General Motors Company (GM) Q4 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the General Motors Company Fourth 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, Wednesday, February 4, 2015. 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 2014 fourth quarter and calendar year. 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 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’d like to turn the call over to Mary Barra.

Thanks, Randy, and thanks to everyone joining the call today. Over the last couple of months, we have several opportunities to talk to you in detail about our strategy to create shareholder value, including our operating strategy, the investments we are making in our brand, technology and innovation, as well as our financial targets. At our Global Business Conference in October, we affirmed our mid-decade targets and outlined strategies to deliver 9% to 10% EBIT adjusted margins by early next decade. At the Deutsche Bank Auto Conference last month, we affirmed that we were on track to deliver strong operating results in 2014 and we shared our outlook for 2015. This outlook includes year-over-year improvement in all of our automotive regions with higher EBIT adjusted and stronger margins. Today, we are reporting fourth quarter and full year 2014 results that demonstrate continued strong core operating performance. This is especially true in North America and China where we are busy -- where our business is highly profitable and growing. It’s also true in other regions around the world where we are managing through very difficult market conditions and building a solid foundation for profitable growth. As we execute our plans, we are focused on generating the level of earnings, margin and cash flow that will make us the most valued automaker for our owners. Our strategy is also designed to support a strong and growing dividend and consistent with our strong core operating performance, we intend to increase our second quarter common stock dividend by 20% to $0.36 per share. The decision on the expected dividend increase will be made by our Board as part of the regularly scheduled second quarter dividend declaration procedure. Turning to slide two, let’s take a closer look at our fourth quarter results, which were robust. We have now been profitable for 20 consecutive quarters and this was our best ever fourth quarter consolidated EBIT adjusted during that period. As you can see on the chart, almost all of our key operating metrics were up, including global deliveries and net income to the common shareholders. Importantly, EBIT adjusted was up in three of our automotive regions, the fourth was flat and our automotive net cash from operating activities and adjusted automotive free cash flow was also very strong. In North America, we had record average transaction prices driven by Cadillac and our new Chevrolet and GMC truck and SUV, and we delivered our sixth consecutive quarter of improved EBIT adjusted margins based on core operating performance. In China, we had another solid quarter, contributing to record full year equity income as our sales continued to outpace the market. In South America the team has now delivered three consecutive quarters of improved EBIT adjusted results. And in Europe, Opel’s core operating results improved, excluding the recent economic decline in Russia. The quarter kept a full year of solid core operating performance. If you turn to slide three, we can review our 2014 results. To start, we delivered our second consecutive year of record global sales, deliveries rose 2% to 9.9 million light vehicle. We had record sales in, excuse me, and market share in China and higher sales and stable share in North America, a clear highlight we sold close to a 1 million full-size pickups full-size SUVs and large luxury SUVs in the United States, and increased our share in all three segments. In fact, our share of the large SUV segment now stands at more than 75%. I expect we can do even better this year from a volume standpoint and we have another opportunity to gain full-size pickup market share. Our global share was down one-tenth of a point, which primarily reflects our decision to withdraw Chevrolet as a mainstream brand in Western and Central Europe, and our use of pricing to offset currency volatility in regions such as South America and Russia. Net revenue increased by about $5 million to $155.9 billion, thanks to growth at GM Financial. Looking at the bottomline, net income to common shareholders was $2.8 billion, absent special items, net income to common shareholders would have been $5.2 billion. Our Automotive business meanwhile generated $10.1 billion in net cash from operating activities. Turning to EBIT adjusted, we earned $6.5 billion, which includes $2.8 billion in recall-related expenses. Finally, our adjusted automotive free cash flow was $3.1 billion. Chuck Stevens will provide more details on the fourth quarter and 2014 calendar year financial results a bit later. If you turn to the next slide, you will see that our calendar year highlights are organized around strategic priorities, so it will be easy to see how we are driving the business forward. Let start with our relationship with customers, specifically our commitment to safety and quality. The recalls we experienced in 2014 were galvanizing and our response has been far-reaching as you well know. I won’t review everything we have done on this call. Instead, I will simply underscore that we have built what I believe is the best safety organization in the industry and we’re instilling a zero defect mindset across the company. Our work begins from a solid base, last year, for example, J.D. Power ranked -- J.D. Power ranked GM number two in initial quality, number three in durability and three of our brands, Chevrolet, GMC and Buick took three of the top four spots in customer satisfaction with Dealer Service Index. In addition, Cadillac was recognized as a 2014 Customer Champions by J.D. Power, the third time the brand has earned this distinction. Let’s continue the discussion of our brand starting with Chevrolet, our largest global brand. Chevrolet had a very good 2014 in North America, with sales up about 5%. The new Silverado, Tahoe and Suburban all had great momentum, and the new Colorado which won Motor Trend Truck of the Year is off to a great start. Chevrolet had record sales in China and the brand retained market leadership in South America, despite weak industry conditions that hurt sales. Buick also had a fantastic year with record sales of almost 1.2 million vehicles in its core markets of China, United States, Canada and Mexico. Robust demand in China also lifted Wuling and Baojun which had record sales. GM also increased it sales for the fifth consecutive year and the new Canyon was named Autoweek Magazine Best of the Best/Truck for 2015. Turning to Cadillac, the brands global sales increased 5% on the strength of a 47% increase in China. That brings the brand’s cumulative volume growth since 2012 to 35%. But we understand we have a lot of work ahead of us with Cadillac. As Johan de Nysschen shared at the Detroit Auto Show, we are investing in the portfolio by developing eight new Cadillac models by the end of the decade, many of which are going to enter segments where we don’t compete today. Turning to Europe, Karl-Thomas Neumann and the Opel/Vauxhall team continued to make good progress. Opel/Vauxhall delivered almost 1.1 million vehicles in Europe in 2014, sales and share increased for a second year in a row and orders for the new Corsa are ahead of plan at more than 110,000 units. Turning to GM Financial, it’s important to note that they’re going to play an increasingly important role in helping all of our brands grow as they transform into a full spectrum captive finance company. For example, GM Financial is now writing half of all GM lease transactions in the United States and that figure will rise when it becomes the exclusive lease provider for Buick and GMC this month, followed by Cadillac later in the quarter. GM Financial is also financing roughly 40% of GM’s retail sales in Europe and South America, and in early January it completed the acquisition of Ally’s joint venture in China. Leading in technology and innovation, especially in the areas of connectivity and autonomous are key are we move forward. It is a critical component of our customer-centered brand building strategy and an area we are -- where we are moving much faster than our competitors in many respect. For example, last year we began the rollout of OnStar with 4G LTE in North America on more than 30 models. Later this year, 4G LTE will be introduced in China where we have more than 800,000 subscribers. We will also launch OnStar with 4G LTE in Europe. We intend to leverage 4G LTE and its fast speed to introduce a wide range of features and apps to improve all aspect of the driving and ownership experience. In January at the Consumer Electronics Show we previewed technology that can predict and notify drivers when certain components need attention, in many cases before vehicle performance is impacted. It will be available later this year on a wide range of 2016 models in the U.S. and Canada including the Chevrolet Equinox, Tahoe, Suburban, Corvette and Silverado. As we move through the year, we will also be sharing more details about industry-leading GM technology including vehicle-to-vehicle connectivity and Super Cruise, which is an advanced automated driving feature that Cadillac expects to introduce during the 2017 model year. The last point, I’d like to make before turning the presentation over to Chuck is this, we will continue to aggressively pursue core operating efficiency. We made good progress in 2014 with more than $1 billion in non-raw material and logistic cost savings flowing through the bottomline. We’ve also improved capacity utilization in Europe and our focus on the Opel Vauxhall brands in Western and Central Europe have dramatically improved our business in the region. Also our new operational excellence team using Six Sigma and other statistical and analytical tools as part of an overarching strategy to drive a customer-centric culture of continuous improvement, innovation and quality is well underway. Gerald Johnson is leading this initiative and we’re moving very quickly. We have been recruiting talent from outside and inside GM, executive champions have been [Technical Difficulty] and we’ve already identified projects that we expect to deliver significant savings this year with customer loyalty and operating margin building over time. This is a good start but we know there is more work to do but we are on it.’ With that said, let me hand off to Chuck Stevens, who will provide a more detailed look at the quarter and the year.

Thanks Mary. On slide six, we provide a summary of our 2014 fourth quarter and calendar year GAAP and non-GAAP results. Starting with Q4 first, our net revenue was $39.6 billion, $900 million or 2% decrease from the prior year. Automotive revenue was down nearly $1.1 billion primarily due to lower wholesales of 73,000 units or an unfavorable $1.4 billion, unfavorable foreign exchange of $1.7 billion partially offset by an increase in price of $1.6 billion. GM financial revenue increased $200 million. Our fourth quarter 2014 GAAP operating income included net $250 million of unfavorable special items as detailed on chart seven. The prior year GAAP operating income performance included significant unfavorable special items of $1.4 billion in the quarter primarily related to the exit of the Chevrolet brand from Europe and impairment charges. Net income to common shareholders was $1.1 billion, up $200 million compared to the prior year period. Earnings per share for the quarter were $0.66 on a diluted basis compared to $0.57 for the same period in the prior year and our automotive net cash from operating activities improved significantly to $3.8 billion. Our EBIT-adjusted was $2.4 billion for the fourth quarter, a $500 million improvement from the prior year. The EBIT-adjusted margin was 6.1%, up 1.4 percentage points from the fourth quarter in 2013. Our adjusted automotive free cash flow was $1.8 billion, including $600 million in recall-related cash payments. This compares to adjusted automotive free cash flow of $1.1 billion in the prior year period. For the full calendar year, net revenue was $156 billion, up $500 million from the prior year. Automotive revenue decreased $1 billion primarily due to lower wholesales of 380,000 units, which was worth an unfavorable $5.6 billion, unfavorable foreign exchange of $3.3 billion, partially offset by favorable pricing of $5.1 billion and favorable mix of $2.3 billion. GM financial revenue increased $1.5 billion. Our GAAP operating income was $1.5 billion, including $2.8 billion in recall-related charges as well as $2.3 billion in special items. In the prior year period, GAAP operating income was $5.1 billion. Net income to common shareholders was $2.8 billion and diluted earnings per share came in at $1.65, again the decrease was primarily attributable to recall-related costs, increased charges for special items and lower income tax expense. Our automotive net cash from operating activities was $10.1 billion, including $1.6 billion in recall-related cash payments. This compares to automotive net cash from operating activities of $11 billion in 2013. For our non-GAAP measures, EBIT-adjusted was $6.5 billion in 2014 including $2.8 billion of recall related costs, as well as $1 billion in restructuring expenses. EBIT-adjusted margin was 4.2%, including the negative impact of 1.8 percentage points associated with recall-related costs. Finally, our adjusted automotive free cash flow was $3.1 billion for the year, including $1.6 billion recall-related payments, resulting in a net $600 million decrease from 2013. Slide seven identifies special items for the fourth quarter and calendar year that had an impact on our earnings per share. I’m not going to go through the entire list but the items in 2014 primarily relate to the redemption of our Series A preferred stock, a recall-reserve catch-up adjustment, the recall compensation program and a number of impairment charges. In 2013, special items, primarily related to strategic actions we announced in GM international operations, the wage litigation in Korea, as well as sale of certain non-core assets. At the top of slide, our net income to common stockholders in the fourth quarter of 2014 was $1.1 billion and our fully diluted earnings per share was $0.66. Special items had a net $900 million unfavorable impact to net income to common shareholders and $0.53 unfavorable impact on earnings per share. For the 2014 calendar year, our net income to common shareholders was $2.8 billion and our fully diluted earnings per share were $1.65. Special items had an unfavorable impact on net income to common shareholders of $2.4 billion and a $1.40 unfavorable impact on our earnings per share. Slide eight shows our consolidated EBIT-adjusted for the last five quarters. At the bottom of the slide, we again show the revenue and margins for the quarter, clearly demonstrating the solid underlying performance that the company achieved in 2014 when adjusting for recall-related expenses. Our consolidated wholesale vehicle sales were 1.6 million vehicles in the fourth quarter, down slightly compared to the prior year and our global market share was 11.4%. On slide nine, we provide an explanation of the $500 million increase in year-over-year consolidated EBIT-adjusted for the fourth quarter. In the fourth quarter of 2013, our EBIT-adjusted was $1.9 billion. Volume was $300 million unfavorable as global wholesale volume decreased 73,000 units, primarily attributable to lower wholesales in international operations and the wind down of Chevrolet Europe. Mix was $300 million favorable primarily due to increased wholesales of full-size trucks and full-size SUVs. Price was $1.4 billion favorable for the quarter, primarily due to the strength of our recently launched vehicles in North America and actions we’ve taken to offset foreign exchange in South America. Total costs were $600 million unfavorable, primarily attributable to higher material costs in North America related to our recently launched full size trucks and full size SUVs. Other was $300 million unfavorable primarily due to foreign exchange challenges in South America with, Venezuelan Bolivar, Argentine Peso and Brazilian Real as well as pressure on the Russia Ruble in Europe. This totals $2.4 billion for the fourth quarter. On slide 10, we provide EBIT-adjusted by region for the four quarters of 2013 and 2014. North America’s EBIT-adjusted was $2.2 billion. Europe had an EBIT-adjusted loss of $400 million. International operations had EBIT-adjusted of $400 million and South America’s EBIT-adjusted was a positive $100 million for the quarter. GM financial earnings before taxes adjusted was $100 million, down from a year ago associated with debt-related expenses. The corporate and elimination segment was breakeven for the quarter. This totals to an EBIT-adjusted of $2.4 billion for the fourth quarter of 2014, up $500 million from the same period in 2013. We now move on to our segment results. On slide 11, we show North American EBIT-adjusted for the last five quarters. At the bottom of the slide, revenue was $25.3 billion in the fourth quarter, up $200 million from the same quarter in 2013. The EBIT-adjusted margin was 8.7% for the fourth quarter and 9.1% for the second half of 2014, an improvement of about 70 basis points compared to the second half of 2013. For the full year, EBIT-adjusted margin was 8.9% excluding the impact of recalls. Six consecutive quarters of year-over-year margin growth excluding recalls demonstrate strong progress toward our 2016 goal of 10% margins. Our U.S. dealer inventory was 737,000 at the end of the fourth quarter, a decrease of about 11,000 units from the prior year period. Also, vehicle sales were 849,000 units for the quarter, a 14,000 unit vehicle decrease from the prior year. Turning to slide 12 for key performance indicators for North America. For the fourth quarter of 2014, our total U.S. market share was 17.4% and our retail share was 16.3%. Retail share increased 0.4 percentage points from the prior year, led by our all new midsized trucks, full-size truck and full-size SUVs. In fact full-size truck retail share increased nearly 5 percentage points from a year ago to approximately 41% in the fourth quarter. Our incentives for the quarter were 11.2% of average transaction price, which put us at 110% of the industry average. Turning to slide 13, we provide the explanation of the increase in North America EBIT-adjusted of about $300 million. EBIT-adjusted was $1.9 billion for the fourth quarter of 2013. Volume was $100 million unfavorable associated with the 14,000 unit vehicle decrease in wholesales. Mix was $300 million favorable, primarily due to increased wholesales of full-size truck and full-size SUVs. Price was $400 million favorable as the $800 million in favorable pricing from our recently launched vehicles was partially offset by $400 million in unfavorable pricing from our carryover products. Costs were $400 million unfavorable, primarily due to increased material costs associated with recently launched vehicles, partially offset by carryover material and logistics performance. Other was flat. These nets to an EBIT adjusted of $2.2 billion. On slide 14, Europe reported an EBIT adjusted loss of $400 million for the fourth quarter, flat from the prior year. However, after excluding restructuring and the impact of the Russian market, the European business demonstrated improved core operating performance on a year-over-year basis. Revenue was $5.4 billion for the quarter, down $300 million from the prior year period. The EBIT adjusted margin in the region was a negative 7.3%. Wholesale vehicle sales for the quarter improved 6,000 units. Market share in the fourth quarter was 6.3%, a nine-tenth of a percentage point decline from 2013, as the increase in Opel, Vauxhall market share for the second consecutive year was more than offset by the negative impact of the Chevrolet brand wind down. On slide 15, we provide the major components of Europe’s EBIT adjusted performance versus a year ago. Volume was flat as increased wholesales in Western Europe and the rest of the region was essentially offset by the roughly 40% decline in Russian wholesales. Mix was flat. Price was $100 million favorable, driven primarily by pricing offset exchange headwinds in Russia and the introduction of the next-generation Corsa and Vivaro. Cost was flat as increased material costs associated with recently launched vehicles were offset by material and logistics performance on carryover vehicles. Other was $200 million unfavorable, primarily due to foreign exchange related to the Russian ruble. This totals the Europe’s EBIT adjusted loss of $400 million for the fourth quarter of 2014. On slide 16, we show international operations’ EBIT adjusted for the most recent periods. In the fourth quarter, EBIT adjusted was $400 million, including equity income from our joint ventures of $500 million, partially offset by a loss of a $100 million in consolidated operations. At the bottom of the slide, revenue from consolidated operations was $3.8 billion, down $600 million from the prior year. The EBIT adjusted margin from consolidated operations was a negative 2.7%, a decline of nine-tenths of a percentage point from the prior year. Our average net income margin from our China JVs remained strong at 8.7%, a 1.1 percentage point increase from the prior year. For the full calendar year, net income margin was 9.8%, up three-tenths of a percent from the prior year. Wholesale vehicle sales totaled 177,000 units for consolidated operations and 981,000 units for the China JVs. Market share in the region increased from the prior year, including record market share in China of 14.8% for the 2014 calendar year. Turning to slide 17, we provide the major components of international operations’ $200 million increase in EBIT adjusted. The impact of volume was $200 million unfavorable as wholesales decreased 54,000 units. Mix was flat compared to the prior year period. Price was $300 million favorable, primarily due to the recently launched full-size trucks and full-size SUVs in the Middle East. Cost was $100 million unfavorable associated with material on recently launched products. Other was $100 million favorable, primarily related to an increase in equity income from our China JVs. This totals the fourth quarter 2014 EBIT adjusted of $400 million. On slide 18, we move onto the South America region and look at EBIT adjusted for the last five quarters. At the bottom of the slide, revenue was $3.7 billion in the fourth quarter, a $400 million decrease from 2013. The EBIT adjusted margin in the region was 2.4%, an increase of 1.7 percentage points from the prior year period. Wholesale vehicle sales were 249,000 units, down 11,000 units, compared to the fourth quarter of 2013 and market share decreased 1 percentage point from the prior year period. On slide 19, we look at the components of the $100 million year-over-year increase in our South American EBIT adjusted. Volume and mix were flat compared to the prior year. Price was $600 million favorable due to actions we’ve taken to offset unfavorable foreign exchange and the sustained strength of pricing on our new products. Cost was $100 million unfavorable, primarily due to higher material costs on carryover products. Other was $400 million unfavorable due to the Venezuelan Bolivar, Argentine Peso and Brazilian Real currencies. It’s important to note that team in South America delivered three consecutive quarters of improved EBIT adjusted results even as conditions became more challenging in the region. Slide 20 provides the summary of our auto financing activities. GM Financial reported the results this morning and we will be holding an earnings conference call at noon. Our U.S. subprime penetration in the fourth quarter decreased 6 percentage points from the prior year to 6.6%. Our U.S. lease penetration is 21.9% in Q4, up 1.1 percentage points from the prior year, as we continue to approach the industry average. As mentioned earlier, we expect this lease growth trend to continue as GM Financial becomes the exclusive lease provider for Buick and GMC, with plans for the Cadillac brand later this spring. Lease penetration in Canada is at 17.8%, a decrease of 1.8 percentage points from the prior year period. GM’s new vehicle financing as a percentage of GM Financial origination, continues to grow as our financing subsidiary continues to expand its leasing, subprime and prime lending footprint. GM Financial’s percentage of GM’s U.S. consumer subprime financing and leasing increased to 43% in the quarter. Annualized net credit losses remained low at 2.2%. Earnings before tax adjusted decreased to $119 million for the fourth quarter, primarily due to incremental investment in systems, people and consumer portfolio growth, resulting in increased interest and provision expenses. Slide 21 provides our walk with adjusted automotive free cash flow for the fourth quarter and calendar year. Starting with Q4 first, our net income to common shareholders was $1.1 billion. Adding back the impact of non-controlling interests, preferred dividends and the Series A redemption then deducting GM Financial earnings, we arrive at an automotive income of $2 billion for the fourth quarter of 2014. We had a $100 million in non-cash special items and our depreciation and amortization expense was $1.4 billion. Working capital was a $1.4 billion source of cash. The $1.2 billion improvement from the prior year was primarily due to one fewer supplier payment cycle in Q4 compared to the prior year period, partially offset by increased receivable balances. U.S. pension and OPEB cash payments exceeded expenses by $200 million in the quarter. Other was $900 million use of cash, which includes recall related cash payments as well as approximately $500 million in non-cash equity income. This totals down to automotive net cash provided by operating activities of $3.8 billion. We had $2 billion of capital expenditures in the quarter, which brings us to adjusted automotive free cash flow of $1.8 billion, up $700 million compared to the prior year, despite $600 million of recall-related cash payments. Taking a look at the full calendar year, starting with net income to common shareholders of $2.8 billion, we add back the impact of non-controlling interests, preferred dividends and the Series A redemption, then deduct GM Financial earnings to arrive at an automotive income of $3.5 billion for the calendar year for 2014. We had $1.6 billion in non-cash special items that I covered earlier and our depreciation and amortization expense was a $5.8 billion expense. Working capital for the year was a $1.6 billion use of cash. The $1.1 billion decline from the prior year was primarily due to increased receivables outstanding at year-end, partially offset by one fewer supplier payment cycle in 2014 versus the prior year. U.S. pension and OPEB cash payments exceeded expenses by $900 million in 2014. Other was a $1.7 billion source of cash, which is primarily attributable to recall and warranty accruals in excess of recall-related cash payments. This totals down to automotive net cash provided by operating activities of $10.1 billion. We had $7 billion of capital expenditures during the year, which brings us to adjusted automotive free cash flow of $3.1 billion for the year, including $1.6 billion in recall-related cash payments. Updating our prior guidance, we expect adjusted automotive free cash flow to be flat to up in 2015 versus 2014. However, given normal seasonality, combined with approximately $500 million in recall-related cash payments, approximately $500 million in restructuring payments and an additional supplier payment cycle compared to the first quarter of 2014, we do expect a net cash outflow in the first quarter. Turning to slide 22, we closed the year with a strong liquidity position of $37.2 billion, including $25.2 billion in cash and marketable securities. The change in our net cash position included approximately $2 billion in return of capital to our shareholders through our common stock dividend. Debt increased to $9.4 billion, as we took advantage of the credit markets this past November to raise funds to partially fund the redemption of the Series A preferred shares. That transaction was executed on December 31st of last year and resulted in a reduction to net income to common shareholders of $800 million associated with the difference between the redemption price and the book value of the preferred stock. Our total U.S. qualified and non-qualified pension plans are under funded by $10.9 billion, an increase of $3.6 billion versus a year ago, which we will further discuss in a moment. Our non-U.S. pensions are under funded by $13.1 billion at the end of the fourth quarter and our global unfunded OPEB liability is $6.6 billion… On slide 23, we take a look at the funded status of our global and US pension plans for the past four years. At the end of 2014, we had a global pension benefit obligation of $105 billion. Our global pension underfunded position increased to $24 billion. As it relates to our US pension plans, our underfunded status at the end of 2014 was $10.9 billion, an increase of $3.6 billion. $2.2 billion was due to mortality assumptions as a result of incorporating recently issued new mortality and mortality improvement tables by the Society of Actuaries. The new table shows increase in life expectancies, which have the effect of increasing aggregate expected benefit payments. The remaining increase in our underfunded status is due primarily to the effects of decreasing discount rates, partially offset by higher than expected asset returns. Now let’s take a look at the full calendar year EBIT-adjusted on slide 24. North America’s EBIT-adjusted decreased to $6.6 billion, including the $2.4 billion of recall-related expenses. Europe had an EBIT-adjusted loss of $1.4 billion, which included an incremental $500 million in restructuring expense as well as increasingly challenging conditions in Russia versus a year ago. International operations had EBIT-adjusted of $1.2 billion, down slightly from the prior year. South America’s EBIT-adjusted decreased to $200 million loss for 2014, as the region faced a challenging macro environment, including significant foreign exchange headwinds. GM Financial had earnings before taxes adjusted of $800 million for the year. This totals to an EBIT-adjusted of $6.5 billion. On slide 25, we provide an explanation of the $2.1 billion decrease in year-over-year EBIT-adjusted. Our EBIT-adjusted was $8.6 billion for 2013. Volume was 1 billion decrease, as wholesale volumes were down significantly in international operations and South America due to challenging macro environments and the wind down of the Chevrolet brand in Europe. This was partially offset by increased wholesales in North America. Mix was favorable $300 million, primarily due to full-size truck and full-size SUVs in North America as well as improving country mix in Europe. Price was $4.9 billion favorable for the year led by the strength of our new vehicle introductions in North America and price actions to offset foreign exchange impacts globally, partially offset by modest unfavorable pricing on carryover products. Although 2014 was a very strong year for year-over-year pricing improvement, we expect the impact on pricing to moderate as we cycle past the introduction of our new full-size trucks and SUVs in North America. For 2015, we expect total net price to remain positive compared to full year 2014 on a consolidated basis. However, we would expect a stronger pricing environment as we enter our aggressive launch cadence of new cars and crossovers in 2016. Total costs were unfavorable $5.2 billion for the year, primarily attributable to recall-related cost of $2.8 billion, increased material cost associated with the recently launched vehicles of $3.6 billion, incremental restructuring expense of $500 million, partially offset by favorable material cost performance associated with carryover products of $900 million, and approximately $500 million in lower marketing cost. Other was $1.1 billion unfavorable, primarily due to foreign exchange challenges in South America associated with the Venezuelan Bolivar, Argentine peso, and the Brazilian real, as well as the Russian ruble and euro. This was partially offset with $300 million and increased equity income from our China joint ventures. Summing it all up on slide 26. 2014 was a very solid year. The automotive business delivered strong core operating performance, absent recall expense and GM Financials continues to contribute solid earnings, as it reinvests in the business for future growth and to support incremental sales at the auto company. For 2015 specifically, we expect EBIT-adjusted and EBIT-adjusted margins to improve in all automotive regions. As Mary mentioned earlier, given the strong core operating performance in 2014 and our expectations for stronger performance in 2015, we intend to raise the common stock dividend 20% to $0.36 per share in the second quarter of this year. This action is consistent with our stated objective of a strong and growing dividend supported by improved business results and the planned increase demonstrates our commitment to enhancing shareholder value over time. Finally, we are on track with financial commitments we set for 2016, specifically 10% EBIT-adjusted margins in North America, profitability in Europe, and maintaining strong net income margins in China. And all of this would lead us to the longer-term 2020 plus financial targets we outlined last October. Now Mary and I will take your questions, after which Mary will have some closing remarks.

[Operator Instructions] And our first question comes from the line of Rod Lache with Deutsche Bank. Please go ahead.

Good morning, everybody. I was wondering if you can just answer a couple things on North America, first. If you sum up the combination of pricing, mix, and content cost, just to kind of run a proxy for contribution margins, you had a big positive in the first quarter of 2014, like $600 million, then it was positive again in Q2, but little less to negative in Q3 and then reversed, and is $300 million or positive year-over-year in the fourth quarter. It looks like mix now is running more positive than we’ve seen in prior quarters. And I would think that it’s -- your expectations are better than where they were back in October. Can you just give us some high level thoughts on how you think contribution margins overall look for 2015 and extent to which that could be a source of upside?

Yeah, I would certainly suggest that with the recent fuel prices and strength in full-size SUVs, full-size trucks and crossovers that mix will be a tailwind in 2015 and better than what we expected back in October, again given what transpire with fuel prices. I think there is also, as we talked before Rod is we cycled through the first year launch of trucks and SUVs where the year-over-year impact falls into pricing. We are going to see more of that show up in mix in 2015 versus 2014 as well.

Okay. And can you also give us some insight into your expectations for structural costs looking forward? It looks like you didn’t really discuss structural costs this year. There were some items, like D&A, which was down year-over-year in the fourth quarter. I believe you guys are expecting structural costs to be up a bit in 2015. What is the high level expectation there?

Yeah, let me start with 2014 overall, when we look at overhead, fixed costs, structural costs, whatever we want to call it, relatively flat in ‘14 versus ‘13, as we took actions around the world. As we indicated back at the conference in January, we would expect to see overhead costs up on a year-over-year basis and the primary driver of that is incremental engineering and incremental marketing as we head into our very strong launch cadence in the latter part of 2015 and 2016. And I would say that that’s prevalent from a North American and a European perspective primarily.

Okay. And just lastly, can you just touch on your updated views on China. Obviously, there has been quite a bit of discussion about inventory levels there and capacity growth, DMS, and specific strategies to mitigate that, but just from a high level, has there been any change in the competitive environment there?

No significant change from what we discussed in January. We indicated in January that we’re monitoring the situation very closely. We still expect the industry to be up year-over-year somewhere in the range of 5% to 8%, call it 25.5 million to 26 million units. Our inventory position actually is in really good shape right now. Through the month of January and early February, we are down below our target days on hand at a dealer level. So our expectations are still consistent with what we talked before. Industry growth will continue to grow our revenue and we will maintain our net income margins in the 9% to 10% range, resulting in higher equity income.

Great. Thank you.

Our next question comes from the line of John Murphy with Bank of America. Please go ahead.

Good morning, guys.

Hi, John.

A first question on trucks, I mean obviously you’re highlighting there is some potential upside there given what’s going on with your product as well as what’s going on with gas prices. I’m just curious where you’re running on capacity utilization on the K2XX right now, what the potential for upside to that capacity might be in 2015, and how we should think about incremental profitability as you stretch out that capacity maybe?

Yeah. I would say this we are running pretty hard right now from a capacity utilization perspective. We do have opportunities at a system level from a capacity perspective primarily in double cabs. We continue to work very, very hard on a day-to-day basis with the supply base and our manufacturing to increase capacity. On crew cabs, we’ve got capacity on heavy duties as well. So we think, obviously, there is some production upside in the system and again, we’re working to eliminate any bottlenecks. As I think about the overall opportunity John, it’s not just volume, there’s also mix, where customer demand increases for trucks. There’s an opportunity to up-sell from a mix perspective. And ultimately, in the overall supply and demand equation, we’ll be looking at price and that was one of the reasons why back in October and again in January, I said that, we thought that the truck pricing environment was going to moderate in 2015.

Okay. And maybe just some specifics around that, I mean, do you think that you could increase your production or volume on these trucks 10% year-over-year, is that something that is viable given your footprint? I’m just trying to understand the potential upside just on a volume basis?

Yeah. I’ve rather not get into those specific. That’s a bit competitive dynamic there that we like -- I would just suggest that, if the industry segment runs at 12.3% to 12.5% and the industry is in the range that we expected to $16.5 million to $17 million, we will have system-wide capacity to build a deal with that.

Okay. That’s helpful. And then second question on the CapEx for 2015, you’re talking about $9 billion, which is a pretty big step up? I’m just curious, if there’s any way that you might be able to thrift that through the course of the year and if maybe you can explain why there is this real big step function increase in CapEx?

Yeah. I would say, first of all, on thrifting, we’re always looking at that impact. We’ve got quite a few initiative and driver from a global perspective, so both from a supplier vendor tooling perspective and the capital that goes into our plan. So we review that in great detail and are continuing to work on initiative to take that down. But then when you look at it, I think of it in three buckets. One is new products that are within our existing portfolio and look at in some of the technology that we’re driving into the vehicles for industry leading fuel efficiency, as well as autonomous and connectivity, making sure we’re making the right investments with a customer focus there. And then the third impact or the third bucket I look at is, we believe there is opportunity in segments we’re not in around the globe that we’ll generate the right return and can enhance our brands and enhance our market position. So looking at those three buckets and again it’s an area, I ran in the company at one point in my career, there is an intense focus on that and we’ll seize every opportunity.

Okay. And then just lastly, if we think about GM Financial, your commitment there and to grow, that sounds like it makes a tremendous amount of sense? But it sounds like there is a pretty heavy investment period here that you started in the fourth quarter? I’m just curious how long you think that investment period will last? And then also additionally, what kind of capital might you need to commit to that business overtime to really grow the balance sheet to support it, because it sounds like you are doing mostly on balance sheet financing there? So just trying to understand the capital equipment too?

Yeah. First, the result in the fourth quarter is not run rate. I mean, there was some investment for growth and taking provisions as you bring on new loans have a bit of a tail on it before you started to get the full benefit of the income. So there is some timing there. There is a significant portion of the variance on a year-over-year basis were some nonrecurring items. I go back again to what we talked about in January, we expect GMF profitability as we ramp up our capability to be flat on a year-over-year basis in ‘15 versus ‘14. And then we’ll start to see the incremental benefit of the growth in their portfolio, the growth in their originations in ‘16 and beyond. Relative to any capital calls on the auto company. We certainly don’t anticipate any in this growth plan. We went through that and that’s going to all be self-funded from GMF. We run a number of scenarios including downside risk scenarios and again, minimal to none on a go-forward basis, John.

Great. Thank you very much.

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

Yes. Good morning. Just want to ask sort of a housekeeping question on cash flow for next year and then kind of a broader question around the CapEx investments, continuing that line? You booked $2.5 billion of accruals for recalls? You paid out less than that, so it seems like that is a $900 million cash call this upcoming year? You mentioned $500 million of restructuring expense? I guess a question for Chuck is, within your guide of flat year-over-year cash flow, what is, if you will, the bills that you are paying that were accrued in 2014 that cash is going out of the door in 2015 and if you could just mention for -- that for us?

Yeah. Sure. Overall, from a recall perspective, including the Feinberg compensation program, we accrued roughly $3.2 billion that showed up and impacted our P&L in 2014. We made about $1.6 billion of cash payments in 2014 associated with that, which means we have a carry-on into 2015 of a further -- 2015 and beyond $1.6 billion. As we indicated in January, we expect to incur about $1.2 billion of cash costs in 2015 associated with those accruals that we took in 2014 and then the balance would bleed out into 2016. A lot of its dependent on timing of getting the vehicles repaired, et cetera. In addition to that, we highlighted that there was going to be an overflow into 2015 associated with restructuring expense recall. We booked a $1 billion of restructuring expense against the P&L in 2014. We anticipated roughly $300 million of that flowing over into 2015. So between the two, about a $1.5 billion broad strokes Brian rolling over from ‘14 into ‘15.

Okay. And kind of second or related to that before I ask the CapEx question. Does that kind of feed into just getting those cash payments out the door, apparently which is [indiscernible] quoted you on saying there is a possibility for second half we are looking at cash to shareholders, maybe you could elaborate on that.

Well, yeah, what I specifically said was, our objective and our focus is to drive shareholder value and shareholder returns, evidenced by the intended increase in the dividend. And then looking beyond the first half of the year, we have a number of open items that we still need to get clarity around related to the recall. Separate from these issues that we just talk about, Brian, this is ongoing litigation and other issues. And to the extent that we get clarity and understand what those issues are and the potential impact from a cash perspective, we could be in a position in the second half of the year, where we would evaluate further returns of capital to shareholders and that’s something we continuously monitor and evaluate.

Okay. And then finally, on CapEx, the $9 billion, which you discussed some of the drivers, Mary, thank you for the increase? To what extent can we expect either as a dollar amount or percent of sales this to continue? And, secondly, particularly for some of the investments in technology and in new product introductions, kind of when is the timing for when those investments ought to get return on investment. Not to sound like a bean counter, but I’m sure you count.

Yeah. Sure. A big portion of the $9 billion is associated with our products that we’re going to be launching at the tailend of ‘15 and into ‘16 and ‘17. And when you look at what we talked about from a margin expansion perspective, North America 10% margins, Europe profitability, we indicated that the next-generation Cruze, next-generation Malibu, the Corsa, the Astra and some of these other products will going to be more profitable than the vehicles that they replace. So the return on a big portion of this capital, which is portfolio related, will start to see roll through in ‘16 and ‘17. And if you add up the guidance we provided for 2016, you quickly get to overall consolidated margins that are much more robust than we are today and that’s really the return for that investment.

Okay. And sort of level of CapEx in ‘16, ‘17, ‘18?

What I said before in our outlook hasn’t changed on that. We would expect on a go-forward basis, as we move through a number of the items that Mary talked about both portfolio, fuel-efficient technologies, advanced proportion and other innovations that our capital spending would be around industry average, call it 5.5% in net sales just to provide some broad guidance on that.

Okay. Thank you.

Yeah.

Our next question comes from the line of Colin Langan from UBS. Please go ahead.

Great. Thanks for taking my questions. Firstly, I noticed there were some headlines that you were taking some price cuts on models in North America, but your comments today indicate that we should think of pricing as relatively flat. So can you explain some of the logic behind the pricing strategy that was recently announced?

I don’t know specifically what you’re referring to, if you’re referring to Cadillac, what they fundamentally did was reposition option packages and content. When I look at carryover pricing in North America, I indicated in the past that we expect it to be flat to slightly a headwind in 2015. As we cycle through the full-size truck and SUV dynamic and actually, we are in the last year of a number of our products that we talked about before Cruze, Malibu and others. So the specific actions from a Cadillac perspective, was really adjusting packaging content and the starting-form price to the entry-level vehicle and not the whole line up of Cadillac products. And we do that quite often, when we look at, trying to make sure that we’ve got the content lined up with what the customers want.

Okay. I think the recent article said that on some of your Chevy models, I think including the Cruze and some SUVs, you were cutting the base price by $1,500 to $2,500. Does that sound accurate?

Probably, it’s the same issue. Adjusting starting-from price, which at the end of day helps from a digital Internet shopping perspective but fundamentally very-very low penetration levels on those models.

Got it. Okay. And any color on the GMIO consolidated fix, I mean, you are targeting, I believe you said that it was going to be a breakeven ex-restructuring next year. It was losing I think around $900 million this year. What are the key drivers to getting that back to profitability -- back to breakeven? And then any color on what you are going to do with the facilities that were supplying the Chevy Europe vehicles?

Yeah. Sure. I’ll answer the first part first. One, one big driver year-over-year is the absence of Chevrolet Europe losses. So, I’m not going to get into the specifics of that, but that’s one of the drivers in the improvement ‘15 versus ‘14. Second, full year of full-size pickups and full-size utilities in the Middle East, and third, just continuing to drive efficiency in the core operations and the rest of consolidated operations. And I think you saw that if you looked at the results during 2014 quarter-in quarter-out, the results got better, still little loss, but the results got better. And we would expect to see that ex-restructuring in 2015 as well. Relative to what happens to the capacity associated with the Chevrolet Europe volume, most of that came out of Korea. And when you look at what we are doing to fill that and the opportunities to fill it, it’s really with other global products like small SUVs the Encore, the Mocha, the Chevrolet Trax and driving efficiency and continue to drive efficiency in Korea. So this is obviously an ongoing set of actions that the international team are executing to.

Okay. That’s very helpful. And just last question. Any color on your relative risk to the volatility in currency? I imagine in Europe that actually does help translate some of the losses back to a lesser degree. What about the other inter-regional currency issues that you face? Is that a rising concern, or is it net neutral to your global business?

Yeah. Clearly, as you saw from the calendar year results, it was a significant headwind in 2014. We are largely able to offset that through pricing and other actions, as we started this year, further weakening of these currencies will again be a challenge. But when I look at it across the globe, I generally -- the transaction impact is offsetting with the exception of the Russian ruble that’s the biggest concern that we have thus far. And the team continues to take actions to offset that. So as I think about it from a big picture perspective, I think we’re in a pretty good position to manage the FX exposure without changing our view of the year. And again, the proof-of-point is we’re able to do that last year and get after it and we’ll do the same thing in 2015.

Okay. All right. Thank you very much.

Yeah.

Our next question comes from the line of Emmanuel Rosner with CLSA. Please go ahead.

Hi. Good morning, everybody.

Good Morning.

Hello.

Wanted to ask you first about your mid-term target margin for North Americas, 10% by 2016. It looks like this quarter, a lot of things from execution as well as environment were going very well and you achieved obviously a strong margin in what is seasonally a weak quarter. But it’s still only about 8.7% or so. Can you please remind us the bridge from current levels to 10% by 2016, what are the main buckets there?

Yes. Sure. Number one, significant improvement from product and when I talk about product, two different buckets. Product refreshes, so replacement of current models like the Cruze, Malibu, Equinox, Terrain. We indicated back in October that each of those vehicles would be more than a $1,000 per unit more profitable than the vehicles they’re replacing. Next between cost efficiencies, as well as price and then new entries like the mid-sized truck for instance and Cadillac entries that we’ll be adding to the portfolio, which are accretive to volume share and profitability. So that’s the product portfolio piece of it. And then of what we call adjacencies or business model leverage, we think there’s significant opportunity going forward between now and ‘16 and beyond for customer care and after sales expanding our reach in the value chain in the F&I area, OnStar with monetizing 4G LTE. So those are the big drivers of going from -- think about it 2014 kind of ex recalls 9% to 10% in 2016. Those are the big drivers to pickup that net 100 basis point improvement. Clearly, the first two will be more than 100 basis points because we are going to have is we’ve talked about before some overhead headwinds associated with engineering and marketing, but net those out and that’s how you go from 9% to 10%.

Okay. Very helpful. And then just another margin question, but on China this time. Obviously, you are running pretty close to your targeted levels and these are obviously very impressive margins in absolute terms. Yet, I cannot notice that just the ongoing trend I guess over the past four quarters or so is just a sequential decline. And I’m sure there is some seasonality in that as well. But can you just go over again these sort of competitive dynamics and why you wouldn’t expect this to sort of like continue to decline as it has for the past few quarters sequentially?

Yeah. I think it’s important there is seasonality in that. If you look at the fourth quarter net income margins this year versus last year, they are up 110 basis points. So 8.7% versus 7.6% from a China net income margin perspective. For the year, we are at 9.8% which is up three times of a percent year-over-year. And as we talked about the dynamics in the China market before and how we are going to maintain 9% to 10% EBIT margins. We indicated that volume and mix would be favorable material performance with partially offset price and we expected kind of fixed cost to increase as we continue to invest. The biggest driver if I net it all that out is really mix and that’s going to be driven in maintaining margins. And that’s going to be driven by nine new SUVs that we are launching and in a process of launching including the Chevrolet Trax, which is doing very well, the Buick Envision, which is doing very well as well as filling out and growing Cadillac. So that’s how we are going to attack and maintain those 9% to 10% margins.

Perfect. Thanks a lot.

[Operator Instructions] Our next question comes from the line of Ryan Brinkman with JP Morgan. Please go ahead.

Hi. Thanks for taking my questions. First I see on slide nine that you call out $0.1 billion of recall-related costs, but I didn’t see that in the press release or in any of your regional year-over-year EBIT bridge slides, maybe because it rounds to less than $0.1 billion in any region. So I’m just curious what that is, whether it might relate to North America, suggesting that your underlying margin there was even higher?

It’s primarily legal related expense and that falls into the corporate sector. So for the year and we’ve talked about this before, we expected and actually incurred about $300 million in year-over-year increase in legal expense and that’s one other things that we expect to continue into 2015 as well.

Okay. That’s helpful. And then I’m curious on what you are seeing in terms of the impact of lower commodity prices in 2015. Not just in terms of the raw materials that I guess that go into your cars, but also maybe from the perspective of lower diesel prices impacting freight and logistics. How material could that potentially be?

Certainly versus our original expectations, it would have -- it would be a tailwind both commodity prices and fuel prices. And when you think about the magnitude assuming that fuel prices to stay with -- for the rest of the year, we are talking $200 million to $300 million at the top end of the opportunity range there

Okay. Great. And then last question, we saw some headlines the other day about suspending production in Russia, I guess to avoid that ruble to euro transaction headwind that you talked about earlier. So how should we think about -- what that means going forward? And other firms have sometimes talked about like what their unavoidable fixed costs in a country are like in Venezuela, for example. They try to draw the line for the investment community in terms of how bad could it get if there were no corresponding revenue. Anything you can do to kind of frame the situation for us?

Sure. If you look at 2014 versus 2013, the net headwind from a Russian perspective and European results was about $200 million on a year-over-year basis. As I think about 2015 the kind of the local fix costs left unattended are about $250 million. So if we produce zero vehicles and generated zero variable profit and took no action, there could be a $200 million to $250 million headwind from a local fixed cost perspective. Obviously, our objective is to offset that to the extent possible with cost reductions, which we continue to do hence the suspension of manufacturing and the 1000 people that we’ve taken out of St. Petersburg but as well as pricing. But just sizing up the kind of potential exposure on a year-over-year basis, Ryan, I would call it $200 million or less.

Okay. That’s helpful. Thanks.

Our next question comes from the line of Joe Spak with RBC. Please go ahead.

Thanks for taking the question. Going back to China first, I know you mentioned the better year-over-year margin. Obviously, we see the whole sales were up as well. Was there any benefit from mix or can you give some color on that on a year-over-year basis?

Yeah. The mix was favorable in 2014 versus 2013. Again headline we grew share and profit margins. And one of the reasons we grew share was we introduced a number of new products, especially in the SUV’s segment, where we had to had some gaps from a portfolio on the competitive perspective. And again the same dynamics in 2015 were present in 2014. Volume mix were favorables. The net pricing dynamic in China is and has been a headwind and will continue to be a headwind. Material performance and carryover products partially offsets the net price and generally our fixed costs have been going up as we’ve been expanding in an increasing capacity. But the volume mix impact fundamentally offsetting price and fixed cost.

Okay. In South America, you guys have done a really good job offsetting FX with price. And it sounds like you are going to be able to -- you expect to be able to continue to do that in 2015, I just want to confirm that. And then also related to South America, I was wondering if you had given any thought to -- you mentioned in the media some comments about Venezuela. I was wondering if you gave any thought to deconsolidating those activities such as Ford did?

Yeah. Let me talk about the general dynamic in South Africa first. Not only, have we been working hard to offset the impact of FX in economics with pricing but we continue to drive efficiencies throughout the business from a cost perspective as well. I would suggest that generally from a Venezuelan and Argentinian perspective, we can recover any FX movement and any economic impact inflation. And we demonstrated the ability to do that over the past number of years. Brazil is a little bit different dynamic. So I’m keeping a very close eye on what’s happening with the real and our ability to recover that completely. Historically, we haven’t been able to get it completely offset that headwind with pricing. And that’s something we’re going to have to monitor. Obviously, it’s weaker than what we expected thus far. From a Venezuela standpoint, our facts and circumstances would dictate that currently we control our operations. We have some control over operations. We were able to take advantage of currency releases and participate in the currency markets in 2014 to secure hard currency to order product. We settled and got a labor agreement. And in the fourth quarter, we’ve been producing vehicles, producing and selling. And until those facts and circumstances change, we’re in a position where we’re actually controlling the business. But that’s something that we monitor very, very closely. And if those things change, further volatility, unavailability of currency, or otherwise, that’s something we will have to revaluate.

Okay. And then just real quickly, the recall-related legal expense, should that continue -- of $100 million, should that continue for another couple quarters?

As I indicated, we incurred roughly $300 million of recall-related legal expenses in 2014. And we would expect that kind of pace plus or minus to continue in 2015.

Okay. Thanks a lot.

Yes.

Our next question comes from the line of Itay Michaeli with Citi. Please go ahead.

Great. Thanks. Good morning, everyone. And congratulations.

Thanks, Itay.

Just a couple of housekeeping, Chuck, the $700 million of restructuring expense this year, can you give us a rough breakout of where that’s going to be by region?

I’ll give you a general breakdown of that. About something less than $100 million in South America, a range of $100 million to $200 million potentially in North America, and then the vast majority will be in international operations, primarily related to Holden and the previously announced action to cease manufacturing operations and some restructuring activities in Korea associated with alining capacity with demand around the world, somewhat related to the Chevrolet Europe wind down.

That’s very helpful. And then you mentioned earlier some of the cadence issues for cash flow, how about EBIT-adjusted, anything special to think about this year? You do have some product launching late in the year. Any tips in terms of modeling the cadence this year?

If I was going to model the cadence, I would look at the last two or three years earnings cadence and look at that and Q1 will be generally the weakest quarter of the year. Just based on from a seasonal perspective, Q2 will be the strongest and Q3 and Q4 will be about average.

Great. Just lastly, on the free cash flow guidance, just to clarify, are you still looking for about $1 billion of cash restructuring in 2015? I know you mentioned the recalls. I just want to check on the restructuring as well.

That’s correct. The $700 million assuming that we execute all these restructurings and actually make the payments in 2015, that’s the assumption, plus the $300 million overhang from 2014.

Great. That’s all very helpful. Thanks so much, guys.

Yes. Thank you.

Our next comes from the line of Adam Jonas with Morgan Stanley. Please go ahead.

Thanks, everybody. Just a couple questions about GM Financial and the strategy, the decision to pull the subvented leasing business for Buick, GMC, and Cadillac back 100% captive and away from Ally. Ally has been pretty critical of the move. I’m sure you’ve seen some of the quotes from their former CEO. I just wanted you to explain again the logic for not giving Ally any chance at all as a subvented leasing alternative, why the exclusives?

Yes. Number one, first and foremost, is owning the customer. This is all about customer relationship and driving improves the loyalty. And what we’ve found and I’m not saying it’s specific to Ally, but in other lease providers, at the conclusion of lease their objectives may not be the same as ours. Our objective is to get that person another General Motors vehicle and maintain that relationship and own that customer. So this is 100% around loyalty and customer ownership.

Okay. That’s clear. And just a second just follow-up, you have been growing your captive finance business very aggressively, both through organic and non-organic means. And some of the non-organic stuff you have done has been acquisitions of some of the former Ally International businesses most recently in China, the JV side of it there. Can you categorically rule out considering adding some of the domestic Ally portfolio if it was offered at the right price? And I say that seeing Ally trading at around 0.7 times tangible book. Thanks.

Yeah. I really, I’m not going to comment on that at all. I’m one way or the other, Adam.

Okay. So that’s not a categorical to rule out. Thank you.

No comment.

I respect that. Thank you.

Miss Barra, there are no further questions at this time. I will now turn the conference back to you.

Thank you very much, Operator. And thanks everybody for participating on the call and for your questions. As we move forward, you can expect us to keep the same intense focus on results that we demonstrated through 2014. And with this focus, we expect to deliver improved performance in all of our automotive regions this year. It’s key to meeting our 2016 objectives, including the 10% EBIT-adjusted margins in North America, profitability in Europe and continued strong margins in China. And it will also keep us on track to deliver EBIT-adjusted margins in the 9% to 10% range early next decade. Our intention is to increase second quarter -- our intention to increase second quarter dividend is the first step in our goal to maximize long-term shareholder value through both return of capital and stock price appreciation. So now I would close by saying thanks again for your participation. I appreciate your time, and hope everyone has a good day.