General Motors Company (GM) Q1 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the General Motors Company First Quarter 2014 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Thursday, April 24, 2014. Your speakers for today are Randy Arickx, Chuck Stevens and Mary Barra. 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 first quarter of 2014. Our press release was issued this morning and the conference call materials are available on the Investor Relations website. We are also broadcasting this call live via the Internet. Before we begin, I would like to direct your attention to the legend regarding forward-looking statements on the first page of the chart set. The content of our call will be governed by this language. This morning, Mary Barra, General Motors' Chief Executive Officer will provide opening remarks followed by a review of the financial results with Chuck Stevens, Executive Vice President and CFO. After the presentation portion of the call, we'll open the line for questions from the analyst community. Marry Barra will then conclude the call with some closing remarks. In the room today, we also have Tom Timko, Vice President, Controller and Chief Accounting Officer and Niharika Ramdev, Vice President Finance and Treasurer, to assist and answering your questions. Now I'll turn the call over to Mary.

Thanks, Randy. And thanks to everyone joining us today. It’s an understatement to say that the first quarter was challenging for General Motors. As you know we recalled approximately 7 million vehicles in North America and we faced economy instability in some markets across the globe. Nevertheless, the company remained profitable and I am very proud of the way the team has kept its focus on the customer. Now a day goes by that we don’t ask and do what we think is best of our customers, what they need and what they deserve when they buy a GM product. I will touch on all of these points as I review the quarter and update you on the status of the ignition switch issue. After that, Chuck Stevens will take you deeper into our results. Then we will answer as many of your questions as we can. If you turn to Slide 2, you’ll see a summary of our first quarter results. To begin, we delivered 2.4 million vehicles around the world, up 2%. So for the Europe we’re up and we saw record sales in China. This was offset by lower sales in North and South America and in GMIO outside of China. Our global market share was 11.1%, which is down to 2/10 of a point, from a year ago. However, Opel Vauxhall gained its share in 10 European markets including Germany. We also gained one tenth of a point of market share in China, based with the growth of Cadillac in the ongoing success of the Buick and Wuling brand. Turning to net income, we earned approximately $100 million despite $1.3 billion pre-tax charge for product recalls and 400 million special items due to a change in the exchange rate, which we used to measure the financial…

Thanks Mary. Slide six provides the summary of our first quarter GAAP and non-GAAP results. Net revenue for the period was $37.4 billion, up $500 million due primarily to the acquisition of Ally International business while automotive revenue was flat year-over-year. Our operating income decreased to a loss of $500 million primarily due to the $1.3 billion charge associated with product recalls and the Venezuela currency devaluation charge of $400 million. Net income to common stockholders declined $700 million to $100 million and diluted earnings per share came in at $0.06. Automotive net cash from operating activities was $2 billion, $1.5 billion increase from the same period in 2013. For our non-GAAP measures including the impact of the $1.3 billion of recall related charges EBIT adjusted was $500 million in the first quarter and the EBIT adjusted margin was 1.2%. Our adjusted automotive free cash flow was $200 million for the quarter, a $1.6 billion increase from 2013 primarily due to improved working capital. Slide seven identifies special items for the first quarter that had an impact on our earnings per share. At the top of the slide our net income to common stockholders was $100 million and our diluted earnings per share was $0.06. As we advised in our March sales filing with the SEC we had a $400 million charge associated with the devaluation of the Venezuela and Boulevard in the first quarter of 2014 and a $200 million charge in the prior year’s first quarter? This charge had a $0.23 and $0.09 unfavourable impact on earnings per share in each of the quarters respectively. On slide 8, we remind you of our consolidated EBIT adjusted for the last five quarters. At the bottom of the slide we list the revenue and margins for the same periods. Our…

Thank you. Ladies and gentlemen we will now conduct the analyst question-and-answer session. (Operator Instructions). Our first question comes from the line of Rod Lache with Deutsche Bank. Please proceed with your question.

Okay. Well, I have a couple things that I will throw out there. One is, North America; can you talk about that $1 billion of content cost increase in the quarter? Should we be netting that against the $1.7 billion of price to basically conclude that 35% of that pricing is dropping to the bottom line? Do you need to have that level of pricing going forward? Or do you expect to have $1 billion a quarter of content growth? And then secondly, at one point, Chuck, you had indicated that you were expecting a net cost reduction of around $1 billion in North America in 2015 versus 2014; and there were a few components of that: fixed costs, and logistics, and purchasing. Is that still the case? Or are some of the changes that are being made to product development or warranty accruals going to have an effect on some of those cost-savings expectations?

Let me take your first question or the first part of your question first Rod. As we’ve talked about before a lot of the net pricing on new products and remember net pricing that we show is the impact in the current quarter for those products that have been launched in the last 12 months. So you’re right the $1 billion of material cost related to content really needs to be netted against the 1.7 billion or so or net price associated with the newly launched products are resulting in kind of a net roll through to the bottom line of 700 million. I think we’ve talked about this before. We would expect to see in the first half of the year pretty significant year-over-year improvement and pricing driven by launch products and then we see it tail off in the second half of the year because we’ll be through the full 12 month launch cycle of the full size pickups. At the same time you’ll see on a year-over-year basis the material cost associated with content drop off as well. So that’s how to think about that. On the cost reduction billion dollars I don’t recall saying that was all in 2014, I think I indicated that in our glide path going forward to 10% EBIT margins that we expected to pick up about 100 basis points of cost between ’14 and ’15 driven to a large extent by material and logistic savings primarily material cost optimization, with fixed costs over that timeframe in the next couple of years being relatively flat the efficiencies and non-marketing related SG&A like global business services, IT and some manufacturing efficiencies offsetting headwinds and incremental marketing in D&A. And I would say that plan still holds and that’s what we’re executing too.

Thank you. Our next question comes from the line of Brian Johnson from Barclays. Please proceed with your question.

A couple of questions and I think the two are related. The first represents, is around kind of the price versus costs trade off you are making, or you made first quarter in pick-up trucks and the second has been overall cadence to GMNA and overall. So the first question your share in pick-up trucks represent 4% to this 35% first quarter. But it looks like you had very good price even net of contract cost. Is that the kind of trade off you’re going to be looking to make going forward through the year? Or do you see stepping up on the volume and down a bit on the price as we go into the spring selling season.

I would say first and foremost we’re going to continue to demonstrate incentive and pricing discipline and I think we’ve seen that through the launch of the full size pick-ups thus far and it’s rolled through our results. At the same time we’re going to be competitive when we talked about the February 6, call that we had the need to address some of the competitive challenges at the lower end of the market, especially Silverado. If you actually look at share year-over-year Sierra is up year-over-year Silverado was down and that’s primarily at the low end of the market. We’ve taken action in March and April to address that so far based on early 10 reads we’ve picked up about 160 to 170 basis points a share, on a retail basis full size pick-ups, so we’re starting to get traction. But we need to do that Brian in a very balanced way, we do not want to give up the gains that we’ve made on mix moving our crew cab mix up and the higher contended premium vehicles that we’re selling. And we think we can accomplish both if we’re smart about our go to market execution. Relative to earnings cadence I think it’s fair to say back in February and January for that matter we indicated that Q1 was going to be in the range of 10% to 15% I think it’s safe to say we performed better than the 15% as a percentage of our total earnings for the year. Broad based across the board improvement versus our expectations across all of the regions fundamentally cost driven so I think we’re going to see the rest of the year for both North America and the Corp is more normalized Q2 through Q4 earnings.

So does that imply that there is a step down off of the seasonality? That is, those are going to be seasonally weaker, hence you are maintaining your overall guide? Or you are going to see how the year goes and there might be room to move up?

Yes I would say that we have not changed our view for the year which was overall excluding the impact of recalls we expected earnings to be up in aggregate relatively flat margins what I’d say is we changed the shape of the curve. We performed better than we expected in the first quarter so we’ll have to trim some of the expectation to Q2 through Q4.

Thank you. Our next question comes from the line of Adam Jonas with Morgan Stanley. Please proceed with your question.

Thanks. Good morning, everybody. First question is a two-part question. First, on the recall, 7 million units obviously creates an enormous amount of showroom traffic and an opportunity to convert that traffic into new sales. So could you outline, perhaps, how successful have you been so far in getting folks coming in and holding the hand and obviously helping them with a real issue, but also perhaps helping to convert a sale in the process? The second is, following the expiry of the NOL rights program under Section 382, could you confirm whether General Motors has any more poison-pill type of mechanisms in place that could be used as defense in case of any stake pulling? Or is there no such thing at this point? Thank you.

Adam I think the first question as it relates to the 7 million unit recall and actually it’s 6 million actual vehicles but when we and when you look at the total amount of issues that were recalled we do see that as a huge opportunity it’s a little too early we’re in the early days it’s just a couple of weeks ago that we started having part kits coming so we can do repairs. Our dealers are well positioned to do that we’ve had excellent dealer communications and actually really reworked our processes to be very responsive to the customer in that we’re shipping part kits by then to dealers to make sure that we get to the customers so we don’t have one dealer that have excess cars and another that’s waiting for cars we’ve also put the tools in the hands of the dealer that they can offer employee pricing to that individual or someone in the household. And I’d say anecdotally right now we’re getting feedback from customers that in fact there is supposed to one last night that had their vehicle repaired and from the note to me send our loyal GM customer so again your point is well taken it’s going to how well we manage it I think it’s just our dealers have been externally recognized for the type of customer or services that is actually that they’re providing they’re geared up to do this and I am confident that they’re going to be demonstrating our focus on the customer as we go through this and it will have positive results.

Thanks Mary.

And Adam on the second part of your question we don’t have poise until.

Thank you. Our next question comes from the line of Itay Michaeli with Citi. Please proceed with your question.

Thanks. Good morning, everyone. So maybe shifting over to Europe, it looks like, excluding restructuring, GM Europe was pretty close to breakeven. I know Russia is now included in there. So first can you quantify the Russian impact? And could GM Europe actually be profitable excluding Russia? And if so, what does that mean in terms of the outlook for breakeven in GM Europe, perhaps outside of Russia, for the next couple of years?

First, we haven’t changed our guidance on breakeven in Europe including or excluding Russia it’s mid-decade. Second, I am not going to provide country level profitability Itay the regional results in Europe we lost excluding the impact of recalls we lost 100 million which is a 100 million improvement versus the first quarter last year. I would say that certainly a good sign. We’re starting to get traction. The industry has performed better than we expected and we’re performing better than we expected. And I indicated in the other considerations section of the debt that we expect Europe to perform better than planned for the year and I think we’re seeing some of that in Q1 but from an overall perspective mid-decade breakeven is still our objective.

Yes, in fact I’ll just add to that I mean I think if you really look at the stress in Europe is really product driven and I think Karl-Thomas Neumann has done a good job of shifting the conversations and some of the issues at over to the product to me a really important single is the strength of the Insignia which is the flagship and that’s been very well received. So I think that is a very strong signal but it’s a product driven recovery and the shift in the method you have there is to the product.

Absolutely. And a quick clarification on North America, if I may. Is target still to gain market share for the full year? I think that was the target you laid out in January. Is that still part of the pricing plans and how you go to market for the rest of the year?

That is still one of our objectives for the year to grow market share year-over-year.

Thank you. Our next question comes from the line of John Murphy with the Bank of America Merrill Lynch. Please proceed with your question.

Good morning. Just a question for both of you, two aspects on the recall. Mary, I just wonder if you could comment on what impact you think your recall and maybe the recalls throughout the industry might have on product development costs and speed, basically the cadence of product intros. Then Chuck, it looks like there is not a lot of this that was added back, so it looks like a lot of the cash was spent in the first quarter. Just trying to understand the timing of the cash conversion of the accrual of the $1.3 billion for the recalls during the course of the year.

If I understand your question correctly is the product development, I think if you look at the announcement that was made on -- I see the organization acting more efficiently. When you look at the way the Jeff Boyer organization and the global vehicle safety and then the product integrity team is going to pull it together. We have had the chef engineers very involved as we’ve looked at this structuring change that Mark just announced recently with the product integrity team and the team devoted to the components and sub-systems. So I think it will -- I don’t see it changing the engineering cost to develop new vehicles. And then when you look at these safety organization and our ability, people are putting in place in the way we’re going to work across the organization and I think it’s going to allow us to increase our speed once we understand an issue. And ultimately if you discover an issue and you first discover most likely and then cause it more quickly, overall that’s going to be a lower impact as well. So I don’t see an increase related if in understood your question correctly.

Yes, that's it. Then, Chuck, just on the timing of that cash payment?

The Q1 cash flow did not include a significant level of cash costs associated with the recall of the pretty minimal primarily related to any payments that we made on currency transportation and or loner. The fundamental cash associated with the recall will start to fall current vehicle sale. If I look at the cadence it’s going to be weighted Q2 to Q4 pretty evenly for the rest of the year that’s when the cash costs are going to roll through the results.

Okay and then just one follow-up question on North America. On slide 13, mix was a slight negative. Obviously, we had the HD and the large SUVs launch. When do we actually start to see the benefit from those flowing through on mix? I would imagine we'd have seen some of that in the first quarter. But is the bulk coming in the second quarter?

I would think that we’re going to see improved mix on a go forward basis, Q2 forward but a lot of the improvement associated with the full size utilities and HD will fall into price in Q2 on a year-over-year basis and we’ll start to see favourable mix again on a year-over-year basis in Q2 being driven by full sized pick-ups that were launched last year in the later part of Q2.

Our next question comes from the line of Ryan Brinkman with JP Morgan. Please proceed with your questions.

Hi, good morning. Thanks for taking my question. I believe that a member of the Canadian General Investment Corporation recently discussed potentially divesting their GM stake this year. So I know you said before that you don't intend to approach either Canada or the UAW relative to their stakes; but that if they came to you, you would be a good listener, like in the case of the U.S. Treasury. So I am curious if you can say whether they have approached you. And then if you can't, maybe just more generally, what are your feelings about whether you think there is currently a buying opportunity in GM's stock for either the Corporation or for investors?

The Canadians have not approached us yet; we read probably the same press release that you did. I think the best way to answer that question Ryan is we’ve demonstrated the willingness to be opportunistic in past and we’ll have to see how this develops with the Canadian share sales. I think your second question was around, do we think from a General Motors perspective it’s appropriate to go into potentially the open market buyback stock. And I think there is a number of other issues that we need to deal with right now before we think about that, and I’ll leave it at that.

Okay, then. Great. And then just on China, very strong margin there, 11.2%. I had thought over the last couple calls that we'd discussed that you were experiencing some headwinds there relative to new facility expansion expense; the investments that you are making to drive Cadillac sales could pressure margin near term but help medium term. Should we think about that differently now? Have you cycled past that?

Well I think what we said for China for the years we expected margins to be similar to 2013 levels, somewhere in call it the 9% to 10% range. Q4 the margins were 7.6% and that was driven by some start up related expenses and we’ve kind of cycled past that. Generally Q1 is a richer margin quarter, if you think about the cadence but I think we’re still feeling pretty good about margins in the range of 9% to 10% or relatively flat year-over-year in China.

Okay, great. Thanks. Just last question, follow-up to that. I know that your consolidated I/O EBIT walk doesn't really breakout the drivers within China, but sort of lumps equity income together. Can you maybe talk about how those pieces are moving over there? How is price changing year over year-end for the full year? Or however you would like to break out price and mix and costs, etc., just high level. Thanks.

Yeah. High level volume is favourable, mix is favourable as we start to saw more Cadillac and SUVs price is a headwind, the net pricing dynamic in China the holistic is generally been around 3% per year, negative 3% per year, so we expect that to be. Headwind material costs will be a tailwind and fix cost will a headwind as we continue to expand our manufacturing footprint.

Our next question comes from the line of Patrick Archambault with Goldman Sachs. Please proceed with your question.

Yes, a couple. Just on the charges, housekeeping. It sounded like what you took, the $1.3 billion applied to 6 million vehicles in total. As I understand that this is something that is evolving, but as far as you can tell with all the issues and costs that are visible now, is this largely behind us as a one timer in the first quarter or you know would you expect if you know subsequent catch up charge in following quarters?

You know as well look at the whole process, what we’ve got is, is we really redoubled our effort to make sure if there were issues that had been lingering, that we got in, we understood it. We put more people in that organizations to make sure we quickly get to issue. I can’t predict the future to say, what will happen as we go forward, but what I can say is, we will respond to big or small issues as quickly as we can. And in doing that with the speed of responding, allows us to I think really minimize the impact as you get to a smaller population. So that what we’re going to do going forward and we’re going to remain focused on the customer as we look at this issues.

And Patrick, relative to your question. The 1.3 billion that we took in Q1 covers what we think is going to be the overall cost to repair and courtesy transportation for the recalls that we announced in the first quarter.

Okay. No, that's helpful. And just on South America, maybe we can spend a little bit of time there. Obviously, it is very little visibility on the macro front. But are you -- I know you have been restructuring Brazil; but are you considering maybe more assertive actions? Like potentially rethinking the Venezuela manufacturing footprint, even if you are not rethinking sales in Venezuela, or stepping up the level of restructuring activity in the region. Because it does sound like -- and then maybe if you have a sense of what -- your expectation, even if it is something with wide parameters around it, what your expectation for that market might be that you are rolling with. That would be helpful.

Yeah. Let me start, kind of, 10,000 feet I am working my down a little bit. At the end of 2011, early 2012 we embarked on, kind of, a four pronged approach specific to Brazil, but also cuts the rest of the region and how to take and continue to drive improvement in the region product. But the real launch on, our real focus on product launches and I would say that the most recently launched products are doing extremely in Brazil and in the rest of the region. They now account for about 75% of our volume. So we’re very pleased with how we’ve approached that. Second was to really work on our fixed cost and we continue and will continue to make progress and take actions from a fix cost perspective both SG&A and manufacturing. In the Q1 results we had a roughly $50 million charge for continuing restructure we closed, finished up the closure of the San Jose passenger facility. We just got an agreement with Gravatai and our three-year labour deal with 0% real economic associated with it. So we continue to work through that. The third piece was really to work through our material cost, localization and logistics and we continue to work through that. I would say, it’s unfortunate we’ve made significant progress in Brazil and other markets over the past couple of years. But the economic environment has moved, just as rapidly as we’ve been making changes or make an improvement, and we’ll continue to do that. We’re very strong in Brazil we have a great deal in network. We’ve got a great portfolio now a very a strong brand and that’s the place that we’re going to focus on to win. Relative to Venezuela, we like Venezuela when it’s running normally; it hasn’t run normally for the last three quarters. Clearly, that’s weighing down our results. We see no resolution in the near term we continue to work very, very closely through the Brazilian government and also directly with the Venezuelan government to try to determine when the things will return to some level or normalcy, there so we can build and sell vehicle. It can be a very constructive market. So we are weighing our options very, very carefully there. If there’s an opportunity going forward for some normal business we certainly don’t want to pull out and go back in, we’ve shown before when we do that, typically it’s not a good outcome, but we need to discontinue to monitor that.

That's helpful. And just on the market, one of the suppliers that reported earlier had a 10% down light-vehicle estimate for the region, which struck me as pretty severe. Any kind of ranges as to what you guys are thinking about in your base plan now?

Yes, as I indicated on the other considerations chart we expect South America to be weaker than expected so if we go back to January our view at that time three months ago was that South America should be improved year over year that’s not going to happen we’re not going to have improvement year over year in South American we seeing a resolution in the near term to Venezuela and I would say I don’t necessarily agree with the 10% industry down take but I would say the industry is softer than we expected in Argentina and Brazil.

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

Great. Thanks for taking my question. You commented earlier that you are still targeting higher market share in North America, and that April was coming in strong. Are you not anticipating any market share loss following the recall? How are you thinking about the near-term market share impact with all the negative headlines?

Well, as we look the trades of the product portfolio that we have that’s coming out we’re just on the really in the middle and so bringing out the full size trucks the heavy duty trucks the SUVs we have more launch products coming and we see strength both from the reception and then also from external assessment of those vehicles and we haven’t seen anything meaningful to-date and we plan on continuing to serve these customers well as they come in and that coupled with our products we’re going to focus on that to minimize if any impact occurs but right now we haven’t seen anything meaningful.

Okay. And any colour on a potential civil settlement, at least maybe in terms of the timing you might announce something have been probably [indiscernible]?

As I said we expect to have recommendation from tenant in 45 days or so, so I don’t have anything more to comment as you imagine it’s a complex situation as we evaluate both the legal and civic aspects of this but we are working with him and as soon as we have something to share we’ll get it out.

Okay. And then just thinking about restructuring, what is -- is the $1.1 billion that you initially guided to, is that still the right number? How should we think about that, how it plays out through the year?

Yes, the 1.1 billion is still the right number and as we indicated the majority of that is really related to the planned closure of the our facility in Bochum with the balance been spread and the other regions outside of North America we indicated that the weighting would be more front end loaded we had all in about 300 million of restructuring in Q1 so I would expect that to as we move through the of the year to start to come down a bit but still in that 1.1 billion range.

Any actions in GMIO? Because obviously the consolidated operations remain a bit weak and you did have the exit of Chevy. Is there any plans in place there? And when should we expect a restructuring in that region?

Yes, okay, first obviously a big one is the wind down of Chevy Europe we also announced the succession of manufacturing operations in Australia and we’re working through that as we speak that has a bit of tail on but as we’re going to continue to wide that down over the next two or three years Stefan Jacoby and his team have went country by country and started to work through some of the issues that we have and the way I think about consolidated operations outside what I just talked about the Chevy wind down in Australia is we’ve got to get the portfolio right. We recognize that we’ve got portfolio weakness in Southeast Asia and in India, in South Africa and some of these other markets that we need to deal with. So that’s first and foremost that starts and ends with great products. And then we need to put in place the right business model around that which means manufacturing footprint dealer network the right level of localization, the right commercialization or industrialization of that portfolio and that’s all work in process. I would expect to see as we move from Q1 to the rest of the year some improvement primarily driven by improved results in the Middle East the rest of the improvement in the consolidated operations that’s going to fall into 2015 and 2016 this is going to be a multi quarter journey.

I would just add though and I just went through with Stefan of this countries yesterday and if you look at it in addition to everything that Chuck talked about we’ve got the right people. I think you all know this is a detailed business that trucks that you got to have the right product, you got to have the right understanding of the marketplace and go into market every single day. I feel very confident with several country leaders that we now in place under Stefan’s leadership we’re just going to keep and get us in it’s a multi quarter journey but they’re definitely on the journey and they’re looking at it the right way. So I think you’ll see positive momentum there.

And our next question comes from the line of Joe Spak with RBC Capital Markets. This will be our last question.

Thanks so much. One quick one. While I wouldn't expect it to be large, are there any costs associated with dealing with the suppliers related to the recall?

What do you mean costs associated, related to the suppliers?

I mean, I guess, how are you handling that transaction with the suppliers?

Yeah. What we’re doing is doing everything that we can do to ensure that we’re getting parts produced, the right parts produced as quickly as possible so we can take care of our customers. So we are paying and funding, one needs to get done in order to make sure that we’re getting supply.

And I would say we take tremendous cooperation with the suppliers, you know working right under the senior leadership of the company. Great participation and they are completely supporting our goal to get parts as quickly as we can to get this vehicles repaired it as quickly as we can. So it’s been working quite well.

And just, the technical point the cost associated with that part that’s in the 1.3 billion.

Okay. Perfect. And then just as we think about some of the other regions, and I harken back to your comment and North America with the pricing, but then offset for some of the content thing. And you have talked about how improvement in other regions of the world needs to be product-driven as well. So -- and I realize each of these markets are different, so I don't know if you want to go market by market or maybe we specifically could focus on Europe, which I think is the closest to a turnaround. Should we also expect that sort of relationship, where you are able to get a little bit of price, but then you have to pay for it a little bit on the content side? Or is it such -- is that market such that you are not actually going to be able to fully price for the content to be competitive?

What I think that’s the question that you need to answer on a specific product level for instance, as an example. The next generation Insignia, depending the content technology that we applied to that vehicle has, the ability to recover more price than the next generation courses, so we have to be very smart about how we apply content? How we industrialize it? How we make sure that we’re getting cost of product, those possible cost because not every segment can afford the kind of pricing improvements that we see on full size pick up or full size SUVs or CTS vehicle like that.

I would just add to that, I think it’s getting the right content on the vehicle for the segment and that’s -- there has been a tremendous amount of work done so you have a much better revise segment by market. What is the pre-content that is going to be valued by the customer and therefore they’re willing to pay. And then to look at that there, specially as we look at some of the products that are going to continue to be launched over the near term, a lot I would say better work done to leverage our global scale in the material cost aspect of those product. So it’s a balance between the two, but it’s the right context and then really leveraging our scale on a way we hadn’t done in the past.

Okay. And then Chuck, just one point of clarification. When you say Europe is tracking ahead of plan, is that sort of core Europe or Europe as we used to think of it? Or is that net of Russia which is now inclusive and you have indicated that could be potentially a headwind?

Yeah. Just to be clear, that’s Europe which includes Russia, we’ve restated our prior results and ahead of plan is versus what we talked about back in January from a Europe perspective, so that’s versus our plan, mid decade breakeven.

I will now turn the call back over to Mary Barra. Please continue with your presentation of closing remarks.

Thank you very much. Well, first of all I really appreciate everybody’s question today and I’d like to close this call with a simple message that, I think really encapsulate everything that we covered today and everything we’re doing as we moved forward. If you look at General Motors, as we move half the bankruptcy we have really been a company that had demonstrated being proactive at every turn, and we continue to do that. And I will tell you I have, I have been in many global employee forums and talking to employees you know if they email and other mechanism, there is definitely the culture and I see this as an opportunity, even accelerate our culture change to make sure that we are fast to responding and truly integrated organization really dedicated to having great products. We will continue to save down every issue we have both internal and external and also more aggressively pursue the opportunity, because the sales is in the market place, there’s opportunity to market place. And we’re going to continue to minimize the challenges and really go after opportunity to think in a way we have and almost done. So I hope today's discussion gives you more confidence in our customer focused strategy we are leaving it. And it’s easy to say and put it on the piece of paper as you go through difficult time you have to prove and we are demonstrating that every single day. Our 20, I hope you also have confidence in our 2014 outlook and our long term potential. So thanks for your time and I turn it back to Randy.

Thank Mary. Thanks everybody for your time today we appreciated very much. Thank operator.