通用汽車 (GM) 2013 Q3 法說會逐字稿

Welcome to General Motors Company third quarter 2013 earnings conference call.

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

Afterwards, we'll conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded Wednesday, October 30, 2013.

I would now like to turn the conference over to Randy Arickx, Executive Director of Communications and Investor Relations.

Please go ahead, sir.

Thanks operator.

Good morning and thank you for joining us as we review the GM Financial results for the third quarter of 2013.

Our press release was issued this morning and the conference call materials are available on our Investor Relations website.

We are also broadcasting this call live on 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.

The content of our call will be governed by this language.

This morning, Dan Akerson, General Motors' Chairman and CEO, will provide opening remarks followed by a review of the financial results with Dan Ammann, Executive Vice President and CFO.

Dan Akerson will then conclude the remarks portion of our call with some closing comments.

After the presentation portion of the call, we will open the line for questions from the analyst community.

In the room today, we also have Tom Timko, Vice President, Controller and Chief Accounting Officer; Chuck Stevens, CFO, GM North America; and Jim Davlin, Vice President, Finance and Treasurer.

Now I will turn the call over to Dan Akerson.

Thanks, Randy.

Every quarter on these calls, we talk a lot about what it takes to go from being good to great at General Motors.

Fundamentally, I believe there are three drivers -- building great products, satisfying our customers better than anyone else, and making sure the Company has good [bones].

In my book, good bones means a fortress balance sheet and a strong organizational, an organization with capabilities in everything from IT to HR to marketing and finance.

All of these things, from products to people to technology have to come together to build a sustainable competitive advantage and they're doing just that, as you can see it in the numbers we are posting this quarter.

Looking at the top of slide 2, you can see that we increased our third-quarter global delivery by 5.5% and grew our global market share by 0.1 point.

Net revenue increased by $1.4 billion and EBIT-adjusted was up 15% to $2.6 billion.

This $300 million increase was driven by higher earnings in North America and South America.

A small increase in China and a smaller loss in Europe and another very solid quarter for GM Financial.

GM Financial, I'd like to point out, has now surpassed $2 billion in cumulative pretax earnings since we acquired the Company in the second half of 2010.

Two of our automotive operating regions also deserve special recognition.

First, the team in North America has done a great job in executing a very aggressive product plan.

We're talking about more than a dozen Chevrolet, Buick, GMC and Cadillac launches so far this year.

Combined, they represent more than 1 million sales on an annualized basis.

In particular, the launches of the new Chevrolet Silverado and GMC Sierra have been nearly textbook perfect.

Since the first quarter of 2013, GM incentive spending on light duty trucks has been trending down and the average transaction prices have been trending up.

The pace of improvement definitely picked up in the third quarter, which reflects an increasing mix of 2014 models which are now about 75% of sales and stable -- in the industry, stable incentive spending on our old 2013 models.

In other words, we're very much on plan.

Meanwhile, the team in Europe has been tending the green shoots we talked about last January.

Specifically, GM Europe has managed to stabilize key metrics like volume and pricing in an extremely challenging market.

In fact, they increased their revenue year over year for the first time in two years.

Finally, adjusted automotive free cash flow was a strong $1.3 billion.

That's net of roughly $1.9 billion in capital spending in the quarter.

Now before we walk through our GAAP and non-GAAP results in more detail, I'd like to spend a few more minutes reviewing some other highlights in the quarter.

They're summarized on slide 3. Of course, our cars and trucks were the tip of the spear and product excellence is, once again, a GM hallmark.

Let me give you a few powerful examples.

In July, Consumer Reports magazine named the 2014 Chevrolet Impala as the best sedan in the markets, period.

This shocked many people because no American car has ever come out on top.

And then just two months later, the magazine named Chevrolet Silverado the best truck.

The best news is that Consumer Reports is not an outlier among auto critics.

For example, the Buick Encore, the Cadillac CTS, the GMC Sierra and three Chevrolets -- the Impala, Corvette, and Silverado are all on the short list to be the next North American car or truck of the year.

No one has ever stacked the deck like this.

But what matters most, more than trophies is our consistent execution to high standard.

That's what changes the conversation about brands.

The product role we're on, especially in North America, is creating tremendous value which you can see in our EBIT-adjusted margins, which topped 9%.

We're going outside of our home markets as well.

Good products like Onix in Brazil helped Chevrolet sell 1.25 million vehicles in the quarter and achieved another global sales record, and each Chevrolet has done quite a run.

The brand has now delivered 12 consecutive quarters of higher year over year global sales.

Cadillac is also on accelerated growth trajectory and the brand hit products have played key roles in our global market share increase.

In the first nine months of the year, the brand's global sales were up 31% versus 2012, thanks to launches of the ATS, CTS and XTS in North America and our expansion in China.

The product discipline is one half of the coin, the other is financial discipline.

Our financial goals are just as well-defined as our product and customer strategy and we are equally systematic when it comes to execution.

For example, during the quarter we financed -- refinanced a substantial portion of our Series A preferred stock in September to reduce interest costs and simplify our balance sheet.

All of this progress opened the door for Moody's to return GM to investment grade status in September, something we're very proud of.

The upgrade recognizes our progress and it's emblematic of the potential this Company represents.

If anything, I think we're just starting to scratch the surface of what we can accomplish.

With that summary, I'll now turn the floor over to Dan Ammann.

Dan?

Thanks Dan.

Now on slide 4, I'll start with a summary of our financial results for the quarter.

Net revenue for the period was $39 billion.

The $1.4 billion increase includes an $800 million unfavorable impact from foreign exchange translation.

Our GAAP operating income increased to $2.3 billion.

Net income to common stockholders was $700 million.

The decline from the prior year was due to stronger operating performance.

It more than offset by an incremental $500 million in tax expense and the $800 million charge we took to redeem a portion of the Series A preferred stock during this quarter.

Diluted earnings per share came in at $0.45 and our automotive net cash from operating activities was $3.3 billion, up $200 million from 2012.

For our non-GAAP measures, EBIT-adjusted was $2.6 billion in the third quarter and the EBIT-adjusted margin improved to 6.8%.

Adjusted automotive free cash flow increased $100 million to $1.3 billion for the third quarter.

Slide 5 lists the special items for the quarter.

Again, net income to common stockholders was $700 million and our fully diluted EPS was $0.45.

We took another impairment of goodwill in the GM Korea business that was less than $100 million.

In addition, we booked an $800 million charge for our recent redemption of Series A preferred shares.

These charges had a $0.51 unfavorable impact on earnings per share.

On slide 6, we show our consolidated EBIT-adjusted for the prior 5 quarters.

Our 6.8% EBIT-adjusted margin is our highest in 9 quarters.

Our consolidated wholesale vehicle sales were 1.6 million vehicles in the third quarter, a slight increase from the prior year and our global market share increased to 11.7%.

Turning to slide 7, we explain the $300 million year over year increase in our consolidated EBIT-adjusted.

As I just covered, global wholesales were essentially flat, resulting in no change in earnings from volume.

Mix was $500 million favorable, due primarily to vehicle mix in North America.

Price was $800 million favorable due to strong new product in GM North America and price actions we took to offset FX impacts in South America.

Cost was $200 million unfavorable due to increases in North America and IO partially offset were savings in Europe.

Other was $700 million unfavorable, primarily due to FX impacts.

Slide 8 gives our year over year EBIT-adjusted performance by segments.

GMNA increased $500 million to $2.2 billion.

GME improve to a $200 million loss.

The performance in IO deteriorated by $500 million to $300 million for the quarter and in South America, we improved to $300 million and GM Financial again recorded $200 million in earnings before taxes.

Our corporate sector rounded to $200 million of expense.

I will now review the key performance indicators for GM North America on slide 9. For the third quarter of 2013, our total US market share was 17.3% and our retail share was 16%.

Retail share increased 0.3 percentage points from the prior year as our fleet market share decreased due to the repositioning of the Chevy Impala and generally lower rental sales.

Our incentives for the quarter were 11.2% of average transaction price which put us at a 114% of the industry average.

Slide 10 shows GMNA's EBIT-adjusted for the most recent 5 quarters.

Revenue increased $1.2 billion to $23.5 billion despite flat wholesale volumes.

GMNA's EBIT-adjusted margin was 9.3% for the third quarter, demonstrating clear progress toward our mid-term goal of 10% margins.

Our US dealer inventory declined to 670,000 vehicles as we work through the launch of our all-new Chevy Silverado and GMC Sierra.

North America market share was 16.7% in the quarter.

The primary drivers of the $500 million increase in GM North America EBIT-adjusted are on slide 11.

Volume had no net impact.

Mix was $400 million favorable due almost entirely to our new vehicle introductions, including full-sized pickups.

Price was $600 million favorable, as the $1.1 billion favorable pricing from our recently launched vehicles was partially offset by $500 million in unfavorable carryover pricing.

Cost was $400 million unfavorable due to $500 million in increased material and freight expense and $200 million in increased engineering expense, partially offset by a $300 million reduction in unfavorable policy and warranty reserve adjustments.

Other was $200 million unfavorable due to FX headwinds in non-operating income items which are largely nonrecurring.

GME, on slide 12, reported an EBIT-adjusted loss of $200 million for the third quarter and $300 million improvement from the prior year.

Revenue improved 3% to $4.9 billion for the quarter, marking the first year over year revenue increase in at least two years.

The EBIT-adjusted margin in the segment improved 6 percentage points to minus 4.4%.

GME's wholesale volumes for the quarter stayed relatively constant at 253,000 units and our European market share improved to 8.6%.

On slide 13, we provide the major components of GME's $300 million increase in EBIT-adjusted.

Volume had no impact, mix was $100 million headwind and price was flat.

Cost was $400 million favorable due to $200 million in lower depreciation and amortization expense and $200 million savings in other areas.

I would like to remind you that we plan to close our book and assembly and powertrain operations by the end of 2014.

We will disclose in our 10-Q that we expect to incur significant restructuring costs as a result of this action and some of these charges may affect our results as early as the fourth quarter of 2013.

We now move on to GMIO's profitability from the prior 5 quarters on slide 14.

EBIT-adjusted was $300 million, made up of continued strong equity income from our China joint ventures of $400 million, partially offset by $100 million loss from our consolidated operations which includes approximately $50 million in restructuring charges.

GMIO's revenue from consolidated operations was $5.3 billion.

The $400 million decline from Q3 of 2012 includes $200 million in unfavorable product exchange translation.

EBIT-adjusted margin for our consolidated operations declined to negative 2.8% from a year ago, as we again experienced industry and competitive pressures in this segment of the business.

We expect these challenges to continue to affect our performance in the fourth quarter.

In response, we have strategic reviews underway in select markets, the results of which may lead to future charges.

The net income margin from our China JVs came in at a solid 9.4%.

GMIO had wholesale vehicle sales of 267,000 units for its consolidated operations and 761,000 for the China JVs.

GM market share in the Asia Pacific region improved to 9.6%, reflecting our strength in [China] and need to grow faster than the rest of the region.

On slide 15, we provide the major components of GMIO's a year over year performance.

Volume had no impact.

Mix was $100 million unfavorable in GMIO consolidated operations.

Price was $100 million headwind.

Cost was $200 million unfavorable, due to $100 million decline from our parts and accessories business and higher manufacturing expense, offset by some favorable material and freight items.

Other had no impact as $100 million in unfavorable FX was offset with a small increase in equity income.

Slide 16 provides a look at GM South America's performance in recent quarters.

Revenue improved $100 million year over year to $4.4 billion despite a $600 million unfavorable impact from foreign exchange translation.

The EBIT-adjusted margin in the segment rose to 6.5%, 2.8 percentage points higher than the prior year.

GM South America's wholesale vehicle sales were 282,000 units, a 14,000 unit increase from the prior year period and our market share in the region declined slightly to 17.8% despite a higher share in the Brazilian market.

On slide 17, we will look at the drivers of the $100 million increase in EBIT-adjusted.

Volume had no impact; mix was $200 million favorable due to country mix and the successful introduction of new vehicles in Brazil, including the Chevy S-10.

Price were $300 million favorable due to actions we've taken in response to inflationary and FX pressures.

Cost had no impact and other was a $400 million headwind because of foreign exchange.

This totals to $300 million EBIT-adjusted in South America in the third quarter.

While we were pleased with South America's improvement and profitability this quarter, our performance in future periods will likely to continue to be impacted by currency and regulatory actions, particularly in Venezuela.

Slide 18 provides a walk of adjusted automotive free cash flow for the third quarter.

From our net income to common of $700 million, we add back the impact of non-controlling interests, preferred dividends and a Series A redemption and then deduct GM Financial earnings to arrive at an automotive income of $1.5 billion.

We had $100 million in non-cash special items and our depreciation and amortization was $1.4 billion.

Working capital was $100 million use of cash.

Pension and OPEB cash payments exceeded expenses by $200 million in the quarter.

Other was a $600 million source of cash, a $200 million increase from the prior year which can be more than explained by an increase in deferred tax expense.

This totals to automotive net cash provided by operating activities of $3.3 billion.

We have $1.9 billion of capital expenditures in the quarter, giving us an adjusted automotive free cash flow of $1.3 billion.

The positive cash flow helped improve our liquidity position on slide 19 to $37.3 billion, including $26.8 billion in cash and marketable securities.

The debt increased to $8.4 billion as due to our most recent $4.5 billion refinancing transactions.

$3.2 billion of the new debt was used in the third quarter to redeem Series A preferred shares that had a book value of $2.4 billion.

The remaining $1.2 billion was used after the quarter and to retire the Canadian Healthcare Trust notes.

This transaction will be reflected in our fourth quarter earnings announcement.

Our US-qualified pension plans were underfunded by $12.8 billion and our non-US pension plans were underfunded by $13.6 billion, a $500 million increase from the prior quarter was primarily due to unfavorable foreign exchange translation.

Our unfunded OPEB liability declined to $7.3 billion as we modified retiree life insurance benefits for our US salary population.

Slide 20 provides a brief summary of our quarter financing activities.

GM Financial released their results this morning and will hold their conference call at noon.

Our US subprime penetration in the third quarter declined 0.3 percentage points to 7.8%.

Our US lease penetration experienced a year over year increase for the sixth consecutive quarter to 21.3% in Q3.

Lease penetration in Canada improved 1.5 percentage points to 8.1%.

GM, as a percentage of GM Financial loan and lease originations, rose to 67% and GM Financial's percentage of GM's US consumer subprime financing and leasing was 20% in the quarter.

GM Financial's annualized net credit losses were 1.9% and its earnings before tax were $239 million for the third quarter, including the profitability of the recently acquired international subsidiaries.

On October 1, after the quarter end, we closed the acquisition of the Brazilian business of Ally International.

To summarize our financial performance on the final slide, we had strong third quarter results with revenue up, market share up, EBIT-adjusted up, margins up and cash flow up.

We also continued to strengthen our fortress balance sheet by refinancing a significant portion of our preferred shares and debt at lower costs.

The continued focus of this management team is to deliver great new cars and trucks to our customers with a compelling value proposition and great quality.

Our third-quarter results further validate that we're consistently delivering on our plan.

Now I'd like to pass it over to Dan Akerson for his closing remarks.

Thanks Dan.

For all the success we enjoyed in the third quarter, let me make one thing perfectly clear.

We have a lot of hard work ahead of us, especially in our focus areas of complexity reduction, material costs, logistics costs and quality.

I can assure you the team is very focused on making steady progress.

Consistency is the name of the game.

Given how far we've come and what is just over the horizon, we're all pleased with our position and feel we're well-positioned for the future.

When we have great products that are [rated to] our competitive cost structure, I think we're in an unstoppable position.

Now we'll be happy to take any questions you might have.

Thank you.

(Operator Instructions)

In the interest of time, please limit your question to one per line.

One moment please for the first question.

Brian Johnson, Barclays.

I want to just focus on an overall strategic question.

We can later on drill into the details afterwards.

But there seems to be an emerging market SUV boom going on, sales up 45% in China, other emerging markets gravitating towards SUVs and even the Europeans showing signs of following the SUV craze.

A couple of questions, one, where do think GM is positioned on that now?

Two, quickly, can you beef up your product lines in key markets for SUVs CV?

And then three, what factory flexibility do you have to be able to pivot between sedans and SUVs as perhaps a gas prices fluctuate or tastes change?

Sure.

Well, I think, first of all, we would agree with the general observation of the market trends.

Our position relative to that trend differs by market around the world.

There are places where we are at the very forefront of that trend, like in Europe with the Mokka, I think we've really redefined that segment.

[There] is an example.

There are other places where we're not exactly where we want to be from a product timing point of view.

So we're obviously working to make sure that we're going to capitalize on the trends as we see them emerging.

Finally, from a product flexibility point of view, as you know, I think many of the SUV programs, both for us and for other manufacturers, derived from an architectural point of view so we have a pretty high amount of flexibility from a manufacturing perspective to meet that demand once we have the product localized.

It's clearly an opportunity; it's clearly a longer term trend and like I say, we feel good about where we are in parts of it and we're working to capitalize in other places.

Colin Langan, UBS.

Could you give any color on the reported production or supply issues around the new pickup?

I think there was news that certain engine components were running -- or a bit constrained and then there was some axle issues.

Will that impact you at all going forward in terms of sales and production as we go into Q4?

Yes -- excuse me, this is Chuck.

We've had some short-term issues with American axle around some specific components.

We're working very closely with them.

It has had a small impact on production in the month of October but we expect to make that up here yet in Q4 and have no impact on the full-size SUV launch.

So a lot of focused attention being given to this and we expect it to be resolved here in the relatively near term.

What about the reported issue with some engine components; is that impacting your availability of some of the V8s?

No, the biggest issue is really around some axle components right now that impacts the mix of V8s.

So we should, with the ramp rolling out, we should pick up production will likely rise from Q3 to Q4 as you -- all the -- two of the plants are online.

Well, I think those are two different questions.

One, we are -- we lost some units thus far in the month of October because of some part shortages which we expect to make up.

Secondly, I think there will be a seasonal Q4 versus Q3 impact on full-size pickup and SUV production as well as others specifically because we'll have holiday shutdown in Q4 and we didn't shut down any of the plants in July during the changeover.

Very helpful.

Any color on -- any update on the Peugeot alliance?

Obviously, I think they were out saying that some parts of the alliance were under review.

How does that impact your restructuring plan in Europe and the potential billion dollars in savings that the alliance was supposed to -- the savings you would achieve eventually?

I think it's -- this is Dan Akerson speaking.

I started to say that we still are working with regard to specific platforms that we see a potential benefit for both companies.

We are watching the situation carefully.

There's an apparent need to raise additional capital, and how that might fit with our plan but I would say there's nothing new to report until we ascertain precisely what comes out of their capital raise endeavors.

The only thing I'd add to that is a year ago on this call, when we outlined our plan to breakeven in Europe by mid-decade we said then and I'll reiterate it now but that plan did not include any assumption of material synergies from the PSA alliance.

Rod Lache, Deutsche Bank.

On North America, you're -- you just did 9.3% margin and what is, at least historically, it's been a relatively weaker quarter.

I would imagine maybe it comes down a little bit in the fourth quarter with a heavy duty truck plant down and seasonal cost, but can you talk a little bit about if we look at this level of profitability, what happens from here as we look out to next year?

Is it conceivable that you might be able to get to that target, 10% target a little bit sooner?

I think Q3 this year at 9.3% highest quarter since Q3 of 2011, obviously favorably impacted by the K2 launch, as you indicated.

I think from a seasonal perspective, there will be a fall-off in Q4 and I don't think you can necessarily extrapolate these Q3 earnings over a calendar year.

I would say this, that we're at an inflection point.

We're executing to the plan that we talked about earlier this year to drive the organization to 10% EBIT margins and I would expect on a year-over-year basis to see some pretty significant margin growth next year.

Okay.

Just one last one, the -- you're sitting on $26 billion or $27 billion of cash.

You've got obviously plenty of liquidity above and beyond that with the revolver.

Could you just remind us what's -- what you're targeting as a normal level of cash going forward and what your priorities would be above and beyond the reinvestment in the business?

I would say we're comfortable or more than comfortable with our current levels of liquidity.

Recall that at the quarter end, there was $1.2 billion sitting there which we've now redeemed the Canadian Healthcare Trust note with in October so the balance sheet was slightly grossed up as of the quarter end.

The priorities for cash reinvestment haven't changed.

We're obviously focused on reinvesting in the business, making sure we have a winning product portfolio going forward and our capital expenditure levels, I think have reflected that and have been consistent with what we had previously articulated.

My view is that we've come a long way with the balance sheet and we have it in very good shape.

We obviously had a very, I think, compelling refinancing transaction that we executed in September, taking advantage of the market window there to clean up some nearer term and extensive obligations and replace them with longer data than much more efficient funding.

So that puts us in a good position going forward.

As we look to next year, we obviously still have the remaining portion of the Series A preferred that we will clean up at the end of next year when that becomes actionable from a -- the terms of the security point of view.

We still have shareholders working their way out of our ownership structure and that's something we're keeping a close eye on.

Obviously, our priority over time is to return cash to shareholders and that's something that we continue to evaluate.

John Murphy, Bank of America Merrill Lynch.

Maybe just a follow-up on the North American margin question that Rod just posed.

We're staring down the barrel of the K2XX launch which is going on right now.

You have the HD launch which comes up after that and then as we look over the next couple of years you've got your small CUVs and small CUVs and the market is doing pretty well and you're doing cap rate at 96.4% right now.

Looks like that will improve over time.

You're posting 9.3% margins now.

Is 10% a ceiling, Chuck, or is that something you think you can do over the cycle?

Is there a period of time where you could potentially be higher than that?

Our objective is to drive this business to 10%-plus EBIT margins by mid-decade and really to generate those kinds of margins at mid-cycle volumes, as we have talked about before, which would be an industry level of 15.5 million to 16 million units.

With the early stages of executing that plan, the product portfolio and launch cadence is the first part of it.

We need to continue to drive complexity and cost out of the business to get the cost savings that we need to take the next tranche.

So is there a point where we could be above 10% EBIT margins during the cycle?

Possibly, but our commitment is to get to 10% by mid-decade.

Once we get there, we'll worry about the next step.

Okay, it seems like you're almost there.

Maybe --

As I said, John, we shouldn't extrapolate Q3 over a calendar year, there's ebbs and flows within the quarter, so --

Absolutely, but it's impressive so far.

Maybe just one second question for Dan Akerson.

I noticed that your hiring trends on the [ROE] side were not that aggressive but on the salaried side it looks like you hired about 5,000 workers and it looks like it's a focus on ramping up your IT.

Is that an effort to really just to clean up some of the in-house stuff or is there an opportunity to start mining data and marketing consumers more intelligently or some big data push here that could really push the business forward.

I'm just trying to understand what that big step up in IT professionals is for.

Well, we were -- I won't recite all of the things of IT tasks but we had 23 unmerited, not connected, independent data centers.

We're trying to get to two.

We now have a data center here in Michigan that ranks in with Google and Facebook in terms of its capability, one of the few in the industrial sector with that capability.

Over the last month, just this month, we've been -- we've taken all the mainframes that were not resident in our sphere of influence and consolidated them without a hitch to the operations.

Having been in the high tech environment for a good part of my career, I was very pleased with the transition to our data centers.

Along with that, we've transitioned away from some of our outsourced cost and brought it in and that's the majority -- the Ally and the greatest -- more than 90% of our headcount has been in IT this year.

So that's a positive, from my perspective, because we're not paying the overhead for those people that we were once paying to our third-party.

Yes, we are a very data-driven Company and you can see it just in our marketing.

I don't think it should go without passing to note that we want people to start buying cars over the Internet as a potential half-step away from our traditional channel.

It doesn't mean we're going to try and bypass our dealers but why not, in this tech savvy culture we have, this economy we have, with the millennial come in and say, I can shop and I just go down and sign and go?

So we're trying to evolve not only from an internal perspective but an external perspective to a more 21st century information-based marketing Company.

So your observations are directionally correct.

We're also try to clean up some fundamental basics in how we run the information systems of our Company.

Adam Jonas, Morgan Stanley.

First question is on the initial reaction to the enhanced employee discounts in the US.

I'm curious if you can comment on how that's going so far, early days?

And perhaps to dynamic, how big were these discounts as a percentage of your total retail sales pre-crisis because we have heard figures as high as 30%.

That might have been at crazy high levels but just wanted to confirm that and see how it's going so far?

Yes, to your latter point, 30% of our total sales were employee based, was that the data point?

Yes.

Yes, that's way too high.

So to dispel some of the apparent myths around this employee pricing, we ended up doing two things.

One, simplifying the program.

We had a very complicated car line specific EVA or rebate program that was very difficult for our employees and family members to manage.

So we went to a simple, a percent of MSRP discount.

Secondly, the incremental cost associated with that is relatively minor in the scheme of our overall incentive spending.

You're talking $200 to $250 a car on average.

Third, that really put us in the middle of the pack as far as employee discounts go between Ford and Chrysler.

I think you're aware, especially if you get around the Great Lakes region that there's a lot of interrelationships with family members, employees, that have relatives that are Ford or Chrysler employees or retirees so we needed to be competitive in order to make sure we were capturing our fair share of employee and related sales.

So far, it's been relatively successful.

That's never going to move a market share point.

It is just, again, simplify, enhance to be competitive and make sure that we're getting our fair share of employee and related sales.

Let me just add something to that because I know you're trying to read tea leaves and get some perspective that gives you a better idea of what's going on.

When we look at our -- and I mentioned in my remarks, incentives are down and average transaction prices are up.

When we look at our competition, we're 200 to 300 basis points lower than some of our competition in this area on incentives.

So we've been very disciplined on our incentives and as a result, our ATPs are up.

That includes employees and non-employees.

Thanks for clarifying that.

It's very helpful.

If I can just ask one follow-up, we understand the CFPB has sent letters to the automotive captive finance companies.

Curious if you can confirm whether GM Financial has received any communication from the CFPB and if so, perhaps share what the nature of that communication is.

Yes, we wouldn't have any comment on that at this point.

Does that mean you've not received communication or you're just not commenting on that question, Dan?

It means I'm not commenting on that question.

Thank you for clarifying.

Patrick Archambault, Goldman Sachs.

Just a couple of questions on some of the international ops.

Beginning with GMIO, you did see a sequential uptick from second quarter but I think in your comments, you're -- it sounded like you were hinting that obviously some of the core challenges that remain.

Should we interpret this as at least you've -- even though you are down year over year and running at lower levels than six months ago, things have at least stabilized and you're working to get them better?

Or is there some risk that there's actually further downside to the profit levels you're seeing in this segment?

That would say, excluding restructuring charges, of course, which nobody can predict.

I'd say that we are certainly not out of the woods yet, that there are ongoing challenges but at the same time we are taking actions and we're taking actions quickly.

You saw that we have -- we made a leadership change in the region, bringing in Stefan Jacoby to head up that part of the business for us.

We should expect to see changes through the business as we look to get the business back on track.

You need to remember that this reporting segment is really a collection of very different markets across a big span of the globe and there are different dynamics going on in each market.

We've talked about, for example, in Southeast Asia where the Yen and the competitive dynamic there has created some challenges.

We've had issues in India that we've talked about publicly in terms of some product-related challenges there.

So it is a little bit of a different story by market.

We are taking very affirmative action to get the business back on to the track that it should be on but this is something that we're going to be working through over the coming quarters and is not fully resolved obviously at this point.

Okay, that's helpful.

Just a similar question actually for Brazil or I should say, South America.

You had a very good quarter there relative to expectations but you seem to caution that there's some remaining issues there.

Was there any one-offs that supported results either an FX issue or anything like that, that reverses in the fourth quarter?

Or are we just talking about ongoing challenges that can hopefully sustain this level of performance?

There are a lot of just external challenges in the region from an operating environment point of view there has been, as is well known, a lot of FX volatility.

I think I described in some detail how we have worked to offset FX volatility with pricing in the various markets where we've had the biggest impacts there.

At the same time, we do operate in some volatile economies down there, including in places like Venezuela, where overall political situations remain unstable and so on.

So when you're operating in some of those kinds of environments, the business is, in some ways, a week to week activity as to exactly what the surprise of the day is good to be in terms of the external environment that you're operating in.

We made good progress in the quarter but we want everyone to understand that it's a volatile environment and we'll be dealing with those fluctuations in the coming quarters.

Just to add a little bit more color, when we do our operating reviews in South America, to buttress what Dan said, many times the first half hour, or 40 minutes are spent trying to understand the politics.

It isn't just Venezuela, although Venezuela is one of them, but many of these economies are -- have inflation, hyperinflation.

Argentina, you have a president that became ill in the middle of an election and that turn in government can make a big impact on foreign exchange.

So it is an area that isn't a block like Europe although you get some volatility but not so much economic policies, variability in Europe.

It is a more challenging political plant economic area than most areas of the world, most regions of the world and we do spend more time trying to understand that.

That's the message we're trying to deliver.

Ryan Brinkman, JPMorgan.

Maybe just another one on North America margin.

How should we think about the year-over-year contribution from pricing going forward after 3Q strong $600 million swing?

Presumably this was still impacted by, I would guess, a relatively higher incentives on older model year pickups which should be less of a factor going forward?

And then also with the heavy duties launched in 4Q, SUVs next year, is it possible that this year-over-year swing number could continue to get larger for another couple of quarters now?

I think that, from a general proposition perspective, Q4 year-over-year pricing in general will feel like Q3.

In other words, we should have a pretty good year-over-year impact.

I would say quarter to quarter, a bit different story because of seasonality and as we move into model year '14, as you move through that cycle, incentives historically increase.

So summary, Q4 year-over-year growth, quarter to quarter, probably a bit of a headwind.

Looking into 2014, I would say there's probably going to be continued price opportunity the first half of the year as we go through the launch of the HDs and the full-size SUVs.

And then I think it is going to normalize a little bit second half of the year and going forward.

So I don't think we're going to see in '14 the same magnitude of the year-over-year price improvement as we saw '13 versus '12 but I still think there's an opportunity and probably in the first half of the year.

Very helpful.

Thanks Chuck.

Then just last question, can you comment on the 9.4% margin that you earned -- net income margin that you earned on your China JVs?

It was a bit lower versus a year ago but obviously still very strong.

How should we think that, that trending over time?

Should it naturally evolve lower as the China market matures and you see a higher mix of more affordable cars, more Chevys, and [Peugeots] and Buicks or could you go in the other direction if you're successful with Cadillac over there?

Maybe just as a follow on to that, can you remind us of your aggressive plans for the Cadillac brand in China and maybe update on how the effort is going?

Thanks.

So overall, we've been roughly flat from a China margin point of view for the last few quarters and it's what you described, which is the business continues to grow.

We get some operating leverage.

We've had some mix, starting to see early mix favorability as a result of Cadillac introduction on a localized basis although it's early days for that.

All of that is offsetting competitive price pressures in the marketplace.

So that's a baseline equation that we would expect to see continue generally hold going forward assuming that the market remains reasonably stable from a growth point of view as it has been for the last little while now.

So I think that overall trend will continue.

We have talked at length about the plans for Cadillac in China.

We believe the market there is very much ready for Cadillac in a much bigger way than it's been there on an import basis.

We started manufacturing locally.

We've had a significant expansion on the dealer network over the last 12 or 18 months but we're still at the early stages of really getting the volume equation ramped up and something we'll continue to work on, not just coming quarters but coming years.

Thanks.

Congrats on the quarter.

Itay Michaeli, Citi.

Just a two-part question on Europe.

One, Dan, you mentioned you would start to incur restructuring charges for the Bochum closure.

Do you plan on excluding those from the EBIT-adjusted or will those show up in the numbers but called out in the appendix of the future slides?

And then two, can you remind us what the savings now going forward that are tied to Bochum are?

You may have already realized some with data write-down, maybe some labor but what the incremental opportunity for cost savings from Bochum is going forward?

Sure.

On the restructuring, we've been very consistent that we review -- we view restructuring as part of the cost of doing business.

So that will be in our EBIT number and as has been our practice, we will identify it and call it out so people can do what they want with it.

But restructuring is something that carries on in this business and in this industry and we report it accordingly.

In terms of the overall savings, we haven't provided specific numbers in relation to Bochum but we have provided our overall cost objective for getting to the breakeven plan.

We've talked about the $0.5 billion of incremental fixed cost reduction.

Obviously, capacity rationalization is a meaningful element of that along with other SG&A savings and things that we're working on.

We've demonstrated good cost progress so far this year and we expect to continue to build on that as we get some of these other steps behind us.

Joe Spak, RBC Capital Markets.

One last quick one on GMNA.

I didn't hear specifically called out in the cost side anything related to the marketing for the blitz of the new launches.

Was that any bit of a headwind or non-related issue in the quarter?

Yes, I would say quarter to quarter, it was a relatively immaterial.

I think, sequentially looking at Q4, there is going to be a fairly significant uptick in marketing, part of it is seasonal, relative to major league baseball, World Series, NFL and part of it's supporting the ongoing K2 as well as the CTS launch.

Okay, great.

And then I realize, just on capital allocation, going back to an earlier point, I realize that these are Board decisions but can you help us think about order of operations or timing at least, because it would seem that there's been some technical overhangs on the stock and a dividend or a buyback may be a way to stimulate some demand.

I know you called out some of the calls on the cash next year with the Series A, et cetera, but the cash flow is strong and obviously, there's -- it looks like it's going to get stronger.

So I just -- how do we think about timing or order of operations?

Can any of those occur before there is further balance sheet simplification?

Like I said earlier, we're obviously -- I think we've made a lot of progress on the balance sheet.

We have been reinvesting significantly in the business so we feel like we're getting into increasingly good shape on that with the refinancing transaction in September and so on.

We are watching actions of some of the shareholders as they work their way out as to whether there is any developments there and we obviously remain fully aware of the desire on the part of our investor base to see incremental returns of capital.

We obviously took a big step a year ago, or a bit less than a year ago with the $5.5 billion repurchase at that time and we'll continue to monitor opportunities here in the near to medium term.

I sit on the Board so I'll comment on it.

This Board understands our shareholders are in here to get additional return on their money.

We have a few tactical issues over the next couple of months in terms of shareholders that are exiting the business.

I think we demonstrated our philosophy, if you will, last December when we spent $5.5 billion to buy a block of our stock as a return of capital to stockholders.

We understand what we're here for and one of them is to return money to our shareholders.

That will be a continuing thing not only this quarter but the next year and the year after.

I will now to the call back to Randy.

Please continue with your presentation or closing remarks.

Thank you operator.

Thank you everyone for your time and attention today.

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

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