通用汽車 (GM) 2019 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the General Motors Company Second Quarter 2019 Earnings Conference Call.

(Operator Instructions) As a reminder, this call is being recorded Thursday, August 1, 2019.

I would now like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations.

Thanks, Stephanie.

Good morning, everyone, and thank you for joining us as we review GM's financial results for the second quarter of 2019.

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

We are also broadcasting this call via webcast.

I'm joined today by Mary Barra, GM's Chairman and CEO; Dhivya Suryadevara, GM's Executive Vice President and CFO, and a number of other executives.

Before we begin, I would like to direct your attention to the forward-looking statements on the first page of the chart set.

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

I will now turn the call over to Mary Barra.

Thanks, Rocky, and good morning, everybody.

Thanks for joining the call.

We achieved solid results in our second quarter on the strength of our performance in North America.

Overall, we delivered net revenue of $36.1 billion, EBIT-adjusted of $3 billion, EBIT-adjusted margin of 8.4%, EPS diluted-adjusted of $1.64, automotive adjusted free cash flow of $2.5 billion and a ROIC adjusted of 22.7% on a trailing 4-quarter basis.

Strong consumer demand for full-size trucks, crossovers and SUVs, along with our business transformation actions, drove the company's profitability.

This helped offset the effects of planned heavy-duty downtime ahead of our launch and industry weakness in China.

We expect our launch strength to continue in the second half of the year as our heavy-duty truck availability improves and as we launch new crossovers and entries from our new global family of vehicles.

Looking at North America.

Our year-over-year results improved, thanks in part to growing truck sales and share and second quarter records for average transaction prices and crossover deliveries.

Later this quarter, we'll begin delivering the 2020 Silverado with an optional all-new Duramax turbodiesel engine that delivers best-in-class highway fuel economy of up to 33 miles per gallon.

GM's clear leadership in the large SUV segment continued with deliveries of current generation models up 16% year-over-year with lower incentives than those of our competitors.

We also performed well in our crossover segments, contributing to profitability.

We unveiled the highly anticipated mid-engine 2020 Corvette Stingray 2 weeks ago in California to a global audience of nearly 300,000.

We plan to increase production of this iconic sports car and begin shipping the all-new models to dealers by the end of the year.

Looking at Cadillac.

The brand sold more than 111,000 vehicles worldwide during the quarter.

The XT5 continues to be the brand's best-selling model globally.

The new XT6 7-passenger crossover is now on sale in North America and in China, further strengthening Cadillac's position in the high-growth luxury SUV segment.

In the U.S., the XT6 is off to a strong start, ahead of its official launch.

Dealers and media have given us very good feedback.

And the XT6 brings new interest to the brand.

Cadillac is also expanding the functionality and range of its Super Cruise hands-free driver assistance technology in the U.S. and Canada.

We are adding 70,000 miles of compatible divided highway.

By year-end, CT6 owners will be able to operate Super Cruise on 200,000 miles of highway.

More than 85% of current CT6 owners said that for future vehicle consideration, they would prefer or only consider a vehicle equipped with Super Cruise.

Dhivya will provide additional details on our business transformation actions shortly.

But I would like to update you on the progress toward offering relocation opportunities to hourly employees at U.S. plants that have unallocated products.

There is a job for every impacted employee.

To date, about 1,700 of the 2,800 employees have accepted transfers to plants supporting growth segments, and we are working actively to place more employees into open positions.

As we look at our international operations, in China, the continued economic slowdown has resulted in a softer industry.

GM China headwinds in the quarter include lower volumes, significant pricing pressure, regulatory changes, slower sales of our outgoing models and shifting customer preferences.

Even as we launch new vehicles in Q3 and Q4, we see many of these dynamics continuing.

Therefore, we expect equity income in the second half of the year will be generally in line with the first half.

In South America, we continue to work with our stakeholders to turn around the business and capitalize on Chevrolet's 18 years of sales leadership in the region.

In addition to the actions we're taking to strengthen our core business, we are also making important strides toward our vision of an all-electric, self-driving future.

We recently revealed a new digital vehicle platform that will fully integrate our electric propulsion systems, cybersecurity protection, advanced Active Safety systems and Super Cruise technology.

This platform also enables more systems in the vehicle to receive over-the-air software updates, including telematics, chassis controls and more.

This will deliver value and convenience to our customers.

Following its debut on the Cadillac CT5 and the 2020 Chevrolet Corvette Stingray, it will expand to most of our global lineup by 2023.

We are also working to drive greater customer acceptance of EVs by addressing their concerns about range and charging availability.

In addition to earlier infrastructure announcements we've made, we've partnered with Qmerit, an online platform that links EV owners with GM-approved installers of home charging systems.

Turning to Cruise.

In May, Cruise secured an equity investment of $1.1 billion from a group of institutional investors, including funds and accounts by T. Rowe Price and existing partners, SoftBank and Honda, and a $700 million investment from General Motors.

These additional investments now value Cruise at $19 billion.

We have said from the beginning that the benefit of self-driving vehicles will only be realized by deploying safely and at massive scale.

For the past 4 years, Cruise has been creating the necessary building blocks to do just that.

It has expanded its workforce, raised billions in capital, achieved deep integration with General Motors and focused on testing and development in one of the most complex urban environments.

They have recently took steps toward large-scale deployment of an all-electric EVs in San Francisco, where driving conditions are 40 times more challenging than in the suburban setting.

In the second half of this year, Cruise will significantly accelerate testing and safety validation of its fleet and increase the number of miles driven.

Cruise will also increase its community engagement and continue to scale EV infrastructure build-out.

In addition, hundreds of talented Cruise, General Motors and Honda engineers are developing a next-generation, purpose-built AV that leverages our leadership and hardware and software integration and related safety validation.

It has become clear that to successfully deploy at scale, we need to not only win the tech race, but we need to build trust with consumers.

And that is exactly what we intend to do.

So to recap, we delivered a solid quarter as we begin to demonstrate the earnings power of our full-size truck business and our ongoing transformation.

We are committed to our full year outlook that includes earnings per share of $6.50 to $7 and automotive free cash flow of $4.5 billion to $6 billion.

Dhivya will now give you more details and then we'll take your questions.

Thanks, Mary, and good morning, everybody.

We generated Q2 results of $36.1 billion in net revenue, $3 billion EBIT-adjusted, 8.4% margin, $1.64 in EPS diluted-adjusted and $2.5 billion in adjusted automotive free cash flow.

The $1.64 EPS diluted-adjusted includes a $0.01 loss from our Lyft and PSA revaluations.

Let's go to North America.

North America delivered EBIT-adjusted of $3 billion in Q2 and 10.7% margin, driven by our light-duty truck performance, crossover performance and the impact of our cost actions.

This was partially offset by planned downtime for heavy-duty pickup trucks, lower pension income and increased depreciation.

The light-duty truck performance contributed favorably to volume, mix and price during the quarter.

As Mary mentioned, we're in the early stages of demonstrating the earnings power of our leading truck franchise and see additional opportunity for upside as we complete the launch of the heavy-duty trucks, and looking into next year, the launch of the full-size SUVs.

The heavy-duty trucks will follow a similar cadence as the light-duty truck launch, focusing first on the crew cabs, followed by the double and then the regular cab models.

Retail sales of the new Chevy Silverado and GMC Sierra light-duty crew cabs were up double digits for the second straight quarter as we continue to shift additional models to dealers.

The retail market share of our light-duty pickup trucks improved nearly 3 percentage points from Q1 to 36.5%, the highest of the industry.

We've done this with a very thoughtful launch strategy and a disciplined use of incentives with share growth concentrated in the over $50,000 average transaction price segment.

We have leading retail share in the crew cab segment.

And as we continue the light-duty truck rollout in Q3 and Q4, we expect share in the high value and high volume of the market to increase.

We also see opportunity for share improvement as we tap into profitable fleet business and launch diesel models later this year.

Switching to crossovers.

Our crossovers performed well in the quarter with U.S. deliveries growing 17% year-over-year, a Q2 record.

We're gaining market share in the crossover segment and are seeing positive contribution to year-over-year profitability.

We will keep expanding our crossover portfolio with the 2020 Encore GX and 2021 Trailblazer, which we revealed in May.

Cost pressures from increased depreciation and lower pension income were more than offset by our transformational cost savings.

Let's move to GM International.

For the second quarter, EBIT-adjusted in GMI was down $200 million year-over-year, driven by lower equity income in China, partially offset by the favorable impact from restructuring actions in Korea and continued business improvement actions in South America.

In China, Q2 equity income was down $400 million year-over-year from record Q2 2018 levels.

Industry in China deteriorated further in Q2, and the market experienced significant pricing pressures, including pricing disruption from the early transition from China V to China VI emission requirements in many provinces.

We have reduced dealer inventory by 10% in Q2 with wholesale volume and production down approximately 25% year-over-year, which more than offset production and retail sales by approximately 12% year-over-year.

These headwinds were partially offset by continued material and other cost performance.

In the second half of the year, we expect these ongoing headwinds to be partially offset by vehicle launches.

As a result, we expect equity income in the second half of the year to be generally in line with first half of 2019.

In South America, we continue to make progress with the turnaround of our business despite the volatility in the region.

We're starting to see cost savings as a result of business improvement actions that we're undertaking together with other stakeholders.

We have a strong franchise in South America with leading market share, strong dealer network and efficient manufacturing operations.

We expect to see improvement as we progress through the remainder of the year as the launch for our global family of vehicles ramp and we deliver a stronger, more competitive portfolio of vehicles.

A few comments on GM Financial, Cruise and our Corp segment.

GM Financial posted record quarterly revenue of $3.6 billion in the second quarter and EBT-adjusted of $500 million primarily as a result of portfolio growth.

Cruise costs were $300 million for the quarter, on track with the approximately $1 billion communicated previously for the full year as we increase our head count.

Corp segment costs in the second quarter were $200 million -- unfavorable $200 million year-over-year due to approximately $170 million gain from our Lyft and PSA investments in the second quarter of last year and a loss of approximately $30 million in the second quarter of this year.

We continue to expect the underlying spend in the Corp segment to be about $1 billion in 2019.

We have made significant progress on our transformational cost savings initiative, achieving $1.1 billion in year-to-date savings, $700 million of which was in the second quarter.

Before I close, I want to reiterate our outlook for the calendar year.

At the beginning of the year, we outlined a number of puts and takes in our outlook, including headwinds from downtime, depreciation, pension, commodity and weakness in China.

On the tailwind side, we discussed the full year benefit of our truck launch, $2 billion to $2.5 billion of transformational cost savings in 2019, growth in adjacencies and a meaningful benefit from crossovers and the rollout of our global family of vehicles.

Since January, we have experienced continued weakness in China and volatility in South America, which is offset by favorability to our previously communicated $1 billion headwind year-over-year from commodity and tariffs.

Therefore, we are reiterating our outlook with EPS-adjusted in the range of $6.50 to $7 and adjusted automotive free cash flow in the range of $4.5 billion to $6 billion.

As I have mentioned before, this outlook assumes 0 performance from our investments in Lyft or PSA.

And any impact from these investments is not included in our guidance.

Regarding cadence in 2019, we expect the second half of the year to be meaningfully stronger from both an EBIT and free cash flow perspective due to a number of launches in the second half as well as cycling past the downtime in North America.

In summary, we had solid performance in Q2.

And this sets us up well for strong performance in the second half.

This concludes the opening comments, and we'll now move to the Q&A portion of the call.

(Operator Instructions) Your first question from the line of Rod Lache, Wolfe Research.

Had a few questions about the guidance.

Just first of all, the full year guidance for free cash flow is $4.5 billion to $6 billion.

There was a first half burn of $1.4 billion.

So that implies $5.9 billion to $7.4 billion in the back half.

And if we're doing our math right, that's excluding working capital maybe $3 billion to $4.5 billion.

Wanted to know if that sounds about right to you.

And my associated question is can we extrapolate from that kind of a free cash flow run rate ex working capital, which would imply $6 billion to $9 billion annualized free cash flow at this point?

Or is there is some kind of seasonality or something else that we should be taking into account if we do that math?

Yes, thanks, Rod.

And I think directionally, you're correct.

As you think about the second half of the year from a free cash flow perspective, these trends are going to be driven by EBIT improvement as well as the working capital rewind that we're going to experience as we have cycled past the downtime.

And extrapolating, I don't want to provide guidance beyond 2019, but I'll give you the puts and takes.

We are going to continue to see benefits from our truck launch.

We're going to see the remaining cost savings flow through into 2020.

And as you may recall, we also talked about our capital spend tailwind from that in 2020 as well, partially offset by lower China equity income dividends flowing into 2020.

In fact, I'd caution you though, extrapolating off of the second half, there are some timing items, like the working capital that you mentioned as well as first half versus second half, some payments are lumped into the first half of the year and you can't really do it 2x in the second half.

But directionally, looking at the puts and takes, I'd say you're correct.

And also Rod, you heard us say in the beginning of the year, we have an intense focus on cash flow and cash conversion.

And as you -- as we go beyond 2019 into 2020, you're going to continue to see us reiterate that as we go forward here.

Yes.

It sounds like generally those payments are lumped into the first half, which -- that's helpful to get some color on how to think about that.

Is it reasonable to assume that CapEx comes towards the low end of your guidance?

And you did comment in your release about the timing of China dividends being a little bit unusual this year.

What's included in the back half from China?

We would say the remaining dividends that we have not yet received from China will flow through, so it's more evenly distributed this year between first and second half than it has been last year.

And from a next year perspective, timing and, as you know in the first quarter of the year, we tend to, from a seasonal perspective, pay out a number of payments as well as the AR and AP rewind typically happens at that time.

So I'd say those 2 are the primary adjustments that I would think about.

And China dividend, you can expect again a similar kind of cadence in 2020, probably as you will in 2019.

And from a CapEx standpoint, I'd say we gave a range of $8 billion to $9 billion.

We will continue to do that.

Obviously, there's timing between -- among quarters.

And I wouldn't read too much into that at this point in the middle of the year.

Okay.

And just lastly, your expectations for China.

Can you just broadly talk about what the inventory situation is for you?

And you're talking about that half being flat with the first half.

But the first half, at least in the second quarter, included a significant inventory correction.

So what's the underlying business look like for you?

And what are some of the puts and takes there?

Yes, sure.

So we did unwind 70,000 units or so of inventory, so about 10% of our inventory did unwind in the second quarter.

But as Mary mentioned in her comments, as we think about the industry, obviously we have just cycled past the China V and China VI transition.

There is likely to have been some pull-ahead and we've got to watch that.

We just don't know yet.

And from a pricing standpoint again, driven by this transition, we experienced more pricing pressures in Q2.

That's something to keep an eye on.

So as we look into the second half of the year, a slightly weaker industry, an uncertain price environment but really offset by the launches that we have, significant launches into the sweet spot of the segments with 2/3 of our launches coming from crossovers.

So all the positives from a launch perspective, we continue to expect.

We're keeping an eye on macro.

Our next question comes from the line of Ryan Brinkman with JPMorgan.

Congrats on the quarter.

Clearly, some moderation on your China profit outlook was expected, given the softer volumes in the first half.

Just curious though if you are now calling for a sequential deterioration in the industry in the back half versus the front half.

Because previously, you were looking forward for some company-specific catalysts for higher profits in the back half, including a freshened lineup, introduction of the GEM platform, et cetera.

I would think too maybe you could cycle past some of the inventory drawdown in Q2 ahead of China VI.

So visibility in the market there is low, I know.

But if there were flat industry sales in 2H versus 1H, do you think in that environment you could manage to a higher China profit in the back half?

I think that, that's one element.

But with the intense pricing pressure, as Dhivya said, that we don't know with the intense pricing we saw to move the China V, how is that going to carry through.

And then from a GM specific, these launches are very important because we are seeing the customer preference shifting as well as we have some older models in really popular segments.

So I think it's -- Ryan, it's just too hard to say with all the volatility that we're facing right now.

I would tell you the team is very focused, and we have a China team that is very good at looking at every single cost opportunity.

We saw that performance in the first half.

We'll continue to look for that and to increase that.

And then also we're working very closely with our partner to seize opportunities as there are possibly ups or downs to the marketplace.

But it's just -- it's too hard to predict.

Okay.

And then just lastly for me, clearly the earnings power of the new full-size truck platform was on display in 2Q.

But it wasn't on full display, right?

Because there was still lost production during the quarter in the changeover to the heavy-duty versions, the SUVs haven't launched.

So to help us sort of better understand what magnitude of the earnings potential of this program was on display in the quarter, can you kind of sketch out what has launched, what has yet to launch, SUVs, high-efficiency diesels, the even bigger pickups with Navistar, et cetera, and the relative profit potential of those various pieces?

Yes, Ryan, I'd say if you think about the first half, we started out with crew cabs, as we talked about.

And towards the second quarter and really going into third quarter and fourth quarter is when you're going to see the rest of the light-duty start to normalize, so the remaining variants, whether it's regular or double.

And diesel is an important factor that Mary pointed out.

We're excited about that, and that's going to be coming up next in the Q3 time frame and followed by heavy-duty.

If you think about the first half of the year, we took downtime of about 25,000-or-so units in heavy-duty, which to your point was an offset against the light-duty earnings power that we saw.

So you're not going to see that in the second half of the year.

And in fact, with the additional capacity that we have added for both light-duties and heavy-duties, you're going to start to see tailwinds from volume because we have been constrained on these as we have been in the past few quarters and years here.

So plus side would be the remaining light-duty variants, including diesel, the heavy-duty, going into next year obviously, the SUVs and the absence of downtime as well as obviously the price and mix benefit that you'll start to see in HD and other variants that we have so far seen in crew cab.

Our next question comes from the line of John Murphy with Bank of America Merrill Lynch.

Just really wanted to make sure I followed up and got that correctly, Dhivya, on the truck side.

So basically in the first half, you had the HD downtime and the SUV downtime.

The HD pickups will benefit us some time in the third quarter but mostly in the fourth quarter.

And then the SUV bounces back in -- the intro is in the first or second quarter of next year.

So I mean it looks like with these truck swing, it's something well north of $0.5 billion per quarter once this all gets worked out.

Yes.

I'd say the cadence that you've roughly gotten is right.

We have not talked about the SUV timing specifically.

It will be early next year.

But I think directionally, you're correct in terms of the tailwinds that we will start to see in the second half of the year.

First, you'll see that in light-duty remaining variants and then going into heavy-duty, probably in the Q4 time frame and obviously into next year.

And then the -- you'll see the SUVs.

So I'd say you're directionally correct.

Okay.

And is there any reason that we should think that second quarter is not a good quarter to walk off of when we think about those improvements?

I mean it seems like this was just a very good operational quarter and then you'll get the benefit of those going forward.

I mean is there anything unusual that we should think about that wouldn't make this a good base case to work off of?

No, I'd say it's a pretty good base case.

Obviously, you've got to adjust for the heavy-duty downtime that we took in the second quarter that is not -- you can't extrapolate that into the rest of the year.

Cost savings, as you know, we achieved the $700 million.

So that's also on a pretty -- on a kind of run rate that you can continue to expect for the rest of the year.

We will probably see some tailwinds as well coming from the XT6 launch, which we're just starting to see.

And probably second half of the year will be more of a tailwind than we have seen in crossovers because of that.

So I'd say otherwise, Q2 is a good baseline.

Okay.

Helpful.

Second question, when we think about GM Financial, I mean obviously it's performing very well.

We keep kind of following up on this question.

But when do you see sort of at a maturation point where it could start kicking some capital back up to the parent company?

Yes.

I'd say that last year, you may recall, we took about $375 million of dividends from GMF.

They're still growing their earning assets and we're close to about $100 billion of earning assets.

When we think about steady-state for GMF, we're thinking somewhere in the $125 billion to $130 billion range for earning assets.

It's going to take a couple of years for that to take hold.

And the penetrations we were running at in the 45% to 50% range, which is something we would like to see continue.

And capital, we will -- as the leverage ratio continues to grind down with the equity building up and earning assets leveling off, we're going to see the dividend increase over a period of time.

And eventually, you're going to see the entire net income from GMF come back to the parent.

Got it.

Then just lastly, on suppliers, we've heard a lot of noise about some slight incremental pricing pressure coming into the supply base.

I'm just curious, as you look at your relationship with suppliers, is there any stress building in the supply base?

Or sort of conversely is there any more opportunity to work more collaboratively with them and get more pricing out of the system?

So we've worked over the last couple of years to build a really strong relationship with our suppliers and focusing on innovation.

And then when we focus on price and costs, it's doing it together and looking how can we work together to take cost out that benefits both General Motors and the supplier.

We're going to continue to do that and look for those opportunities and build on that.

So I don't -- we don't -- I don't see any major change coming.

I think you'll see us working even more closely together.

Mary, I apologize, if I could sneak one more in.

It sounds like you've got 1,700 of the 2,800 UAW folks relocated.

I'm just curious, when you think outside of the head count of the UAW, if you could just talk about your hiring in the U.S. maybe more broadly and the growth in the employment base, so I can understand sort of your position in the employment picture for the U.S.

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

More from a total workforce because it sounds like you've done -- you're about almost 2/3 of the way of reworking -- or should I say relocating these workers.

I'm just curious in total.

So on this...

Particularly thinking about growth.

I didn't hear your last comment.

I'm sorry.

I'm sorry.

Particularly thinking about the growth in Cruise as well, right, I mean?

Because you have real head count growth in certain areas.

So I think you have to look at it in 3 buckets.

As we said, we have jobs for every single hourly employee in the United States that was impacted by the transformation.

And we'll continue to do those placements and then look at what is natural retirement.

And I predict by the time we get through this, we'll be hiring for the needs that we have across the United States.

So that's from a represented perspective.

On the salary workforce in general, we very carefully planned the transformation activities, not only reducing our overall salaried head count but also making sure we had resources in there with the right skill set.

That went very well.

And we are hiring now to replace attrition but maintaining the lower cost level that we've worked so hard to get at Q4 and Q1 of this year.

And then as it specifically relates to Cruise, we have about 1,500 employees there now and we are working hard to hire and get to that level of about 2,000 by year-end.

And the hiring is going very well there.

Our next question comes from the line of Joseph Spak with RBC Capital Markets.

Just wanted to get back into the pickup truck market dynamics.

I know there's a lot of noise out there.

But as you just laid out, you still have a lot more product to go.

You've added some capacity.

I know you're not giving 2020 guidance.

But at a high level, is there any reason to believe that if the market holds up that the volume on the pickups should be materially different than what you expect this year?

Like is there anything internally at GM like maybe a quick refresh of a product or something that would reinvigorate some downtime?

No.

We're not anticipating any specific downtime related to a changeover or anything, Joe.

So I'd say probably you can extrapolate normal run rates excluding downtime and plus the capacity we've added.

We've been in like a ramp-up-type mode.

And obviously, you'll get to a full line rate as you cycle past the downtime.

So in a similar macro environment, and we think that again the truck market with its percentage penetration of the industry continues to be healthy, and we would expect -- I think you're directionally right for the volume.

Okay.

And then secondly, on GMI and China.

I know it's still challenged, and you sort of mentioned this that there's some, I guess, encouragement underneath.

It looks like it was $200 million better year-over-year.

And I'm assuming FX was still probably a headwind within that.

So how do you -- how do we think about the opportunity in really Brazil and South Korea as we go forward?

So if you just kind of cycle through from a Korea perspective, we accomplished what we've set out in the restructuring and now we continue to see that business unit perform.

We still have a few markets in GMI that we're evaluating to look at how do we create a successful foundation to build on in a few of the GMI markets.

And then in South America, we have a very strong franchise there.

It definitely is being impacted by FX and the macro situation.

We continue to work with all of our stakeholders though to take cost out.

And that team has demonstrated a great ability to do that.

And we can define our plan for that region to take into account, we think there's going to just be a continued volatility.

I think important to note in many of these regions though is we are just in the process of doing the first global family of vehicles that will be rolling out not only in China but also South America and then flow to some of these other markets.

So I think we're going to have a very strong portfolio and vehicles in the market to take advantage as South America recovers or to continue to outperform even if we keep in these market.

So there's great focus on all of these markets.

We are seeing improvement year-over-year and we'll continue until we get this region to be contributing and covering its cost of capital.

Just a follow-up.

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

I think it's both.

All of them are significant in helping us achieve where we need to go in South America.

Our next question is from the line of Itay Michaeli with Citi.

Just going back to the pickup discussion.

Just curious how the Silverado mid-trims, like the LT trims, are performing kind of versus your expectations in the market.

Because we are seeing some signs that the inventory there has been rising on those particular trims.

I know (inaudible) is coming off later in the year.

But just curious how you're performing thus far in the middle trims of the LTs.

Yes.

I'd say, Itay, as you know, we started out the launch focusing on the crew cabs.

And we've been building inventory in the mid-levels really now in the second quarter of the year.

And the -- it's also important to note we're normalizing our propulsion mix there as well.

And during launch -- obviously, it's hard to extrapolate out of one data point on what the inventory picture needs to be because we are still rolling all of these out and there will be balancing that happens in the rest of the year as well.

And as we -- as I said, once we're rolling out these other variants, you will see the inventory picture starting to normalize.

And we have a plan looking at the end of the year to get our inventory to exactly where we want our target levels to be.

Got it.

I think that's very helpful.

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

So when we look at the inventory, we are working to be disciplined with the inventory levels but also be prepared for the opportunities with that volatility.

So at the most senior level discussions with our partner, we're watching it very closely and giving direction to the team.

So we're going to manage it to get to the right level as we go forward.

I'm not going to share a specific target.

When you look out over a longer term, we have a very strong franchise in China.

We have 3 strong global brands with Cadillac, Buick and Chevrolet as well as the 2 domestic brands with Wuling and Baojun.

And we think it's a very strong franchise.

We think over the long term, there are significant opportunities for growth.

And also China is a very important part of our electrification strategy of seizing the opportunity in such a large market to get the scale from an EV perspective that allows us to be better positioned, I believe, in other markets like North America as we launch EV.

So over the longer term, we still see a very strong opportunity, especially with our global brands.

That's helpful.

Just a quick one and the last question, Mary.

Just given the feedback you cited earlier on the Super Cruise system, any change in plans on number of vehicles or how quickly you might roll out the Super Cruise system or how you might go to market with the next-generation Ultra Cruise system?

So I would just appreciate the question.

And we're really excited about Super Cruise.

In my career, rarely do you see a feature in technology that has such a strong support from the customers saying, "I would strongly prefer this technology to be on my next car or I won't buy a car without it." So that, I think, is a really good endorsement of the way the technology works and the benefit and value it provides to the customer.

So we are in the process of rolling it out across all Cadillacs and then we'll look for the right opportunities as we roll it out across more segments and brands in our portfolio.

And we'll do that as quickly as we can, but making sure that we're focused on the safety and quality of it as we do that.

And then as you mentioned with Ultra Cruise, this is a technology you saw us continue to improve it with the number of places you can use it.

We're going to continue to add capability.

And we're very excited about it and the road map that we have.

So we'll be rolling it out as quickly as we can with again having a strong focus on safety.

Our next question comes from the line of Brian Johnson with Barclays.

Want to talk a little bit about the GMNA earnings walk on the supplement slide.

Can you kind of break that $700 million of performance timing?

Timing would seem to imply that some of those reverse.

So maybe what was that?

And then as we think about would commodities be in performance or would that be the material headwind, maybe less than a headwind?

And then how do we kind of take the $4.5 billion-or-so restructuring cost saves and kind of look for it in this performance timing thought process.

Yes, sure.

So if you're starting with the $4.5 billion, I'll do the total company walk for you, Brian, because there's North America versus total company.

The $4.5 billion pertain to the total company.

In the total company walk, as you can see in the cost bucket, we had performance and timing of $1 billion -- $900 million positive, close to $1 billion.

Out of that -- so the $700 million that I referenced from the transformation cost savings is in the $900 million.

There's about $100-ish million of timing and another $100 million of commercial and technical savings that are coming from our regular material cost initiative.

So think of timing as about $100 million.

And as you go into the second half of the year, this is the bucket, the cost bucket is where you will see the performance show up.

Obviously, it will be offset by the pension and depreciation and amortization headwinds that we have talked about.

But that's the geography of it.

And from a material cost standpoint, it will be in the materials line item within the cost bucket as well.

Okay.

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

Yes.

I'd say overall, second half volume will be up versus first half because of the factors that I mentioned on heavy-duty being up, SUV being up and light-duties as well slightly up.

So volume will be up.

And therefore, mix will be -- there's an offsetting factor, to your point, of the other mix is rolling out.

But the heavy-duty negative mix element that you saw in the first half of the year will not repeat, it will actually be a positive that will offset some of that.

And obviously, the SUV aspect as well, you saw it down in the first half and you're not going to see that.

So vol mixed together will be where the bulk of the improvement from H1 versus H2 is going to be.

Okay.

And just final question, can you put into context the Cruise announcement, which you build as positive in terms of testing and increasing the fleet size?

But much of the tech press kind of said -- indicated that robotaxis, whether it's you, Waymo, some of the start-ups, are still a number of years out.

So maybe kind of update us on -- yes, we know that safety is a gating factor but just how you're thinking about timing?

Well, I think anytime you're working on something that's never been done before, a brand-new technology, a time line is likely to move around a little bit.

But we do -- we have line of sight in what we need to accomplish both from the technology development.

We have a very robust milestones that we have to achieve.

And we also believe there -- and we're working hard to make sure we have the right regulatory environment as well.

I'm not going to put a specific time out there.

I just would say we have line of sight.

And I think the significant work that we're doing to get deeper validation, more miles that we'll achieve in the second half of this year while working on improving public receptivity are going to be very important to allow us to have a large-scale deployment.

So that would be the comments I make regarding Cruise.

So I'm very pleased with the progress the team is making, continues to make, they're pushing very hard.

And this focus on not only the technology but the environment and the customer, I think, is very appropriate.

Our next question comes from the line of Colin Langan with UBS.

Congrats on a good quarter.

Can we just go back to pickup?

You've lost a lot of -- I mean I know you've highlighted you gained retail share, but you have lost share overall in the segment year-to-date.

What is the outlook for the second half?

I mean is guidance predicated on holding your share from where it is now and the benefit of just sort of plants being fully up and running?

Or do you expect to regain share in the segment?

We do see a growth in share in the lower end of the ATP segment, Colin.

I'd say that if you look at the increased share that we have had, it's been in the $45,000 to $50,000 and $50,000-plus-type segments, obviously the more profitable segments.

And we expect to hold that because we were underrepresented in these segments with our K2 product.

And what we're really doing is like fixing that underrepresentation, if you will, as we go into T1.

So you expect normalization in the lower ATP segments.

And obviously, as heavy-duty rolls out, that will be the other positive as well and diesels coming in.

So we do expect to increase share in the second half of the year between all the other cab variants as well as HD.

And how about on the commercial side?

Because on pickup -- I mean I know retail is obviously always more profitable.

But in pickups, I imagine, the business is still quite lucrative.

I mean do you have plans to try to recapture some of that share?

Or is it just not worth the chase?

Yes.

No, we do believe that we will grow in that segment as well.

And as you point out, fleet in pickup trucks continues to be profitable, not as much as retail, but profitable.

And we will absolutely continue to grow in that market as well.

And with all the capacity issues we've had and with the launch changeover and so on and so forth, that is something that has been again underrepresented in the first half of the year.

And that's something we will correct in the second half.

And lastly, any color -- I think you mentioned in your comments that the original guidance had about $1 billion of FX and commodity.

Obviously, within this quarter, steel price is another key commodity that's really fallen pretty dramatically in Q2.

Does that actually result in a tailwind through the rest of the year?

Is that one of the factors helping to offset the weakness in China?

Yes, that's correct.

So we -- you may remember, Colin, January of this year, we said $1 billion headwind in commodities.

We did not talk about FX in that context, commodities and tariffs year-over-year.

As we sit here today, to your point, we have seen a moderation in steel and aluminum prices specifically.

There's a couple of commodities that are still elevated.

But on balance, we think that the headwind is probably closer to half of what we originally expected.

And that's serving to offset some of the international volatility that we're seeing.

And that's how -- that's, to your point, how the guidance comes about.

Our next question comes from the line of David Tamberrino with Goldman Sachs.

Great.

Maybe can we just get into very specifically your carryover pricing was, I think, more positive than most folks would have thought in the quarter?

And I didn't know if there are any specific products that you could call out both in North America as well as in GMI because I think there was $100 million favorable in both, whereas historically that's typically a headwind year-over-year.

So I wanted to understand that dynamic on carryover.

Yes.

Good question, David.

In the international side, a lot of that is catch-up FX pricing that you see in Brazil and in Argentina.

As you know, we try to price out in Argentina all of our FX headwinds and Brazil in line with the inflation there.

So that's the international piece.

In the United States, as you see our carryover, a lot of it was driven by positivity in our car segment.

And as you know, we have significantly ramped down our overall car portfolio.

It used to be a headwind from a carryover pricing perspective in 2018.

And as we have lowering of inventory there, we're able to maintain a price discipline there as well.

That's, I'd say, the primary factor.

Cadillac is continuing to do really well.

So the residual value improvements that we're seeing in Cadillac are flowing through to the crossovers that we currently have on the road as well.

Those are the 2 big factors I'd point out.

Okay.

I mean on the GMI side, it sounds like that could continue into the back half.

But for North America, is that something that should continue, even though you've got the wind-down of passenger cars?

I mean looking at 3Q of '18, you had a very strong pricing quarter.

So just trying to understand the dynamics there.

Yes.

I'd say we'd probably continue to see the car discipline as the inventory there winds down over time.

Crossover should be pretty strong as well.

There's obviously a bifurcation between small and compact crossover versus the mid-size crossover.

So on the mid-size, we will see a continued positive but pressures from the compact and smaller side.

So I'd say on balance, probably to your point, it's a harder comp versus last year.

So maybe a little bit more of a headwind from a carryover perspective.

But the car and crossover-specific segment should continue to hold up.

Okay.

And then Mary, you had a couple of questions earlier on Cruise.

I want to dive a little bit more into that.

It's gated by safety and regulation.

What impediments are you running into from a technical and regulatory perspective, one, that kind of helped drive this -- I won't call it a pushout but a little bit delayed timing from the 2019 commercial deployment?

And then secondly, what's the plan to improve the public receptivity for a large-scale deployment?

Is it something like what Waymo's done and seeing so far with a technician still in the vehicle behind it and getting folks used to the technology?

Or should I be investing in something else?

Well, I think when we talk about deploying, our deployment will be when we can have the vehicle operate safely without a safety trainer in the vehicle.

So that's point one.

I just think to build kind of the trust that we're looking for, a lot of it is communication.

And so we have a very well-thought-out marketing plan that will be targeted to the first city that we plan to deploy in, which is San Francisco, so very focused.

For people who see the vehicles on the road today, to understand them better, to be able to articulate the safety in the vehicle, what we're doing to create this safe environment and that we can really improve road safety and because of the discipline that is -- on AV doesn't drive -- follows all the road laws and doesn't also drive under the influence of anything.

And so you're going to see us have a marketing campaign to engage the city, so they understand what's happening and they're more, I think, receptive to what's coming.

And then from a technical perspective, I would say just again, as you are developing new technology and you have milestones that you need to meet to ensure that the AV is going to be safer than a human driver, you have to keep making those.

But clearly, some of the enablers will be as we continue on our hiring, getting the best engineers working for Cruise on this.

And I think what also has happened is everybody understands just how complex this is to do well and to truly have the vehicle that can operate safely.

So we're on that journey.

The rate of iteration continues to be very strong.

And we'll do the testing and the validation to achieve our milestones while in parallel be working on continuing to gain regulatory approval.

And I wouldn't say there's impediments there.

It's just work that still needs to be done.

I think NHTSA understands the importance of this technology from a safety perspective.

And so I think there's a line of sight to be able to get the regulatory approval and then building that trust with the consumer is going to be important.

Those are the 3 paths that we're on together or in parallel.

And we're going to continue to work all 3 aggressively.

Understood.

And just as a follow-up on the technical side.

Is everything underneath your control?

Or are you relying upon any step change in technology from a supplier at this point in order to improve that?

Everything is under our control.

Our next question is from the line of Dave -- Dan Levy with Crédit Suisse.

I want to start with just a couple of quick financial questions and then a strategic question.

Just first on the raw mat side, I know you talked to some of those pressures being mitigated.

If I go back to, call it, last year, you had, I believe, in North America something like $1.4 billion in commodity headwinds.

And now here we are with steel back at where it was in 2017.

Now I know that your raw mat headwinds, there's other stuff in there, whether it's aluminum or precious metals, et cetera.

And that stuff has changed differently.

But why wouldn't most of that headwind, that $1.4 billion headwind from 2018, reverse given where steel prices is over time?

I know there's timing around the contracts.

Yes.

I think we are starting to see the tailwinds in a lot of the commodities that you're talking about, Dan.

I'd say steel, we're starting to see pretty significant tailwinds and aluminum as well.

There's a few other commodities that I referenced earlier, particularly palladium, which is at a level that remains significantly elevated versus even what we saw in January.

And against a relatively smaller purchase value, it's quite a significant headwind.

And over time, you will see things flow through.

And obviously, there's still uncertainty around tariffs as well.

And we, therefore, felt it's prudent to get it to a -- to a closer to half type of a number.

We had $1 billion earlier, and we're getting it now down to $500 million.

We will keep watching it and flowing that through as we see the improvements come through.

And we also have the lag effect that we experience since these don't get indexed right away.

They get indexed a little later.

So you'll see the improvement come through if the market continues to hold up.

On that lag effect, what's the typical timing?

Let's say, like steel sort of stays flat where it is right now, how long would it take to fully sort of offset those headwinds?

Is it like 18 months?

There's -- we have indexed contracts for a portion of it and we have negotiated contracts for the rest of it.

And that's over -- the timing is all over the place.

So from an indexed perspective, you will see a lag of about 3 months and having that come through.

From a negotiated perspective, our contracts roll out 1/3, 1/3, 1/3-type on a yearly basis, so some of this might be a bit more nuanced and negotiated.

So not one metric that you can apply across the board.

Got it.

And then just as far as the UAW negotiations go, I apologize if I missed it earlier, but have you signaled in sort of what a good placeholder bonus amount to assume in the fourth quarter?

Because I know Ford has signaled some kind of amount, (inaudible) that you noted.

No, we haven't.

I mean we are approaching negotiations, looking forward to having productive discussions.

There are numerous topics that affect our employees and our business that we need to discuss and talk about, which we'll do.

And we're looking to do that constructively, making sure we can address business challenges in a way that allows us to really build a stronger future for our employees, for our customers and for the company, which will benefit our shareholders.

So that's our approach to UAW negotiations.

And we have not signaled any specific financial aspect to that.

Got it.

And then just want to ask a strategic question.

When you look around in the EV landscape, and you've obviously seen some collaboration amongst automakers trying to thread the investments, you've taken a slightly different approach.

So far, it's been a bit more go-it-alone approach.

So I guess my question is -- and you don't have the same considerations in that you don't have to deal with this Europe.

And obviously, you're not doing -- being forced into this as much.

But would you ever consider allowing other automakers to use your bed platform, sort of what VW is doing with NEV?

I mean would that help with scale?

Would that help with profitability?

Well, Dan, I would say is what we are doing is we have an arrangement with Honda.

So we have already -- Honda has already partnered with us on the cell technology and some of the electric vehicle components.

So I think we were actually one of the first, I think, if not the first, to do that.

And as we move forward, if it make -- we are open to working with other OEs and leveraging it even further.

But we're already doing that with Honda.

And it definitely provides savings from an engineering perspective and has scale benefits as well.

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

Scale is, I'd say, one of many.

But scale does -- especially you have to get to a certain level to drive the right scale as you look at the cell and battery manufacturer, for sure.

Our next question comes from the line of Emmanuel Rosner with Deutsche Bank.

So first question around the reiterated guidance.

It's obviously a lot of moving pieces.

And this industry is quite volatile.

But it's also fairly wide range despite pretty decent line of sight that you seem to have on some of the GMNA dynamics in the second half.

Can you maybe just remind us what the variance factors are between sort of like the high end and the low end as it relates to earnings and even more so as it relates to free cash flow?

I would say I think through the call, we've highlighted the fact that there's definitely some tailwinds.

There's also some headwinds.

And I think what at General Motors we try to do is we stated the guidance at the beginning of the year.

Dhivya and I both remain very confident that we're going to be able to meet our commitment.

And so we're confident in our full year guidance.

But there are -- it's a very dynamic environment when you look at trade and you look at China and you look at macro conditions in some of our GMI markets, then you look at the positives we have with the full-size truck franchise and how we're moving that forward just really early days in the launch, also the strength of our crossovers and the growth that we have in Cadillac.

So there's definitely tailwinds.

There's definitely headwinds.

And what we're saying is we are committed and we have definitely a line of sight.

And we'll work through the variability that we see or the volatility in the second half of this year to be able to deliver and maintain our guidance.

Okay.

That's helpful.

Then I guess turning to your restructuring program.

It's nice to see that you're on track for the $2 billion to $2.5 billion benefit this year.

There's obviously a whole other chunk of $2 billion to $2.5 billion expected to come next year.

Can you maybe point us to specific incremental actions that would deliver these additional savings as we get into next year as a way to get confident around them?

Well, I think when we laid it out, I mean some of them are just timing of when the Cross comes out, but we have very detailed plans.

We're -- the fact that when we announced it, we said, "This is how much we'll be in '19 and the balance in '20." And we're on track to achieve that.

It's just we're systematically executing these plans.

One of the very first accomplished was the salaried head count rightsizing that we did in Q4 and Q1 of this year.

But every single element, it was 1/3, 1/3, 1/3 between engineering, between manufacturing and between SG&A.

So those are all on track.

And I think -- I'd ask that you look at what we've been able to deliver so far and that should give you confidence that we're on track to do that for '20 as well.

Okay.

And then just finally, a big driver of your China outlook seems to be product launches, especially in the profitable attractive segment.

Can you maybe just remind us specific examples of what's coming out and to the extent that it will be helpful for the 2020 outlook as well?

Well, we definitely have our GEM products that are coming out that are going to be very important.

We have some crossover vehicles, also Cadillac, the XT6, we think, is going to be very significant.

We also have some Baojun products in an important crossover-type segment, so -- and then also the CT5 that will be launched there.

So if you look at it, there is a many, SUVs, crossovers, luxury vehicles, coming out across all of our brands in Q3 and Q4 that I think will position us well.

Because what we have seen why these launches are so important, as I mentioned, because we are seeing customer preferences shift to more SUV, crossover, and we also are -- because of the competitive nature, having an all-new model will be very significant in the marketplace.

Our last question comes from the line of Chris McNally with Evercore.

I'm probably going to revisit a little bit of some of the questions already asked.

But maybe just try it at a different angle.

When we look at the second half, I think everyone's thinking that's a relatively clean view of you don't have the downtime, raw mats are probably more rightsized.

When we think next year in terms of just the walk, you obviously have cost cuts.

But just any headwinds that you can call out?

You talked about production and the mix.

But does some of the UAW cost, did they flow through from Q4 to next year?

Any inflationary pressures?

So like is D&A going to be a significant headwind again next year?

And then any launch costs, whether that's content or incentives, you could call out?

Just things that sort of bring the walk down for 2020, even qualitatively, would be very helpful.

Yes.

Obviously, as Mary mentioned, it's hard to predict what the environment in 2020 is going to look like sitting here in the middle of 2019.

I think you've captured the product-related tailwinds really well.

D&A and pension income are something -- the 2 items that we have always said are going to be secularly normalizing to a higher level for D&A and a lower level for pension.

So that's one item that we have actually attributed.

If you remember our cash conversion, one of the factors on how it's going to normalize is the fact that these items will continue to get to their more financial steady-state levels.

But other than that, it would be speculation if I were to be thinking of any other items.

I think we'll continue executing.

And the cost savings that Mary mentioned as well is going to be an enabler as we look into 2020.

That's great.

And then maybe I can just hop to a little bit more of a secular question.

It's probably not as sexy as autonomous.

But when we think about ADAS, particularly in North America, not Europe, it's not mandated.

And if we look at sort of the Detroit Three, you've been sort of slow on the rollout of what's a pretty attractive technology.

It's not that it's not available, but it's essentially -- customers are still paying for it versus being standard.

Could you just maybe talk about the rollout of some of the low-end stuff, not Super Cruise?

I'm just basically thinking [AEB].

Is there a chance that, that becomes a standard offering product similar to the way Toyota and some of the Japanese have rolled it out?

So we're committed to have ADAS across the entire portfolio.

And it's a segment-by-segment question that we look at to see what makes sense because we also want to -- if you have so much safety technology on a vehicle that the customer can't afford it, then they don't get the opportunity to achieve that.

So we're trying to be very customer-focused segment-by-segment.

We clearly have the technology and pretty comprehensive technology, safety technology when you walk around the vehicle.

We are -- have done some, I think, really good work to make sure if it's not standard, it's available in a first package as opposed to a last package, being receptive to what -- and really giving the customer choice.

So we're going to continue to do that, develop the technology, have it available across the portfolio, in some cases, it will be standard.

And then we're going to continue to really work on -- I know you said not necessarily Super Cruise, but I think the game-changing nature of Super Cruise also I think, is very important that we're committed to and growing the feature and functionality of it.

Thank you.

I would now like to turn the call over to Mary Barra for her closing remarks.

Well, we appreciate that everybody participated in the call this morning.

And as I said just a few minutes ago, as we continue in the second half of the year, I remain confident in our full year guidance.

It's based on where we're at in the truck launch and the opportunities that lie ahead especially with heavy-duty models yet this year and then the strength of our crossovers as well.

We're also on track, as I mentioned, to deliver the cost savings associated with the business transformation.

And with a good chunk of it already behind us, then we continue to have -- execute well-defined plans.

And as we step back, we recognize that there are challenges.

But as we look at it, the reward for overcoming these challenges and being very disciplined is that we get the privilege of working on the future of transportation, of being able to lead the industry as we look at EV and AV and giving customers more accessibility and more choice.

So we are committed and fully working to win the race and make sure that we do create a stronger future for General Motors that will benefit our employees, our customers and our shareholders.

And that's the dedication of the entire GM team.

So thank you all very much for participating.

We hope you have a good day.

Ladies and gentlemen, that concludes the conference call for today, thank you for joining.