.ActuallyaddingcapacityinChinaissomethingthatwecandoquitequickly.Sowewillcontinuetomonitorthesituationandlookat,aswehaveourplanstoaddcapacity,todoitprudentlywithadailyreadonwherethemarketisandthenlookingoverthathorizonfromatrendofwhereit'sgoing.Sowewillbemonitoringthatcloselyandwewillonlydowhenwethinkit'sprudenttodo.
EmmanuelRosner (Analyst-CLSA):
Istherearuleofthumbthatyoucouldpointto,likehowmanymonthsoryearsinadvancetheplansthatareinplacewillhavetohappen,let'ssayinthenextsixmonths,ayear?Andhowfaroutcanyouactuallysortofpullbacksomeoftheseplans?
MaryBarra(CEO):
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Ithinkthere'salotofdifferentwaystoaddcapacity.Youcanaddcapacitybyincreasinglinerate,whichismoreequipmentchangesorsmallerexpansions,allthewaytoanall-newplan,andeachofthosehavedifferenttimelines.ButIwouldalsosayChinaisoneofthequickestacrossallofthoseaspectsofbeingabletoaddcapacity.Again,thosearealltheleverswehave.
Justafor-instanceexample,ifyouseeyoustillneedcapacitybutitmightbeslightlylessthanwhatyouthought,youcanpickanoptionofexpandinganexistingplanorincreasinglinerate,etc.Sowewillbelookingatallofthat;thatissomethingwehavealotofexperiencefromaroundtheglobethatwebringtothetableasweworkwithourpartner.Again,itwillbeverydynamicandbasedonnotonlytheday,themonth,butwhatweseeandwhatwepredictthetrendwillbeaswegoforward.
EmmanuelRosner (Analyst-CLSA):
Great,thanksforthecolor.
Operator :
MikeStover,SusquehannaInvestmentGroup.
MikeStover (Analyst-SusquehannaFinancialGroup):
Thanksverymuch.Mostofmyquestionshavebeenhit,butahousekeepingitemonthecashflow.Couldyougiveusasenseofanycashusedforfundingrestructuringactionsandthenanycashthatwould'vebeenimpactedbyrecall-relatedoutflows?
ChuckStevens (EVP&CFO):
Weindicatedatthebeginningoftheyearthatweexpectedroughly$1.2billionofrestructuring-relatedcashandabout$1.5billionofrecall-relatedcashtoimpacttheresultsthisyear.Stillgenerallyinlinewiththatfirsthalf;wasabouthalf--andsecondhalfwillbeabouthalf.Andsoverymuchaccordingtoplanonbothrestructuringandrecall-relatedcash.
MikeStover (Analyst-SusquehannaFinancialGroup):
Okay.SoifI--Iamjusttryingtopencilinbackingoutwhathappenedinthefirstquarter.IfIassumethathalfofbothofthoseitemsoccurredinthefirsthalf,thatwouldbeaboutright,Chuck?
ChuckStevens (EVP&CFO):
Yes,thatwouldbe,broadstrokes,aboutright.
MikeStover (Analyst-SusquehannaFinancialGroup):
Okay.ThenthesecondthingwasontherampofthenewproductinNorthAmerica.Doyouexpectforthattohaveabiggerimpactontheincrementalcostatthebeginningof2016orshouldthatbeginattheendof2016?Sorry,endof2015rather?
ChuckStevens (EVP&CFO):
Ithinkthere'stwoaspectsofthat.There'spreproductionstartupandlaunchfromthemanufacturingperspective,andIthinkthatwillprimarilyhitin2016,andthenthere'slaunch-relatedcostswhichwouldbeadvertising.
Onanymajorprogram,whenyoulookatbothofthose,theyareroughlyaboutthesame.Thelaunchmanufacturingcostsandthemarketinglaunchcostsareroughlythesame.Soagain,thinkingaboutthelaunchcadence--theCruze,Malibu,andeverythingelse--Iwouldthinkthere'sgoingtobesome
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
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manufacturingprimarilyinthefourthquarterandmarketingprimarilyinkindofthefirstquarterandsecondquarternextyear,broadstrokes.
MikeStover (Analyst-SusquehannaFinancialGroup):
Okay,great.Thanksverymuch.
Operator :
DanGalves,CreditSuisse.
DanGalves (Analyst-CreditSuisse):
Thanks,guys.Greatexecutionvarietyofareas,congratulations.
IhadacouplequestionsonNorthAmericaforthebackhalf.Isthereanywayyoucanhelpuswithwholesaleshipments?Typicallyitlooksaboutkindofevenfirsthalfversussecondhalf,butmaybewiththeincreasedrentaldisposalsinthefirsthalfitwouldbealittlelowerinthesecondhalf.Anycoloryoucangiveusthere?
ChuckStevens (EVP&CFO):
Goodquestion.Typicallysecondhalfoftheyeargenerallyinline.Iwouldsuggestthataswecyclethroughthethirdquartertherewe'regoingtoworkourwaythroughtheseauctionlosses.ThenyouhavethefourthquarterwiththeThanksgivingandChristmasholiday.
Soforplanningperspective,Iwouldthinkrelativelyflattoslightlydowninthesecondhalfoftheyearversusthefirsthalfonwholesales.Again,justgiventheseasonalityinthefourthquarter.
DanGalves (Analyst-CreditSuisse):
Okay,great.ThenjustgoingbacktoJanuary,onethingonNorthAmericayousaidwasthatitlookstomethatyouwereexpectingfixedcostincreasesrelatedtolaunchestooffsetthe--tomorethanoffsetthereductionsinmaterialcosts.Itlookslikethroughthefirsthalfyouarewayaheadonthatmetricwithmaterialcostsdownalot;fixedcostsbasicallyflat.
Shouldwebeexpectingthatstill,likesomereallysignificantfixedcostincreasesinthebackhalf,orhastherebeenachangeintheview?
ChuckStevens (EVP&CFO):
Ithinkthefixedcostsinthesecondhalfoftheyearwillbeupversusthefirsthalfassociatedwiththelaunch-relatedcosts.TheteaminNorthAmericahasjustdoneadynamic,greatjobinschemingthebusinessanddrivingefficiencyinthefirsthalf.But,again,Iwouldexpecttoseelaunch-relatedcosts,fixedcostsbeupinthesecondhalfandsimilarlevelofmaterialperformanceinthesecondhalfoftheyearaswellthatwesawinthefirsthalf.
DanGalves (Analyst-CreditSuisse):
Okay,great.AndjustonemoreonEurope.ArethereanykindofbigpiecesyoucangiveusintermsofthesequentialimprovementfromQ1toQ2?IknowvolumewasupabitandweretheRussialosses(technicaldifficulty)abatingquiteabitinQ2versusQ1?
ChuckStevens (EVP&CFO):
RussialossesmoderatedforsureinQ2versusQ1andpricinglikelygotbetterinQ2versusQ1.Itdidget
CompanyName:GeneralMotorsCoCompanyTicker:GMSector:ConsumerGoodsIndustry:Automotive
EventDescription:Q22015EarningsCallMarketCapasofEventDate:48.84BPriceasofEventDate:32.155
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betterastheCorsaandVivarorampedup.ThosewouldbethetwobiggestdriversQ2versusQ1.
DanGalves (Analyst-CreditSuisse):
Okay,sothatwasmoreGM-specificthanindustrywideonthepricingimprovement?
ChuckStevens (EVP&CFO):
Yes.
DanGalves (Analyst-CreditSuisse):
Okay,thanksverymuch.
Operator :
Thankyou.IwouldnowliketoturnthecallbackovertoMaryBarraforclosingremarks.
MaryBarra(CEO):
Thankyouverymuch.Appreciateeverybody'sparticipationonthecall.HopefullyyousawwerecognizethatChina'sabigconcern;obviouslythemarkethaschanged,morevolatile.It'smoderating.
WetriedtoreallybespecificandsharewithyouhowwethinkaboutChinaandhavethatbethefoundationforwhatwethink--andwe'regoingtokeepthepressureonourselvestodeliverinthesecondhalfoftheyear.But,restassured,weareactivelymonitoringitdailyandalsobeworkingveryhardtoproactivelypositionourselvestocontinuetodrivetheperformancethatwehave.
Iwouldalsoliketosay,asyoulookacrossalltheregions,andIwon'trepeatallofthem,buttherearealotofchallengesandopportunitiesineachoftheregions.HopefullyyouseetheGMleadershipteamisreallydriving--seizingopportunitiesandmitigatingchallengesinaveryproactivefashion.
Wethinkouroverallresultsdemonstratetheverystrongearningspotentialofthiscompany.Andwebelievewhenyoulookatwhatwehavebeenabletoaccomplishinthefirsthalfofthisyear,itlaysthefoundationforthecommitmentsthatwe'vemadefor2016thatweareveryfocusedonexecutingandproving--providingtheproofpointthatwearedoingwhatwesaywe'regoingtodo.
Aswemoveforward,wearegoingtocontinuetoexecutewithdisciplinewithallaspectsofourplan,includingourcapitalallocationframework,andweareconfidentthatwewillcontinuetodriveprofitablegrowth,strongreturnsoninvestedcapitalwhichwedemonstratedthisquarter,alltodriveshareholdervalue.Andthatisourfocusdayinanddayout.
Sothanksagain,everybody.Ireallyappreciateyourtime.
Operator :
Ladiesandgentlemen,thatdoesconcludetheconferencecallfortoday.
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