通用汽車 (GM) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, welcome to the General Motors Q1 2010 results. During the presentation, all participants will be in a listen only mode. And afterward we'll conduct a question and answer session. (Operator Instructions) As a reminder this conference is being recorded, Monday, May 17, 2010. And I would now like to turn the conference over to Randy Arickx, Director of Investor Relations and Communications at GM. Please go ahead.

Thanks operator. Good afternoon everyone. Thanks for joining us as we review our 2010 first quarter results. As you know, our press release was issued and our Form 10-Q was filed with the SEC earlier today. The conference call materials are available on the investor relations website.

Before we begin, I would like to direct your attention to the legend regarding forward-looking statements on the first page of the chart set. As always the content of our call will be governed by this language. I would also like to highlight that GM is broadcasting this call via the internet and that the financial media is participating as well.

This afternoon, Chris Liddell, GM Vice Chairman and CFO, will review our first quarter results. The presentation portion of the call will go followed by a Q&A session for both analyst and the media. I would also like mention we have several other executives available to assist in answering your questions. With us today, are Nick Cyprus, Vice President, Controller and Chief Accounting Officer, Dan Ammann, Vice President and Treasurer, and Chuck Stevens, CFO North America. With that, let me turn the call over to Chris Liddell.

Thanks, Randy, and good afternoon and thanks for joining us today. I want to start the call by discussing some principles on how we intend to approach these calls. We've standardized and simplified the information that we'll give you each quarter, as you'll see on the slides, and we believe this will make it easier for you to follow key trends in the business. We're only going to provide and discuss what we believe is the most relevant information for stockholders, we will present the same format and the same information in future quarters, and the same basic approach, whether it's good news or not. Our main focus will be on GAAP based numbers. Where we provide non-GAAP numbers, we'll show reconciliation to the GAAP numbers. And in the appendix we'll include back up charts to provide more detailed information in support of some of the main charts.

Also I want to mention that we will only be showing adjustments to EBIT for significant items, that do not frequently reoccur. For example, we'll not be adjusting EBIT for restructuring charges from this point forward as we believe restructuring tends to be an on going part of this industry, as opposed to truly a non-recurring. We'll also supplement the financial information with key performance indicators, but only where those provide insight. Lastly, I would also like you to focus your questions on the major trends in the business as I mentioned in the last call I think when we started fresh start accounting. If you can direct your more detailed questions, for example to enable to you to populate your financial models, to the investor relations team after the call.

Having said all the above, we intend to make sure you get all the information you believe is critical and therefore we're happy to receive any feedback on possible improvement to our approach. Please give us those after the call. With that let's get started in the results.

If you turn to slide two, it's a summary of our financial results and as you can see, we're showing results for the period commencing July 10, the date the new General Motors Company was launched through September 30, the fourth quarter of last year, 2009, and first quarter this year 2010. Today we'll focus our discussion on the first quarter results and how they compare to the fourth quarter of last year. Because of the fresh start accounting with the effect of being a significantly different company from a year ago, I don't believe it makes sense to compare financial result to the first quarter of 2009. We will give year over year market share and other data, and once we've let the bankruptcy and the introduction of fresh start accounting we'll also give commentary on year over year GAAP financial changes, but not for this call.

The first quarter 2010, we've recorded net revenue of $31.5 billion as you can see. Down slightly from fourth quarter levels. Despite the slower revenue, operating income was $1.2 billion. Up approximately $5 billion from the fourth quarter. Net income attributable to common stockholders was $0.9 billion and earnings per share on a fully diluted basis were $1.66 per share. We also want to highlight some non-GAAP measures that we believe are important.

EBIT adjusted was $1.7 billion in the first quarter. Up $2.7 billion from the fourth quarter. Our free cash flow was above $1 billion for the first quarter, and it's defined as GAAP net cash provided by operating activities of $1.7 billion, less capital expenditures of approximately $700 million. And just to be clear, those are the same definitions we'll use constantly from now on in each quarter. In summary, it was, an extremely good first quarter for GM. Posting a profit and generating positive cash flows are important steps as we work to rebuild General Motors.

Slide three provides a walk from operating income to EBIT adjusted. As previously mentioned, operating income was $1.2 billion for the first quarter. We had equity income of $400 million, which is our proportionate share of income earned by equity method investees, primarily our joint ventures in China. We also deducted $100 million related to the non-GM owned proportionate share of the positive results of consolidated entities, primarily GM Daewoo. And we had non-operating income of $300 million largely related to derivative gains and the gain related to the sale of Saab. That gets us to a total EBIT of $1.8 billion and adjusting for or backing out the 128 -- $123 million gain related to sell of Saab, we have an EBIT adjusted of $1.7 billion.

Slide four shows first quarter earnings before interest and taxes, or EBIT by region. And as you can see, GM North America and General International Operations both contributed EBIT of approximately $1.2 billion. In addition, GM Europe had a loss of $506 million and we had an expense of $82 million at the corporate level. I'll give you more detail by region on will following slides. Also as previously mentioned, in the fourth quarter we had an adjusted related on the gain of sell of Saab about $123 million. So in total we recorded EBIT adjusted of $1.7 billion, the same number from the previous slide.

On slide five we provide an overview of GM's global vehicle deliveries as well as market share. These figures include vehicles sold around the world under GM and JD brands and through GM branded distribution networks. For the first quarter 2010, our global deliveries were approximately 2 million units. Increase of 46,000-unit over the fourth quarter of 2009. The increase was largely driven by increased deliveries in China where market continued to be very strong in the first quarter. Our global market share actually dropped slightly in the first quarter, largely because of the discontinued brands in North America.

Turning to slide six, fiscal to deliveries in GM North America were 563,000 units. Down approximately 74,000 units since the fourth quarter of 2009. The reduction was driven by a 1.5 point decline in GM market share from 19.3% to 17.8%, as well as a slight reduction under the North America industry. As you can see on the chart, from the fourth quarter to the first quarter, our four brand deliveries declined 36,000 units and the discontinued brands declined 38,000 units. Market share in the US fell from 20.2% in the fourth quarter, to 18.4% in the first quarter of 2010. Of the 1.8 point decline, 1.3 points were related to discontinued brands and 0.5 points related to our remaining brand performance. The decline in the remaining brand performance was influenced by competitor incentives in March, which we did not follow as it did evidenced by our retail incentives being less in that month than the industry average. Limited availability of products like the Chevrolet Equinox, GMC Terrain, and Cadillac SRX also had an impact on our US brand performance in the first quart.

Slide seven shows what we believe are important underlying indicators performance in GM North America. The top line shows total US market share for GM, the slightly lower line is the combined US market share for our four brands, Chevrolet, GMC, Buick and Cadillac, and the bar at GM's average US retail incentives for the four brands based on JDP -- JD Power pin data. We have also noted at the bottom of the chat our average US retail incentive for the four brands as a percent of industry average. Although there's considerable movement on a month by month basis for trim lines showing important progress in the Company. We've been able to improve share of our core brands, while stabilizing total share and at the same time reducing our incentive levels, both in absolute dollars, and as a percentage of industry averages. Over the last year, for example we've increased the quarterly share for Cadillac, Chevy, GMC and Buick from 15.4% to 18.1%. And our average incentives have been reduced 40%, from approximately $5,000 per unit to $3,000 per unit. We've also shown the most recent data April 2010 on the chart, in April our remaining brands captured 18.3% of the market, and our average US retail incentives were at 108% of the industry average.

As you can see, on slide eight, GM North America net revenue was $19.3 billion for the quarter, a $1 billion increase from the fourth quarter 2009. The revenue increase is primarily attributable to increased production of 52,000 units, to support build up in US dealer inventory in preparation for the Spring selling season, and anticipated improvement in the overall industry. As you can see, our US dealer inventory, increased 43,000 units to 428,000 units, a level we're comfortable with going into the Spring selling season. This represents 66 days supply, down from 152 days a year ago.

Turning to slide nine, GM North America earnings before interest and tax were $1.2 billion for the quarter, a $4.6 billion improvement since the fourth quarter of 2009. The significant improvement was primarily attributable to the impact of increased production volume, which contributed approximately $600 million, reduced SG&A expense of approximately $400 million, lower pension and healthcare expense of around $300 million, primarily related to the UAW [labor] settlement, lower restructuring charges approximately $400 million, improved material and freight of about $100 million, and the absence of the $2.6 billion UAW labor settlement adjustment, as well as other adjustments that occurred in the fourth quarter. It's worth noting that SG&A expenses savings were largely related to marketing support, which is traditionally higher in the fourth quarter and would expect it to be higher in the latter part of this year as well. Another way to think about the financial performance at GM North America is that without the benefit of building 65,000 units of inventory across all of North America, we have delivered EBIT of approximately $700 million.

Overall, much improved performance therefore in GM North America. We've lowered the break even in North America overall to approximately 11 million US industry units for a combination of both cost and revenue actions. On the revenue side, we've introduced strong products resulting in higher transaction prices and reduced incentive spending across the portfolio. On the cost side, we've improved manufacturing capability utilization, right sized the hourly and salary workforce, and reduced legacy healthcare expenses.

As you can see on slide 10, GM Europe deliveries for the first quarter, which include two months of Saab sales, were 405,000 units, up 27,000 units from fourth quarter levels. Increase was a result of the stronger market and higher share in the UK and the Netherlands, partially offset by a weaker market and lower share in Germany. GM Europe market share increased 0.3 points to 8.5% with share in Germany down 0.6 points to 8.2%, and share in the UK up 0.6 points to 11.8%.

Turning to slide 11, GM Europe revenue was $5.5 billion for the first quarter, down $800 million since the fourth quarter of 2009. The reduction in revenue was primarily attributable to $300 million of Q4 Saab revenue not in Q1, and favorable foreign exchange translation of about $300 million, and a reduction in wholesale shipments. Wholesale units decreased despite a 90,000-unit increase in GM production because non-consolidated JVs accounted for approximately half of the increase, and GM inventories increased from very low 2009-year-end levels.

As seen on slide 12, GM Europe earnings before interest and taxes was a loss of $500 million for the quarter, an improvement of $300 million since the fourth quarter. Included in loss of $500 million are restructuring charges of $300 million, and a one time gain related to the Saab spin off of approximately $100 million. GM Europe's improved performance in the first quarter compared to the fourth quarter was mainly driver by $200 million of favorable mix largely related to introduction of new Astra, improved material cost performance around $100 million and the non-reoccurrence of Q4 Saab losses of about $200 million.

Having said that, despite this progress, we're still losing money in Europe. Our focus there remains to build a sustainable and profitable business. Our plans include the separation of over 8,000 people, and a reduction in capacity of 20%. These separation programs have already commenced, and we continue to seek final agreement on employee savings of over $300 million annually.

Before we review GM International Operations first quarter results, I'd like to briefly discuss the treatment of joint ventures and the impact of our various metrics. Our largest joint venture in the GMIO region include GM Daewoo, in which we have a 70% stake, Shanghai GM, SGM, in which we have a 49% stake, SAIC GM Wuling, in which we have a 34% stake, and FAW GM, in which we have a 50% stake. Given our 70% stake in GM debt, GM International Operations includes all of their revenues, as well as 100% of their EBIT less non-controlling interest, net of tax. For our SGM, SGMW and FAW GM joint ventures, in which we have a 50% stake or less, we report deliveries that include in GM International Operations their market share of all vehicles. However, GAAP consolidated revenue and costs do not include these JVs, but our pro rata share of net income of these JV's is realized through equity income, included in earnings before interest before tax. So there is a lot of detail here and we will clearly continue to give you as much transparency as possible so you can reconcile all these numbers on the various charts.

Turning to slide 13. GM International Operations deliveries were over one million for the quarter, up 93,000 units versus the fourth quarter. The vast majority of the increase in deliveries was related to increase in China, driven by 15% increase in industry sales and a 17%, or 89,000-unit, increase in our deliveries in China. Our share in China increased to 13.5%, up 13.3% in the fourth quarter. In addition, our market share in Brazil increased 1.2 points to 19.9%. And share in India increased from 3.7% in the fourth quarter to 4.2% in the first quarter. Not highlighted on the slide is the very strong growth in emerging markets on a year over year basis. In China, for example, both the industry and our deliveries were up by more than 17% from the first quarter 2009 to the first quarter this year, and in the Brazil the industry was up 18% and our deliveries was up 27%.

As you can see on slide 14, GM International Operations net revenue was $8.1 billion for the quarter, down $1 billion since the fourth quarter 2009. This decrease was driven by foreign currency impacts around $400 million and volume related reductions of approximately $600 million. The volume related reductions were primarily in Brazil and at GM DAT. We experienced quarter to quarter revenue declines in Brazil largely due to higher wholesales in the fourth quarter, as GM Brazil rebuilt dealer stocks from unusually low levels. In addition there were a higher rental car units in transit at the end of the first quarter, who's revenue will not be recognized until the final delivery. With regard to GM DAT, the decline was due to lower exports and domestic sales. Expert sales were helped in the fourth quarter by a large freight order and domestic sales were helped by government incentives.

Turning to slide 15, GMIO earnings before interest and taxes were $1.2 billion. Up $0.5 billion versus the fourth quarter. Equity income primarily related to the SGM and SGMW joint ventures reached $400 million and contributed $100 million to the improvement since the fourth quarter of 2009. Also contributing to the improvement were $100 million reduction in SG&A due to lower marketing costs, $100 million increase in royalties, $100 million reduction in non-controlling interest due to lower GM debt earnings, and $100 million attributable to derivative mark to market adjustments. While the international operations first quarter results were encouraging, there is some potential for headwinds through out the remainder of the year, due to a reduction or expiration in various government incentives, vehicle purchases in key markets such a China and Brazil starting in the second quarter, as well as potential tightening of general current conditions in markets such as China, Brazil and Australia.

So turning to cash flows you can see in slide 16, GAAP net cash flows from operating activities were $1.7 billion for the first quarter of 2010. And after adjusting for capital expenditures of around $700 million, free cash flow was $1.0 billion. $3.9 billion improvement in free cash flow was largely driven by $4.4 billion improvement in net income, and a $1.4 billion improvement of working capital, partially offset by $1.8 billion reduction in pension, OPEB and other items. Management and capital improved from negative $2.1 billion in the fourth quarter to negative $700 million in the first quarter. This was primarily due to increased first quarter production, partially offset by an increase in inventories to more normal levels when compared to seasonally low fourth quarter balances. Additionally, it's important to note that we experienced most of the one time impact related to the change in supplier payment terms to weekly in the fourth quarter of 2009, although there's some impact in the first quarter as well.

This negative $600 million of pension and OPEB and other included in first quarter is primarily related to pension and OPEB cash payments exceeding expense. We contributed approximately $200 million to pension plans during the quarter, and pension expense was approximately zero based on our December 31, 2009, plan measurements. The remaining balance is mostly attribute it to OPEB cash payments exceeding expense of $100 million, which hit the run rate of OPEB related cash payments to reduce going forward due to the run rate -- run out, sorry, of pre December 31, 2009 UAW healthcare claims. However the Canadian healthcare trust will require approximately $1 billion funding once all of the conditions for implementation have been met. Finally I would like to mention the cash restructuring costs totaled approximately $300 million for the quarter and were primarily related to people costs and dealer one down payments.

Turning to slide 17, we've provided a summary of depreciation and amortization by region, as well as capital expenditures. Total depreciation and amortization for the first quarter was $1.8 billion, down $450 million from the fourth quarter. D&A in North America was approximately $1.2 billion, GM Europe $384 million, GM International $194 million, and 54, $51 million at corporate level. Total capital expenditures for the first quarter was $755 million, down around $300 million from the fourth quarter. It would be fair to say that capital expenditures will accelerate as we progress through the year and we estimate the total CapEx of approximately $6 billion is anticipated for the entire 2010-calendar year.

As seen on slide 18, GM's liquidity position remains strong, as we ended the first quarter with $35.7 billion in cash and marketable securities. Total debt had a face value of $15.5 billion, or $14.2 billion book value in first quarter of 2010. The $1.6 billion decrease in book value versus the fourth quarter is primarily related to $1.2 billion debt payments to the UST and the EDC, and repayment of debt related to the supplier support program. As you know, we pay down the outstanding US Treasury and EDC debt totaling $5.8 billion in April and remaining UST escrow balance of $6.6 billion became unrestricted as a result of that. Preferred stock issued to UAW VEBA trust and the United States and Canadian government remained unchanged at $7 billion book value, or $9 billion face value. Global under fund of pensions were $26.9 billion at the end of the first quarter. No significant re-measurements were performed during the quarter. The $600 million reduction versus Q4 2009 is mostly attributable to planned contributions of $200 billion, as well as the translational impact of foreign currency exchange. OPEB obligations were valued at $9.4 billion in the first quarter. The $200 million reduction versus is Q4 2009 is mostly attributable to payment of UAW medical claims incurred in 2009.

So just a couple comments before I summarize, a lot of numbers obviously I've gone through in the last 20 minutes or so, but just want to reinforce the message I gave at the start of the call. This is going to be a very standard format that we're going to follow, hopefully you will get into the cadence of that as time goes on and you'll see the numbers presented in a very similar approach. The only reason we'll make any changes is based on feedback from you. So gone through a lot of numbers, but it's fitting really the platform for communications with you going forward, hopefully you'll become more familiar with them as time goes on.

Just to summarize before I take questions as I close on slide 19. Stepping back from all of the numbers, what should you take out of the quarter? I guess, first and foremost, it's encouraging that we delivered profitability and positive cash flow. In North America, our four brand share was up and our incentives were down versus you a year ago, and we've lowered our break even significantly in the US. We're well positioned to grow profitably in our International Operations, but we have more work to do in Europe. But most importantly of all, I believe we continue to make great progress in our vision of designing, building and selling the world's best vehicles, and achieving profitability is a nice reflection of that. So with those prepared remarks, I'm happy to take a few questions and I'll hand it back to Randy to organize that and my colleagues may help me depending on the level of detail.

Thanks Chris, operator we're ready to start the Q&A

Ladies and gentlemen we'll now proceed about the analyst portion of the question and answer session. (Operator Instructions) Our first question come from Brian Johnson with Barclays Capital. Please proceed with your question.

Hi, good morning. Question on the product strategy in the US and North America and how it shows up in the financials we've looked at, where are you on contribution per vehicle, which I know you're probably not breaking out anymore, at least directionally, versus say some of the assumptions back in the Evercore plan? And to what expent is that the general pricing level in North America that's approved rental cars perhaps coming back with program cars being profitable? The mix you're seeing or within the general -- within the mix you're seeing getting consumers to take more upscale profitable options within a model live?

Okay. Sure there's a lot of ground. I'll also cover it on a high level and Chuck might add some comments. Overall in North America, the most encouraging thing is, as I mentioned in the prepared remarks, that we're seeing the market share of our core brands, the four remaining brands, going up at the same time as incentive levels are going down, and average transaction prices are going up as well, I mentioned that. So the overall brand strategy of focusing on a fewer number of name plates, focusing on higher value where we can, and lowering the incentive structure, at least at this early part of the year it looks like it's paying off very well and we're obviously going into a period now where we're launching some new models as well. So we're looking forward to the contribution from models like the Cruze and the Regal, so I would say the overall brand strategy is looking good.

Rental sales are included in the numbers, so again, from a profitability point of view, we're able to achieve the profitability that we talked about with the mix that we had across the level. And last but not least is we're able to achieve break even or better at industry levels in the US of let's say approximately 11 million units or even slightly less. So a combination of slightly better mix, slightly better transaction prices, lower incentives and lower costs means that the profitability picture is dramatically different from where it was a year ago and even better slightly than in the fourth quarter. I don't know, Chuck, whether you want to add anything in particularly to that.

I would say on a couple of fronts, the core brand strategy and aligning supply and demand has not only helped our overall level of transaction price and reduced incentives, but it's also significantly improved our fleet profitability over the last 24 months. To the point now where daily rental and other rental fleet business is a reasonably profitable venture for us. Versus the fourth quarter, the most recent period, the trend continued into Q1 with both improved transaction prices and Chris had noted, our reduced incentives versus the fourth quarter -- or first quarter of last year, we also reduced incentives versus the first quarter, so generally doing better than the Evercore from a margin perspective, as well as an average transaction price perspective.

Thanks, Ron.

Okay.

Next question. Thanks.

Thank you. Our next question comes from the line of Rod Lache with Deutsche Bank. Please proceed with your question.

Good afternoon. Congratulations.

Thank you.

I was hoping you could talk a little bit more about Europe. Adjusting for the charge that you took and the inventory build, the losses are still annualizing at a pretty high rate. Can you define for us more broadly what the total structural cost decline you're shooting for would be including the $300 million from labor? What kind of volume assumptions do you make to get to this break even target? And are those savings at this point defined and agreed to with labor constituencies and then related to that, more broadly any color on your outlook for Europe, any additional concerns, macro concerns or credit availability at this point?

Yes. Sure. Again, quite a lot of components to your question, I'll try and answer most of them in turn. As you say, the first step in the restructuring process is to look at achieving at least break even levels, which is what we're looking to do next year and the restructuring plan envisages that. It's not relying on a large volume increase. I believe there is an implicit volume increase, but to a large extent that's in cost reductions and slightly better mix with the models that we have coming through. So I think there is a reasonable chance that we believe of being break even or thereabouts next fiscal year, but there is still clearly a lot of work to be done and still a lot of negotiations going on in Europe. You will have seen some announcements with respect to say, Antwerp over the last few weeks. So we are certainly making progress, but we haven't yet achieved everything that we need there.

In terms of the overall market, as I mentioned in my prepared remarks, Europe is still probably the most difficult. It varies to some extent by country, but if you look at the market overall, it's flat to single digits up versus last year and that compares to say mid double digits for most of North America and other areas of the world like Brazil and China are up 20%, 30% and over 70% respectively. The overall marketplace in Europe is still the most challenging and clearly with some of the things that are going on in Greece for example, we're not out of the woods yet. So I think there's a chance of being break even next year, but there is still a lot of hard work to be done in Europe, and still some challenges in the marketplace to achieve that as well. So we'll continue to update you on a quarter by quarter basis, but of all the areas around the world, that's still the most challenging.

Okay. Thanks.

Thanks. Next question

Our next question comes from the line of Himanshu Patel with JPMorgan. Please proceed.

Hi, sorry about that. Just looking at your slide 15 on International Operations, it looks like the -- most of growth actually came -- most of the sequential improvement in profit was from the non-JV income. What was that doubling in income, the $400 million to $800 million was that mainly Latin America?

It was reasonably broadly based. I think also in the fourth quarter, there might have been some GM DAT derivative losses or there might have been some non-operating income areas in that. But it was reasonably broadly based. Certainly good results in Brazil. Good results in Australia. GM DAT actually improved itself. So I don't think there was any particular region that I'd point to. It was reasonably good quarter over quarter.

If there's anything unusual in there, I don't know if my colleagues want to point anything out there. But otherwise, I think the numbers that I've seen on a regional basis, it was generally speaking good overall improvement across the board, and again, I come back to the comment I made before. The world's an interesting place at the moment in terms of the way in which the recovery is happening is quite different depending on the part of the world that you're in. And International Operations cover a multiplicity of different countries, but starting in China and working your way through Brazil, India and Australia, generally speaking they're stronger than North America and Europe.

Chris, I wanted to just clarify one comment you made, I think you said on the North American profit walk there was about a $600 million profit improvement sequentially from production on the 50,000 production increase, I think that would imply a pretty hefty $12,000 contribution margin. That seems high by historical standards, can you just comment on that number is that something we should think about sustainability or is there something out of whack on that number this quarter?

Chuck. Chuck will answer that.

In Q1 our overall contribution margin was stronger than Q4 and what we'd anticipate the rest of the year for a couple of reasons. One we had a really strong mix of truck production in Q1. Second, our sales incentives had some unusual stock adjustments associated with the timing of some programs that terminated in early January. So I would say generally, going back to Chris's comments earlier, that excluding the production inventory build, thinking about GM North America earnings in the range of $700 million, I think that would give you a more reasonable view of the contribution margin per unit.

Yes, and what we're trying to do is just give you a sense of what we see as the sort of maintainable earnings excluding some of the inventory and other build as well, so hopefully it's not only the reported earnings but the underlying ones which are important from a modeling perspective.

Thank you.

Okay. Thanks. Next question.

Our next question comes from the line of Adam Jonas with Morgan Stanley, please proceed.

Hi, thanks. Hi Chris.

Hi.

One question on financial services, do you feel that you are at any material disadvantage competitively by not having a captive finance sub fully under your control right now? And if you do, how can you quantify or qualify that disadvantage to us if there is any? Thank you.

Yes. I think not so much necessarily have a captive or not, but I think given obviously all the issues associated with the financial crisis over the last couple of years, I believe we've been somewhat disadvantaged from a sales point of view. I think that's freeing up quite a lot with GMX operations coming back to normal. We probably are still relatively disadvantaged in particular in some segments such as subprime, our relative to say the captives, but I don't think that necessarily means that we need to own a captive. I know there's been a lot of speculation on that.

It's critical from our point of view that there is a free and liquid market for financing in the auto industry. I think that's been a characteristic for 100 years and likely to continue to be so. Both at the dealer level and at the customer level. So it's important in terms of our relationship with GMAC and with other providers that we have a free flow of funding available to all credit limits. That's probably cost us some sales over the last year. I'm not sure how, whether I want to put a number on it or how I'd quantify it. And we're working hard with GMAC and with some other providers for that matter to try and make sure that those issues go away. It's probably cost us some sales, but I'm not going to say that's been a significant over -- issue over the last year. It's been an issue and it's one that we're addressing. But again, I just want to reinforce there's a lot of speculation that's been on, it doesn't necessarily mean that we're going to be going back into the captive financing market.

Thank you. Very clear.

Okay. Next question

Our next question comes from the line of John Murphy with Banc of America-Merrill Lynch. Please proceed.

Good afternoon.

Hi.

On North American profitability, obviously it was impressive in the first quarter, I was just wondering about two other levers potentially make that better. First just on labor. The MOU, the binding arbitration MOU that you signed last year with the UAW includes sort of a clause that says that next year that arbitration will allow you to get to competitive cost structure per hour, including, for all -- relative to all your competitors including transplants. I was just wondering if there's the possibility to step down all labor costs next year, maybe to the tier two wage structure that you put in place in 2007? And also when we look at the inventory levels, they're being kept very lean and you seem to be taking pricing, I was just wondering if there's the opportunity to potentially lower incentives further and potentially essentially take more price, so just on the cost side and the revenue sides if there's more opportunity in North America?

Yes. There is clearly more opportunity and particular, I would say more on the revenue side than the cost side, and I'd like to think that with the market being in the 11 million to 12 million [SAR] range in the US that that's still not a trend line. The biggest single opportunity we have is the market improving and us improving with the market and hopefully starting to take some market share with our core brands. So that's opportunity number one.

Second opportunity, which comes in line with your question is, overall pricing and incentive levels. I think there is plenty of focus on that area and that continues to be an area where I think we can make some progress. On the labor side, I'd say there's less there. There may be some small opportunities, but in the overall scheme of where's the big profit upside for North America it's much more on the market side than it is, certainly in the next year, on the cost side. In particular labor on the cost side.

Great. Thank you.

Thank you. Okay. Next question.

(Operator Instructions) Our next question comes from the line of Itay Michaeli with Citigroup. Please proceed.

Thanks good afternoon.

Hi.

Can you maybe talk about the non-operating income and just, I think there were a couple hundred million dollars beyond interest income. What was in those numbers and then maybe if you can give us how much of that actually impacted the individual segment EBIT?

Yes. Well, clearly there was the interest income that we mentioned. There was on the non-operating income, you're talking about the slide where we reconciled from operating income to EBIT. Is that what you're thinking about?

Yes, just about $90 million of interest income, but then the line item in the P&L of interest income and other non-operating income was much higher than that, by I believe about $300 plus million. Just wondering what was in the actually non-operating income in that line item and then--?

Yes, to be clear, there was some positive derivative income associated with that. That's the great bulk of it. And some FX derivatives and GM DAT and also the gain on Saab is in that line item. So the Saab that we excluded of $123 million, so that's in that line item as well.

Anything hit the GM NA line item or was it mostly in the corporate other?

Well, Saab was in Europe. GM DAT derivatives would have been in IO mostly, virtually nothing in North America.

Great that's helpful.

Okay. Well, maybe me might turn over to media at this stage then and take questions from the media people out there?

Thank you. We have now concluded the analyst portion. We'll proceed with the media portion of the question and answer session. (Operator Instruction) Our first question comes from the line of Todd Lassa with Motor Trend Magazine.

Yes, good afternoon.

Hi.

Hi. Well, a couple quick questions. Before the -- before the bankruptcy, the plan presented for reorganization of GM, assume that General Motors would be able to make a profit in the US at a $10 million per year -- unit per year year and with 18% market share. I wonder now looking back, now that we've gone through a few quarters of the new GM, whether those assumptions have changed somewhat? What kind of adjustments you would make that, and the most obvious question is are we going to see these kinds of results through the rest of the year? Will you make -- do you expect to show a profit for all of 2010?

Sure. I want to go back necessarily compare it to the -- a year ago model. I think it was around the mid tens and 18% market share. And interestingly, that was probably about what we saw in the first quarter. We saw 10.5 million to 11 million SAR unit and market share in the 18.5% range. We made $700 million or on an underlining basis a sort of $1.2 million on a fully accounted basis.

So you'd have to say it was consistent with, if not slightly better than what the model might have said a year ago, and I think that's probably we've outperformed on the incentive side. If I thought there was one change to where people might have expected a year ago. So market share possibly in line with the market in line with sort of numbers, but we're managing to achieve that on a lower incentive and higher transaction price. So I would say it's consistent with, if not slightly better than the model you're referring to, although to be honest, I haven't done a comparison quarter by quarter against it.

Okay.

In terms, I think the second half of your question was, can we see this on a sustainable basis? I make the same out forwarding that I always make, this is a cyclical and seasonal businesses, so there are things that will move up and down. Average incentive programs will move, mix will move, marketing expense will move. But there's no reason to say that we shouldn't be pushing for profitability in North America on a consistent sustained basis. That's clearly our objective. The first quarter half means we're on the right track.

Thanks.

Thanks very much. Okay. A couple more questions.

Our next question comes from the line of Chris Isidore with CNNMoney, please proceed.

What can you say about where things stand in IPO planning? There were some reports over the weekend about treasury starting to look at some firms to advise them on an IPO, are you on track to do something by the end of this year or do you think it's going to take more than a year of these kinds of results to bring an IPO to market?

Yes, Chris. I'm in the unusual position of probably just trying to keep people's expectations low on this topic and keep them focused on just making money and selling cars. The IPO is -- yes, it will happen when the markets are ready and when the Company's ready, and I know that's sort of a general statement that doesn't help you a lot. But it really is the reality of the situation. It -- could it happen by the end of this year, that's a possibility. Could it be next year, that's a possibility as well. I really -- there are a lot of variables at play, not the least of which is the state of the equity markets is incredibly volatile. So making a profit in the first quarter, clearly means that we're no -- we're better off than we would have been otherwise, so that's heartening.

In terms of some of the noise that you're seeing around with rumors about treasury taking on advisors, I wouldn't take too much from that, that's simply if it's true what I would expect them to do as they start to think about some of the factors going into it. There's a lot of excitement building and I think that's great. There's a lot of interest and enthusiasm in the topic, but I'm really just keeping people's expectations certainly internally, relatively low and keeping them focused on the job and the IPO will happen in good time when the Company's are ready and when the markets are ready. I'm sorry I can't be anything other than more general than that.

Okay.

Thanks anyway. Next, and probably the last question. Thanks.

Thank you. The next question is from Jim Henry with Automotive News. Mr. Henry we're unable to hear you.

Hi. It's a bit of a detail question, when you say break even 11 million, is that light or total industry?

Total. Total US light vehicles. Is that what you're asking?

Yes. And I think to put a finer point on the earlier question, does 11 million break even, which you just now said, does that represent a change from 10 million that the Company said earlier, or I know you said you didn't care to make that comparison, but it's kind of an obvious one to make.

Well, we're actually making money at around 11 million units. Or just over. So the thing you've got to be he a little careful of, and I said this to people internally, is to take one absolute number like 11, it's a lot of moving parts. Incentive levels, et cetera. So I would say at our current configuration in the first quarter, we would have broken even if the industry had been somewhere between 10 million and 11 million units, based on the mix that we had, based on the pricing we had, based on the cost structure. To my mind, that's order of magnitude the same as what probably was said a year or so ago. In fact, it might be slightly better than.

Yes.

So we're probably splitting hairs to be honest to say whether it's 10.5 million, 11 million, approximately, slightly less than. Ballpark at the bottom of what is, what the worst cycles that we have seen the Company is managing to achieve a break even result and that's a fantastic improvement from where we were a year ago. That's the big take away in my mind.

Yes. Yes. Not that that's too shabby. All right. Thank you.

Okay. Thanks. I think that completes the questions that we have in the queue, so with that, I just thank everyone for your participation. As I say, well, hopefully you find this format useful and informative as we go through and we'll keep it very much the same unless you have feedback otherwise and we'll look forward to talking to all of you in three months time. Thanks very much.

Ladies and gentlemen, that does conclude the conference call for today, we thank you very much for your participation and ask that you please disconnect your lines.