通用汽車 (GM) 2010 Q4 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, thank you for standing by, and welcome to the General Motors Q4 and calendar-year 2010 earnings conference call.

  • During the presentation, all participants will be in a listen-only mode.

  • Afterwards, we will conduct a question and answer session.

  • (Operator Instructions).

  • As a reminder, this conference is being recorded Thursday, February 24, 2011.

  • I would now like to turn the conference over to Mr.

  • Randy Arickx, Executive Director of Communications and Investor Relations.

  • Please go ahead.

  • Randy Arickx - Director of Communications and IR

  • Thanks, operator.

  • Good morning, and thanks for joining us as we review our fourth-quarter and calendar year 2010 results.

  • As you know, our press release was issued earlier this morning, and the conference call materials are available on the Investor Relations website.

  • I would also like to highlight that GM is broadcasting this call via the Internet.

  • 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.

  • This morning, Dan Akerson, General Motors Chairman and CEO, will provide opening remarks and a summary of our fourth-quarter and calendar-year results, followed by a more detailed review with Chris Liddell, Vice Chairman and CFO.

  • Dan will then provide some closing remarks.

  • After the presentation portion of the call, we'll open the lines for a Q&A session for both the analyst community and the media.

  • I would also like to mention we have several other executives available to assist in answering your questions today.

  • With us are Mark Reuss, President, GM North America; Nick Cyprus, Vice President and Controller and Chief Accounting Officer; Chuck Stephens, CFO of North America; and Dan Ammann, Vice President, Finance and Treasurer.

  • With that, let me turn the call over to Dan Akerson.

  • Dan Akerson - Chairman and CEO

  • Thanks, Randy, and good morning.

  • This morning, I will provide you a summary of our fourth-quarter and calendar-year 2010 results and then, as Randy said, Chris will take it from there and provide a more detailed review, and I will close.

  • I'm pleased to report that for the calendar year, General Motors recorded net income attributable to common stockholders of $4.7 billion, and automotive free cash flow of $6.4 billion, which excludes the impact of $4 billion of voluntary US pension contribution.

  • While these are clearly very good, I wanted to highlight for you some of our major accomplishments that not only contributed to them, but also builds our foundation for the future.

  • We have significantly lowered our cost base and restructured GM North America to break even, near the bottom of the cycle, as evident with our four consecutive quarters of posit (sic) EBIT in 2010.

  • We maintained our number one market share position in the combined BRIC markets.

  • In fact have maintained our sales leadership in China for the last six years.

  • On October 1, GM completed the acquisition of GM Financial to help expand the availability of consumer financing in the US, particularly in subprime and leasing.

  • Based on some early programs, we are already starting to see some of the benefits of this strategy.

  • After an incredible development process, GM commenced the launch of the Chevrolet Volt extended-range electric vehicle when we said we would, mid November.

  • We started with seven initial launch dates and will complete our rollout of the other 43 during 2011, ahead of our original plan.

  • The Volt performs on the road and for the environment, negates the range, anxiety experienced with other electric vehicles and is positively shifting perceptions of General Motors.

  • We have also worked to improve our balance sheet.

  • We have reduced our debt by over $11 billion, including the repayment of the US and Canadian government loans, as well as the VEBA Note.

  • We have enhanced our liquidity by signing a $5 billion revolving credit facility, and we've also contributed $6 billion of cash and stock to the US pension plan.

  • In Europe, we're working to aggressively implement our restructuring plan to lower our break even point.

  • And finally, we executed a successful $23 billion public offering last November allowing the US and Canadian government to reduce their ownerships to approximately 27% and 7%, respectively, on a fully diluted basis.

  • We know we still have a lot to do, and we plan to continue to build on our progress in 2011.

  • Turning to slide 2, we have a summary of the financial results for the fourth quarter and calendar year 2010.

  • Our revenue was $36.9 billion for the fourth quarter and $135.6 billion for the year.

  • Operating income was $300 million for the fourth quarter and $5.1 billion for the year.

  • And net income attributable to common stockholders was $500 million and $4.7 billion for the fourth quarter and calendar year.

  • On a fully diluted basis, our earnings per share were $0.31 for the fourth quarter and $2.89 for the entire year.

  • Included in the fourth quarter net income attributable to common stockholders and fully diluted earnings per share is approximately $700 million in losses associated with the purchase of the US Treasury preferred shares, $200 million gain associated with the repayment of the VEBA Note, and $100 million combined gain associated with the sale of Nexteer and the purchase of Strasbourg.

  • After emerging from bankruptcy, there may be a period here -- period of time where we are void of the -- we're not going to be void of these one-off-types transactions, kind of a settling if you will post IPO, post bankruptcy.

  • Moving to the non-GAAP metrics highlighted in the bottom of the page, GM recorded earnings before interest and taxes, less adjusted, of $1 billion and $7 billion for the fourth quarter and calendar year, respectively.

  • The decline in the fourth-quarter EBIT adjusted is consistent with the guidance we provided during our third-quarter earnings call.

  • Our automotive cash flow was a negative $2.8 billion in the fourth quarter and a positive $2.4 billion for the year.

  • Both included the $4 billion discretionary US pension plan contribution.

  • Excluding this, free cash flow would have been a strong positive, $1.2 billion for the fourth quarter and a positive $6.4 billion for the year.

  • With that, I will turn it over to Chris to fill in most of the details.

  • Chris Liddell - Vice Chairman and CFO

  • Thanks, Dan, and good morning, everyone.

  • So turning to slide 3, I just wanted to spend a bit of time on the presentation of our results.

  • As we've discussed on previous calls, we have a very standardized approach to ensure consistency and transparency for you.

  • We have some improvements to our approach, and they include the following -- the fourth quarter of 2010 marks the fifth quarter in which our results are directly comparable to those of a year ago, and so, therefore, we will transition our quarterly EBIT bridges to year-over-year comparisons.

  • To give you greater visibility into one of our key retail markets, we are also starting to report separate sales and financial results for GM South America.

  • This segment includes sales and manufacturing operations in countries such as Brazil, Argentina, Colombia, Ecuador and Venezuela that previously reported as part of GMIO, that's International Operations.

  • Prior-quarter sales and financial results for GMIO have been adjusted to reflect the breakout of GM South America, so they're directly comparable.

  • Finally, we completed the purchase of GM Financial on October 1.

  • Starting with the fourth quarter, our results reflect the consolidation of GM Financial.

  • In order to provide you with an operating metric, the entire company, GM Financial's results are included in our non-GAAP earnings before interest and tax, and EBIT adjusted on a pretax basis.

  • With that, let's move to a review of the results.

  • And given this marks the end of the fiscal year as well as the quarter, I will give you detail for both the year and the fourth-quarter results.

  • That means that you will hear a bit of my voice.

  • We'll cover a bit more ground today in my prepared remarks than normal.

  • So, on slide 4, we highlight net income attributable to common stockholders and fully diluted earnings per share, as well as some of the items that are included in these metrics.

  • Starting with the fourth quarter of 2010, net income attributable to common stockholders was $500 million, and earnings per share was $0.31 on a fully diluted basis.

  • As Dan just mentioned, our fourth-quarter net income attributable to common stockholders and fully diluted EPS includes the impact of the gain on the extinguishment of the VEBA Note, combined gain on the sale of Nexteer and purchase of Strasburg, as well as the loss associated with the purchase of the US Treasury owned preferred shares.

  • The impact of these items is a $400 million reduction to net income attributable to stockholders, or a $0.21 reduction to fully diluted earnings per share for the fourth quarter.

  • So, if you adjust for those, excluding the impact of those items, then net income attributable to shareholders would have been $900 million or $0.52 a share on a fully diluted basis for the fourth quarter.

  • For the calendar year, we had $4.7 billion and net income attributable to common stockholders of $2.89 in fully diluted earnings per share.

  • These [rollouts] are impacted by the items we just covered as well as the $100 million gain realized in the first quarter from the sale of Saab.

  • For the calendar year, and adjusting for rounding, these totals were a $200 million reduction to net income or a $0.14 reduction to fully diluted earnings per share.

  • So excluding the impact of these items and net income attributable to common shareholders would have been $4.9 billion, or $3.03 in earnings per share on a fully diluted basis for the total calendar year.

  • Slide 5 provides a walk from operating income to EBIT adjusted for the calendar year.

  • As Dan has previously covered, our operating income was $5.1 billion per year.

  • We reported $1.4 billion of equity income, which is our proportionate share of income earned by our equity method investees, primarily our joint ventures in China.

  • Non-controlling interest was a $300 million deduction for the calendar year.

  • This is related to the non-GM owned proportionate share of consolidated entities, primarily GM Daewoo.

  • And non-operating income was $1.3 billion for the year.

  • This is mostly attributable to $800 million in non-operating income experienced in the fourth quarter, which I will cover in the fourth-quarter walk a little later.

  • This adds to a calendar year earnings before interest and tax or EBIT of $7.5 billion.

  • The adjustment for the year of $400 million, including the gains associated with the VEBA Note, the sale of Nexteer, the purchase of Strasbourg, and the sale of Saab.

  • So excluding those adjustments, EBIT-adjusted was $7 billion for the year.

  • Slide 6 shows the comparison of calendar-year EBIT by segment.

  • As you can see, GM North America, GM International Operations and GM South America all posted solid EBIT for the calendar year of $5.7 billion, $2.3 billion, and $0.8 billion, respectively.

  • GM Europe had a loss of $1.8 billion.

  • And corporate sector and eliminations totaled positive $0.3 billion.

  • GM Financial reported $100 million for the fourth quarter on an earnings before tax basis.

  • So after adjusting for rounding, this totals to the calendar-year EBIT of $7.5 billion, and after deducting adjustments, places us at the EBIT-adjusted figure that I mentioned of $7 billion for the year.

  • Turning to slide 7, we walk from operating income to EBIT-adjusted for just the fourth quarter.

  • Operating income was $300 million for the fourth quarter.

  • Equity income was $300 million.

  • Non-controlling interest was $100 million deduction, and non-operating income was $800 million for the fourth quarter.

  • This adds down to earnings before interest and tax of $1.3 billion for the fourth quarter.

  • And after excluding the $300 million of adjustments, EBIT-adjusted was the $1 billion figure that we had in our release.

  • Slide 8 shows composition of EBIT by segment for the fourth quarter.

  • GM North America, International Operations and South America posted EBIT of $800 million, $300 million, and $200 million, respectively.

  • Europe had a loss of $600 million, and corporate sector and eliminations totaled $400 million.

  • GM Financial reported $100 million for the fourth quarter, as mentioned on an earnings before tax basis.

  • So that total's EBIT of $1.3 billion for the quarter and adjusted down to $1.0 billion.

  • Slide 9 provides our global deliveries and market share on a standard five-quarter basis.

  • This includes vehicles sold around the world under our GM and our joint venture brands and through our GM-branded distribution network.

  • For the fourth quarter of 2010, our global deliveries were approximately 2.2 million units, and [increases of] approximately 220,000 units versus the fourth quarter of 2009.

  • This increase is primarily attributable to an improvement in the global industry, but also a slight improvement in our global market share, which was up 0.1 of a percentage point versus the fourth quarter of last year.

  • Turning to slide 10, GM North America deliveries were 685,000 units for the fourth quarter of 2010, up 48,000 units versus the fourth quarter of 2009.

  • US share of our four brands, Chevrolet, Buick, GMC, and Cadillac, was 19.1%, a 0.5% increase versus the fourth quarter of 2009.

  • Slide 11 provides what we view as key performance indicators in GM North America and is a slide we have shared with you while reviewing our quarterly results throughout the year.

  • The lines on the top of the slide represent total US market share as well as US market share for our four core brands.

  • As you will note, total US market share and four-brand market share have progressively converged as our sales of discontinued brands have been eliminated.

  • More importantly, our four-brand US share has stabilized and actually improved to about 19% in the fourth quarter of 2010 versus 18.6% in the fourth quarter of 2009.

  • Moving to the bars on the slide which represent our average US retail incentive for our four brands, and these are based on JD Power PIN data, our average US retail incentives for our four brands, [while] it's approximately $3100 in the fourth quarter of 2010, down some $800 from the year ago.

  • On the bottom of the slide, we provide our average four-brand retail incentive as a percentage of ATP and compare it to industry average, and this again is consistent with what we've done in previous quarters.

  • Our incentive percentage of ATP has decreased substantially over the past year from 12.4% in the fourth quarter of 2009 to 9.9% in the fourth quarter of 2010.

  • Additionally, our fourth-quarter 2010 four-brand US retail incentive as a percentage of ATP was in line with industry average.

  • We were slightly below the industry average for the calendar year in total.

  • You'll also note that we've provided data for January 2011.

  • For the month, our incentives increased approximately $400 from December 2010 and our percentage of ATP increased to 12.6%, which was 126% of industry average.

  • Our total US market share was 21.4%, and our US retail market share was 20.6% in that month, both the highest since December 2008.

  • These were all the result of a very targeted sales initiative.

  • For the month of January and February, we identified an opportunity to maintain our sales momentum during traditionally slow months.

  • We are in targeted loyalty and other programs that were very successful.

  • However, I want to highlight that this is not a change to our disciplined approach on incentives.

  • On a go-forward basis, we plan to continue to align production with demand and maintain our disciplined use of incentives to generally remain on average at industry levels on a percentage of ATP basis.

  • Turning to slide 12, GM North America net revenue was $22 billion for the fourth quarter, up $3.7 billion from the prior year.

  • This continues the improving trend we've seen all year long.

  • We ended the year with 511,000 units of US dealer inventory or about 71 days of supply.

  • This was an increase of 33,000 units during the quarter, but a reduction of 12 days of supply due to increased selling rate in December.

  • Slide 13 provides North America's EBIT by quarter going back to the fourth quarter of 2009.

  • As you can see, the EBIT was $800 million for the fourth quarter of 2010, up $4.2 billion versus the fourth quarter of 2009, but down from the third quarter.

  • The reduction versus our third quarter is consistent with what we reviewed during our third-quarter earnings call, and I will review the key drivers of this reduction after the year-over-year comparison.

  • Particularly pleasing is that despite somewhat depressed US industry volumes of 11.8 million units, GM North America delivered solidly profitable results and an EBIT of $5.7 billion for the year.

  • Slide 14 works the major components of North America's $4.2 billion improvement from the fourth quarter of 2009 to the fourth quarter of 2010.

  • Approximately $900 million of the improvement was related to volume and mix.

  • The next volume impact being $1.1 billion with mix unfavorable approximately $200 million, primarily driven by increased compact car volume.

  • Price was favorable $100 million, mostly related to reduced US incentive spending.

  • Costs were approximately $2.9 billion favorable, but that was primarily driven by the absence of the $2.6 billion UAW VEBA settlement charge that occurred in the fourth quarter of 2009.

  • In other words, approximately -- favorable approximately $300 million.

  • This includes $200 million in lower translational exchange related to the Canadian dollar net monitoring liability position, as well as the $100 million gain on the sale of Nexteer.

  • Slide 15 provides the major components of North America's $1.3 billion reduction in the fourth quarter versus the third quarter.

  • Our fourth-quarter results are consistent with our expectations, as well as the general outlook we gave during the third-quarter conference call, but clearly we wanted to give you more visibility here given its importance.

  • Compared to the third quarter, our volume and mix was unfavorable $400 million in the fourth quarter.

  • This includes approximately $200 million favorable volume impact, primarily driven by improvements in North America's market share, but more than offset by $600 million in unfavorable mix.

  • The unfavorable mix was primarily due to increased compact car volume related to the very successful Cruze launch, as well as lower full-size truck and crossover volume, with the third quarter relatively strong, as I mentioned a quarter ago, and the fourth quarter relatively weak, as I also foreshadowed.

  • Price was unfavorable $300 million, primarily related to normal seasonal model decay, and costs were unfavorable approximately $600 million, in line with our expectations.

  • This includes $400 million in increased marketing expense related to key product launches such as the Cruze and Volt, the Buick Regal Turbo and CTS Coupe, as well as other media initiatives, such as Chevy Runs Deep and the Carpet Offset advertising.

  • Additionally, engineering expense increased approximately $200 million, likely related to expenditures for prototype tooling for upcoming vehicle and powertrain launches.

  • Importantly, this is a more normalized run rate going forward.

  • GM North America's fourth-quarter results had approximately $200 million in additional marketing expenses and $100 million in additional engineering expense.

  • Also impacting fourth-quarter results was $100 million sales allowance accrual for the first-quarter 2011 programs, and a $200 million unfavorable translation exchange of the Canadian dollar net monetary liability position.

  • So in terms of how we think about 2011 versus 2010 for GM North America, we anticipate that volume will favorably impact EBIT as the industry continues to recover, partially offset by unfavorable mix and price.

  • With regard to US dealer inventories, we expect to close out 2011 levels roughly equal to the year end 2010, but a lower corresponding days supply due to an increased selling rate by the end of this year.

  • This includes a build in the first half associated with recent launch products such as the Chevrolet Cruz; products in short supply, including the Chevrolet Equinox; as well as inventory builds of full-size trucks, primarily related to a lower selling rate in the first half of the year.

  • We then expect to deplete US dealer inventory during the second half of the year.

  • Regarding costs, we anticipate relatively consistent overall levels from 2010 to 2011, with investment, increased advertising and engineering, but also increased pension income and lower amortization expense.

  • We expect first-quarter costs to be lower than the fourth quarter of 2010.

  • Turning to slide 16, GM Europe deliveries for the fourth quarter of 2010 total 426,000 units, up 48,000 units from the fourth quarter of 2009.

  • The increase is primarily driven by GME market share, which increased 0.8 percentage points to 9%.

  • Our share in key markets such as Germany and the UK were up 0.2 and 1.2 percentage points versus the fourth quarter of last year.

  • Opel and Vauxhall market share was 6.2% for the fourth quarter of 2010, also up 0.4 percentage points from a year ago.

  • And Chevrolet market share was 2.7% again, up 0.4 percentage points from a year ago.

  • On slide 17, we have GME Europe that is revenue by quarter for the fourth quarter of 2009 through the end of 2010.

  • Europe revenue was $6.9 billion for the fourth quarter, up $0.7 billion versus the fourth quarter of 2009.

  • The increase is primarily attributable to the impact of increased volume, partially offset by unfavorable exchange rates.

  • As you can see on slide 18, Europe's earnings before interest and tax was a loss of $600 million for the fourth quarter of 2010, totaling to a loss of $1.8 billion for the year.

  • Included in Europe's results are restructuring charges of approximately $100 million for the fourth quarter and $700 million for the year.

  • To recap briefly, our restructuring plan is focused on lowering our break even point through cost savings and continued production introductions.

  • In May, we reached an agreement with the works council on approximately $300 million of annual employee cost concessions.

  • In December, we completed the closure of the vehicle plant in Antwerp, Belgium.

  • Through this measure as well as other separation programs in Germany, Spain, and the United Kingdom, European headcount was reduced by approximately 5,000.

  • On the product front, we introduced the Meriva, Ampera and Movano in 2010, and we plan to launch an additional four Opel Vauxhall products in 2011, including the Ampera.

  • By the start of 2012, we plan to have 80% of our Opel and Vauxhall car lines volume refreshed.

  • Such modern stylings are less than three years old.

  • Based on our plans, we expect to achieve break even EBIT before restructuring charges by year end.

  • Slide 19 details the $200 million improvement in GME fourth-quarter 2010 results versus the fourth quarter of 2009.

  • The net impact of volume and mix was $200 million favorable.

  • Pricing was flat with improvement related to the recently launched Astra and Meriva, offsetting the impact of the lifetime warranty program that we've launched.

  • Costs were $300 million unfavorable on a year-over-year basis, and this includes approximately $200 million increase in engineering as well as $100 million in restructuring expense related to the closure of the Antwerp plant at year end, and separation programs being conducted in Germany and the United Kingdom.

  • Otherwise favorable of approximately $300 million, including $100 million gain on the purchase of Strasbourg, powertrain facility, and a $200 million favorable related to the absence of Saab losses experienced in the fourth quarter of 2009.

  • Turning to slide 20, we saw our International Operations just now exclude South America, as I mentioned, deliveries totaling 776,000 units in the fourth quarter, up 63,000 units versus the prior year.

  • Focusing on China, our deliveries were 576,000 units for the fourth quarter, up 42,000 versus the prior year.

  • The reduction in our China market share in the fourth quarter is attributable to stronger than expected industry growth in December, driven by the final month of certain tax initiatives and the re-timing of deliveries of vehicles produced at our joint ventures to (sic) January.

  • We estimate that our January share will actually rebound to approximately 14% for the month on an industry of 1.9 million units or 25% of month run rate of 2010.

  • So a good start to the year there.

  • For the year, International Operations deliveries were 2.4 million units in China, and 3.1 million units in total.

  • Slide 21 provides International Operations net revenue, which was $6.1 billion for the fourth quarter, up $1 billion versus the prior year.

  • This improvement is primarily attributable to volume and mix improvement, as well as favorable foreign currency.

  • As you can see on slide 22, international operations posted a $300 million in EBIT for the fourth quarter of 2010.

  • On a year-over-year basis, that's a decline of approximately $100 million.

  • Turning to slide 23, therefore, we have a walk of the fourth quarter of EBIT from 2009 to 2010, consistent with the other regions.

  • Volume and mix was favorable, approximately $100 million.

  • Price was also favorable, approximately $100 million on a combination of factors including increases on launch products.

  • Costs was approximately $400 million unfavorable, and this includes $200 million associated with GM debt due to increased material and labor and other production costs.

  • And we also experienced approximately $100 million increased engineering expenses related to future product programs.

  • Other was favorable approximately $100 million on a year-over-year basis.

  • This includes favorable non-controlling interest adjustments due to the decline in GM debt profitability, partially offset by unfavorable FX and derivative mark to market adjustments.

  • So turning to slide 24, the last of our regions, South America, deliveries totaled 286,000 units in the fourth quarter, up 62,000 units versus the prior year.

  • The improvement was primarily attributable to increases in the South America industry, which was up 300,000 units.

  • South America total market share was 19.6% for the fourth quarter, broadly flat with the previous year.

  • On slide 25, we show that the fourth quarter of 2010 South America net revenue was $4.5 billion.

  • The $200 million increase over the fourth quarter is primarily related to the impact of increased volume, partially offset by unfavorable foreign currency related to the devaluation of Venezuela and Bolivar.

  • Turning to slide 26, South America recorded $200 million of earnings before interest and tax for the fourth quarter, broadly consistent with the run rate for the year.

  • Slide 27 shows that the impact of volume, mix and price was approximately $200 million favorable year over year, offset by costs which were unfavorable by about the same amount, $200 million, largely due to increased manufacturing-related labor and material costs.

  • On slide 28, we provide a walk from net income attributable to common stockholders to automotive free cash flow for the fourth quarter and for the calendar year 2010.

  • Our automotive net cash flow from operating activities includes the impact of the voluntary US pension plan cash contribution of $4 billion that we previously announced.

  • Our capital expenditures were $1.1 billion and $4.2 billion for the fourth quarter and calendar year, respectively.

  • After deducting capital expenditures from automotive cash flow from operating activity, we arrive at automotive free cash flow of negative $2.8 billion for the fourth quarter and positive $2.4 billion for the year.

  • So if you exclude the impact of the voluntary pension contribution, automotive free cash flow would have been $1.2 billion, which is very pleasing the fourth quarter, and $6.4 billion for the calendar year.

  • Going forward, we anticipate our capital expenditures to increase to approximately $7 billion for the 2011 calendar year, consistent with what we foreshadowed before.

  • And we will also implement our previously-announced unwind of in-transit funding in the first quarter, which will show as a deduction to cash flow in the quarter.

  • Moving to slide 29, we provide key automotive balance sheet metrics.

  • We ended the year with $33.5 billion in available liquidity.

  • With our cash flow generation and the addition of the $5 billion revolver, we essentially maintained our very strong liquidity position while significantly reducing our key obligations and also funding the GM Financial acquisition.

  • Total portfolio of debt at year end was just $4.6 billion, which was down $11.2 billion from the start of the year.

  • This primarily represents the paydown of the US and Canadian government debt, VEBA Note, and the GM debt facility.

  • Series A Preferred Stock also decreased to $5.5 billion of book value, reflecting the purchase of the US Treasury shares.

  • Finally, our US pension underfunded status decreased from $16.2 billion underfunded to $11.5 billion underfunded.

  • So our very strong operating results have allowed us to make substantial progress in strengthening our balance sheet.

  • In total, we have de-levered these long-term liabilities by over $17 billion during the course of last year.

  • Slide 13 gives you some more visibility into our US pension fund status, which was 84% funded at the end of the year -- sorry, 84% funded at the start of the year -- to 90% funded at the end of the year.

  • Our service and interest costs were $5.7 billion, more than offset by actual return on plan assets estimated at approximately 14% or $11.6 billion.

  • So this is a very strong return on assets, well above our assumed 8.5% for the year.

  • Updated discount rates at the end of the year resulted in a $5.2 billion reduction in funded status.

  • The weighted average discount rate for the US pension plan reduced from approximately 5.5% to approximately 5% at the year end.

  • As previously announced, we made the $4 billion voluntary cash contribution to our US ancillary plans in December.

  • And I'd also like to mention that the underfunded status at year end 2010 excludes the impact of the $2 billion stock contribution we made effective January.

  • So including this, this brings the funded status to approximately 91%.

  • Turning to slide 31, this is addition, as I mentioned.

  • We have some GM Financial key metrics.

  • As you know, we acquired GM Financial on October 1.

  • And starting with the fourth quarter, our results reflect the consolidation of their activities.

  • To recap briefly through this acquisition, we plan to offer customers more financing options.

  • We plan to increase the availability of leasing for GM vehicles, which have been underrepresented versus the industry average, and remain competitive in the availability of subprime financing.

  • In December, we piloted prime lease programs with GMF in the state of Ohio.

  • This program is very successful and GM Financial originated some 30% of GM leases in Ohio for the month.

  • In total, we saw our Ohio lease penetration increase from 18.8% in November to 25% in December.

  • So due to the success of this program, we've already expanded it to 15 additional states, but when combined with Ohio, represents some 45% of the US lease volumes.

  • So moving to the information on the slide here, GM Financial recorded $129 million in earnings before tax for the fourth quarter of 2010.

  • Total originations were $935 million with finance for GM vehicles accounting for 18.1%, up 7.3 percentage points versus the prior year.

  • At year end, total finance receivables were approximately $8.6 billion, and we expect the portfolio to grow in the first quarter with increased origination levels.

  • Finance receivables greater than 30 days delinquent were 8.6% of receivables at year end, and annualized net credit losses for the quarter were 5.5%, both excellent improvements from the prior year.

  • Turning to funding, GM Financial continues to successfully exit the capital markets.

  • We completed a $700 million securitization in December and an $800 million securitization in February, both at an outstandingly low all-in 2.5% cost of finding.

  • On page 32, I wanted to do something slightly different by providing you a status update on our material weakness.

  • This morning, I am very pleased to tell you that after assisting the effectiveness of the remediation actions put in place to address the Company's material weakness regarding the financial reporting process, the management team, the audit committee, and the Board of Directors have both concluded that the material weakness no longer exists as at December 31, 2010.

  • Disclosure controls and procedures are, therefore, as well as internal control over financial reporting, are effective at December 31, 2010.

  • This marks an important milestone for the Company as it has been an issue for several years and reflects a lot of hard work by everyone involved.

  • So I've covered a lot of ground, a bit more than additional (sic).

  • Hopefully you found that detail useful and important, but in particular given the trends, we wanted to give you as much visibility as possible.

  • So with that, I will turn the call over to Dan for his summary and closing remarks.

  • Dan Akerson - Chairman and CEO

  • Thanks, Chris.

  • I've like to close on what I believe are a few takeaways from today's call.

  • In summary, good start.

  • A lot more work to do.

  • 2010 was clearly a good year for General Motors.

  • I'm not sure anyone would have predicted a year ago that GM would deliver net income of $4.7 billion and automotive free cash of $6.4 billion before contributing $4 billion to the US pension plan.

  • In addition, four consecutive quarters of positive EBIT and automotive cash flow excluding the pension contribution.

  • As I said, good start.

  • Now, for the more to do.

  • We will be focusing on four key areas in 2011.

  • First, we need to continue to develop and launch great products for our customers around the world on a consistent basis.

  • Important launches in 2011 include the Chevy Sonic, the Buick Verano, the Opel Zafira, the Ampera, and as well as the new Baojun brand in China, which incidentally, I was in China last week and drove it.

  • This is going to be a good brand and a great car in Asia.

  • Second, we must drive for improved business results around the world.

  • This includes strengthening our position in emerging markets like China and Brazil, implementing and following through on our restructuring plan in Europe, and continuing to leverage the industry growth in North America.

  • An important initiative across the globe will be our ongoing efforts in cost management.

  • As we reinvest in the business in both engineering and CapEx, we must remain vigilant in mitigating these cost increases.

  • And as we expand production, in the growing industry demand, it will be critical for us to stay very focused on managing fixed costs.

  • Third, we will continue to push hard on technology, on the heels of the award-winning Chevy Volt.

  • I believe we are in for a sea change in this area.

  • And I also believe GM can and will lead.

  • Fourth, we made great progress in 2010 on our already strong balance sheet and I would expect to further improve it in 2011.

  • We are on a journey to minimal debt and fully funding and derisking our US pension plan.

  • And I expect we will make meaningful steps in that regard in 2011.

  • In summary, our focus is to build on the progress we made in 2010, take advantage of what should be a stronger global industry in 2011, and we expect our first quarter should be a solid start in the new year.

  • Thanks for taking your time this morning.

  • That wraps up our remarks.

  • Now let's open it up for questions.

  • Randy Arickx - Director of Communications and IR

  • Okay, operator.

  • We're ready for questions when you were.

  • Operator

  • Thank you.

  • Ladies and gentlemen, we will now proceed with the analyst portion of the question-and-answer session.

  • (Operator Instructions).

  • Himanshu Patel, JPMorgan.

  • Himanshu Patel - Analyst

  • A couple of questions.

  • I think at the auto show, you had somewhat signaled that you were considering tweaking or maybe just more fundamentally altering your strategy in financial services.

  • Can you elaborate a little bit more on kind of your latest thinking there?

  • Particularly the two verticals of wholesale and retail prime where you are currently not present, do you think there is a need to move into that?

  • My second question is, just since the IPO, oil prices have shot up considerably.

  • Steel has gone up a lot.

  • I'm wondering if your view on 2011 mix and commodities have changed?

  • And last and final question, if you could give us an update on 2011 pension contribution thoughts?

  • Dan Akerson - Chairman and CEO

  • Let me handle the first one and I'll ask Chris to handle the second two.

  • On financial services, as Chris outlined, we've made significant progress in the leasing and subprime markets since we acquired GM Financial on October 1.

  • Obviously, we have a lot of latitude in this area, but I don't want to go into it any further other than to say that we are studying it and we are working with our partner, Ally, in this area.

  • Chris Liddell - Vice Chairman and CFO

  • Yes, so, just coming to your other two questions, the last one first, in terms of pension plan, our basic strategy is the same one as we've outlined all the way along, which is to the extent that we generate free cash flow over and above the commitments of investing in the business, engineering, capital etc., then we will look to make contributions to the pension plan to achieve, in due course, a fully funded derisk plan.

  • So exactly how much that will be this year will depend on how the results of the year shake out.

  • But it's still our intention to use that free cash flow generation to progressively fully fund the plan and get to a fully funded status in due course, no change there.

  • Our material costs, clearly there's some headwinds there.

  • We were anticipating those, so certainly in our strategy and budgeting over the last few months, we have been planning for material cost increases offset by supplier performance.

  • So, there isn't any significant change there.

  • Obviously we are watching what's happening in the world very closely as everyone is, and we will have to deal with the outcomes of those as they come along.

  • But the headwinds were not a surprise to us.

  • Himanshu Patel - Analyst

  • Thank you.

  • Operator

  • Rod Lache, Deutsche Bank.

  • Rod Lache - Analyst

  • Good morning, everybody.

  • I had a couple questions.

  • First, could you just clarify the non-operating income at $800 million that you had on slide, I think it's 7, in the quarter?

  • What are you including in that and what regions does that show up in?

  • Chris Liddell - Vice Chairman and CFO

  • Yes, sure.

  • There is a number of factors in there, Rod.

  • The ones that I mentioned, the VEBA Note, so when we repurchased that, that actually created a positive outcome of about $200 million.

  • Our Nexteer in Strasbourg that I mentioned, which were about $100 million each; then there was some -- a couple of other items.

  • For example, the MLC contingencies, so MLC is our old co, if you like and we have a contingency for that in our accounts associated with the amount that we need to settle with them.

  • We made a re-estimate of that.

  • That was a positive $200 million associated with an anticipated lower claim.

  • We have royalties in there; this is sort of $30 million, $40 million.

  • Rental stream, $30 million, $40 million and sort of gains on derivatives, and some much smaller items.

  • So all of that totals the $800 million.

  • That appears in either North America or the region concerned, depending on the, for example Nexteer, as I mentioned, it was in North America, and we back that out when we do our adjustments.

  • The MLC contingency was in the corporate line.

  • And again, we look to back those out if we think they are extraordinary.

  • Rod Lache - Analyst

  • Okay.

  • So in the regional breakdown, that was backed out.

  • Is that correct?

  • All these items, or some of them?

  • Chris Liddell - Vice Chairman and CFO

  • In the total EBIT adjusted, we back them out.

  • In the regions concerned, they are still in there.

  • Rod Lache - Analyst

  • Okay.

  • And then --

  • Chris Liddell - Vice Chairman and CFO

  • The best way of looking at that probably is to, on the chart, that was about the fourth or fifth one I covered, I show regional EBIT by quarter and then the adjustments out to the right-hand side.

  • So that sort of shows you all of the regions and then the adjustments, and then you have to take them out of the region consumed.

  • Rod Lache - Analyst

  • Okay.

  • And then I just had a couple questions about the outlook.

  • I appreciate your color on the North American pricing.

  • You mentioned that you saw the opportunity to have some targeted incentives.

  • Can you just maybe address what the priority is here going forward?

  • Will there be periods of elevated incentives in the future?

  • How are you avoiding the risk of getting dealers and customers used to the discounting?

  • On Europe, you had been targeting approaching break even and just give us an update on what your thoughts are there.

  • And then lastly, just within the International segment, there had been some tax changes in China and a few other things.

  • Just any view on your broad outlook for the China equity earnings in 2011 would be appreciated.

  • Chris Liddell - Vice Chairman and CFO

  • Okay.

  • Will handle those three between Dan, myself and Mark.

  • That was one question, right?

  • Okay, in terms of Europe, the intention, as I mentioned in the prepared remarks, we're still on the same track that we were before, taking costs out, launching the vehicles and achieving breakeven before restructuring costs by the end of this year.

  • So that's still the plan, still the expectation.

  • No change there.

  • In terms of North America, if I just talk about the overall strategy and then Mark can give you a bit of color as well.

  • Again, what I emphasized in my prepared remarks is our strategy hasn't changed.

  • We want to be at or around industry average levels as a percentage of ATP over the medium term.

  • In particular months, we're going to vary for that by definition.

  • We might have targeted programs in one month, back away other months in order to get to that average position.

  • So, no change there, but I will hand over to Mark to talk a little bit more about color in the marketplace generally.

  • Mark Reuss - President, GM North America

  • Sure.

  • Yes, Chris stated it correctly.

  • If you look at the 12-month performance of what we did on a disciplined basis of production and incentives and then model changeover, and if you look at the correlation of those, you will see where we turned models quicker from 10's to 11's, and then we had a richer mix because of it, so we look at all of those things.

  • But in January and February, you will see we did some things that post bankruptcy needed to be done from a loyalty, from a conquest basis, and frankly, the industry acted like it always did, which was a nice surprise in terms of the slowness on a seasonal basis of January and February.

  • So, if you look at that and you look at what we did and some of the results that came out of that, we have built some things on a brand and loyalty and conquest basis on a momentum in these two months that we need to do as a company as we move forward out and shed the ownership and bankruptcy piece of this.

  • So those are very targeted things.

  • They worked -- they worked better than what we thought they would, quite frankly.

  • And so, that momentum and the communication with our dealer body, they know exactly what we did.

  • They know exactly how we did it.

  • They don't expect any type of consistent ride on any of that, and I don't want to really talk about future pricing because I can't.

  • Dan Akerson - Chairman and CEO

  • And let me just finish the last question on China.

  • Before I do, just to reflect on Mark's comments, we tried to bring -- make the Company a little more agile, a little quicker in the marketplace, and quite frankly, a little less predictable.

  • As Mark said, a little less consistent.

  • There is both tactical and strategic issues going here.

  • We did have to transition from eight to four models, so loyalty of some of those customers and conquest has been increasing over the last quarter or two, and we wanted to get off to a fast start.

  • And as you said, it did result in a richer mix.

  • So, a little bit of inconsistency from our competitors' point of view might not be all bad.

  • As I said, your comments on China are timely and relevant.

  • As I said, I was in China over the last week.

  • They are -- they have increased fuel prices, both diesel and gas petrol, and they have increased the reserve requirements, and they've had some rate hikes.

  • There's no question they are trying to tampen (sic) down, tampen the demand a bit, but at the same time, our view on this year is the market will grow on the order of 10% to 15%.

  • And we think that's good for the long term rather than have -- although in the short term, unbridled growth isn't all that bad, but for those of you, and I know many of you travel to China, there are concerns by the government.

  • They have a very pointed view and I would almost argue a really good view on a national energy policy, and they also are concerned about infrastructure and being able to facilitate especially in their large cities.

  • So -- and they are also trying to manage their inflation within the country.

  • But that being said, what's -- we're going to have to comply with what is viewed by the leadership of an individual country.

  • And we feel pretty optimistic, guardedly optimistic, about what's going on in Asia generally and China specifically.

  • So, as Chris said, there are a lot of moving parts, some headwinds, some tailwinds, but it's interesting and complicated.

  • Rod Lache - Analyst

  • Okay.

  • Thank you.

  • Operator

  • (Operator Instructions).

  • Brian Johnson, Barclays Capital.

  • Brian Johnson - Analyst

  • Thanks and good morning.

  • I hate to have to do housekeeping, but just following up on the last question, could you perhaps take the adjustments included on page 4 and give us a sense of when we look at the EBIT for fourth quarter for each of the geographies, and for corporate other, how we should allocate that?

  • Chris Liddell - Vice Chairman and CFO

  • Sure.

  • We can do it more exactly off-line, but if you go to -- let's do it again, you go to slide 8, there's about $300 billion of adjustments.

  • They would be, let's just think, probably $100 million in North America; a small amount in Europe, $50 million to $100 million; and the rest would be in corporate and eliminations.

  • Brian Johnson - Analyst

  • Okay.

  • Chris Liddell - Vice Chairman and CFO

  • (multiple speakers) order of magnitude (technical difficulty) I can give the exact answers after the call.

  • Brian Johnson - Analyst

  • Okay.

  • Yes, we'll follow up on that.

  • And then, corporate other and income tax, both were seemingly higher than which what we had modeled on the positive side.

  • Can you give us some color on what was, even backing out that $200 million, why that's going to a gain in corporate and why income tax was a benefit as opposed to an expense this quarter and how we ought to think about it going forward?

  • Chris Liddell - Vice Chairman and CFO

  • Yes, I'm not sure what you've got in your model for corporate.

  • There's nothing unusual in there other than the ones that I've talked about, so that's just -- we can work through and look at your model, but that's probably specific to that.

  • On tax, what happened during the course of the year, and this is all good news is, as we made progressively more money in North America than we were anticipating, which, as you know, is essentially a zero tax rate because we have significant losses, then our effective tax rate as a percentage went down; the higher the proportion that we make in North America, the lower the effective percentage of tax rate.

  • So, we have to estimate on a quarter-by-quarter basis.

  • When we wash it up at the end of the year with actual numbers, we have to make a reconciliation back.

  • We simply -- basically paid about the same amount of cash tax, but on a much bigger earnings base than we were expecting.

  • So good news.

  • So again, the low tax rate in the fourth quarter is simply a washup of the year to get to the actual number.

  • Brian Johnson - Analyst

  • Okay.

  • So we should think about that more as an annualized number because it's (multiple speakers) each quarter?

  • Chris Liddell - Vice Chairman and CFO

  • Correct.

  • Brian Johnson - Analyst

  • Okay.

  • And then as you kind of walk from back in North America from Q4 EBIT to Q1 2011 EBIT, you mentioned some puts and takes.

  • Perhaps just to summarize, you're expecting costs to be improved despite -- and that's anticipating with steel and commodity headwinds.

  • Volume will be what volume is.

  • And on pricing, will that be a net cost given the type of programs you are talking about?

  • Chris Liddell - Vice Chairman and CFO

  • Yes, or directionally, if (multiple speakers) volume should be a slight positive; mix a slight offset to that, probably about the same; PRICE, broadly flat globally, maybe a little down in North America, but broadly flat.

  • And cost will be a big improvement versus the fourth quarter.

  • Brian Johnson - Analyst

  • And that's driven by launches or lack there -- or getting beyond the launches?

  • Chris Liddell - Vice Chairman and CFO

  • Yes, it's driven by a few things.

  • Firstly, the ongoing improvements that we're making in the business.

  • Secondly, the absence of some of the things that we foreshadowed in the fourth quarter.

  • So by taking those away, you will see cost improvement getting back to prior levels, closer to prior levels.

  • So volume, mix and price hopefully a wash; cost, a big positive from the fourth quarter to the first quarter.

  • Brian Johnson - Analyst

  • Okay, thank you.

  • Editor

  • Please note, the Q&A session for the media portion is not transcribed.

  • Randy Arickx - Director of Communications and IR

  • Okay.

  • With that, we appreciate everyone's time this morning, and we will talk to you with Q1 results.

  • Thank you.

  • Dan Akerson - Chairman and CEO

  • Thank you, all.

  • Operator

  • Ladies and gentlemen, that does conclude the conference call for today.

  • We thank you for your participation and ask that you please disconnect your lines.

  • Have a great day, everybody.