General Motors Company (GM) Q1 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the General Motors Company first quarter 2017 earnings conference call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded Friday, April 28, 2017. I would now like to turn the conference over to Randy Arickx, Vice President of Corporate Communications and Investor Relations. Please go ahead, sir.

Thanks, operator. Good morning, and thank you for joining us, as we review GM's financial results for the first quarter of 2017. Our press release was issued this morning and the conference call materials are available on the GM Investor Relations website. We are also broadcasting this call via webcast. Included in the chart set materials published this morning, we've got the key takeaways from each chart in the notes pages in order to provide color on the results. This morning, Mary Barra, General Motors' Chairman and Chief Executive Officer, will provide some brief opening remarks followed by Chuck Stevens, GM's Executive VP and CFO, and then we will open the line for questions from the analyst community. 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. In the room today we also have Tom Timko, Vice President, Controller and Chief Accounting Officer, to assist in answering your questions. Now, I will turn the call over to Mary Barra.

Thanks, Randy, and good morning everybody. Thanks for joining us. GM delivered a very strong quarter that set several Q1 records, including net revenue, EBIT-adjusted, EBIT-adjusted margin, and EPS diluted-adjusted. Year-over-year results include net revenue of $41.2 billion, up from $37.3 billion; net income of $2.6 billion, up 34% from $2 billion; EBIT-adjusted of $3.4 billion, up from $2.7 billion; EBIT-adjusted margin of 8.2%, up from 7.1%; EPS diluted-adjusted of $1.70, up from $1.26; and EBIT-adjusted of $3.4 billion in North America and an EBIT-adjusted margin of 11.7%, both of those are Q1 records. Automotive-adjusted free cash flow of negative $600 million is an increase of $800 million. And our ROIC-adjusted was 29.7% on a trailing four-quarter basis, reflecting the positive impact of our disciplined capital allocation framework. And we returned about $600 million in dividends to shareholders in the quarter. Our strong core business continues to drive our earnings growth. The strategic investments we have made in brands and in our operations are delivering outstanding new products with higher quality, stronger ATPs and positive third-party recognition, and they were produced with much greater efficiency. In addition, we continue to generate outstanding EPS performance by focusing on key markets with leading franchises, relentlessly pursuing efficiencies across the enterprise and allocating capital to maximize returns and mitigate risk. This means taking action in difficult markets to either restructure or exit the business. As you know, last month, we announced the sale of our Opel and Vauxhall brands and GM Financial's European operations to PSA Group for about $2.2 billion. This transaction is a win for the stakeholders of General Motors, Opel/Vauxhall, and PSA Group because it will enable each company to capitalize on its respective strategic priority. For GM, the sale is another step in our ongoing work to transform the company by strengthening our core business, investing resources in higher return opportunities including the future of personal mobility, and returning significant capital to our shareholders. We expect the transaction to close later this year and immediately improve our EBIT-adjusted and EBIT-adjusted margins, and adjusted automotive free cash flow as well as de-risk our balance sheet. We can lower the capital balance requirement under our capital allocation framework by about $2 billion and use it to accelerate share repurchases, subject to market conditions. The sale will also allow GM to participate in the future success of PSA through warrants to purchase PSA shares and to collaborate with PSA in future technology development and deployment. Through these actions, we are establishing GM as a more focused company and aligning our business for strong, sustained performance and growth. If I turn and look at GMNA and GM China, they really drove our Q1 results. So, let's take a look. In the U.S., we have been introducing new and refreshed crossovers across our brands and we posted our best Q1 retail sales since 2008. Retail market share was up 0.3 percentage points to an estimated 16.9%. Chevrolet had its best first quarter since 2007 with year-over-year sales up nearly 2%. Buick and GMC retail sales, each were up nearly 4% with their best first quarter in 13 years. GMC sold its millionth top-of-the-line Denali model, which has contributed significantly to the brand's strong ATPs. Buick, once again, made Consumer Reports' list of top recommended brands. Crossover sales rose a combined 21% and truck deliveries were up 0.5%. Average transaction prices were over $34,000 and were in line with last year, and exceeded the industry by about $3,000. Now let's turn to China. I was just there last week for the Shanghai Auto Show and we actually had our GM board meeting there as well. We were there and participated in the launch of new models for the Buick and Baojun brands. In the quarter, GM China maintained strong equity income and margins, despite pricing pressures and a 5% sales decline in the quarter, partially due to an increased purchase tax. Record March retail sales by GM and its joint ventures were up 16% year over year and helped temper the slow start to the year. GM China launched four models in the quarter, the Chevrolet Cruze hatchback, the Chevrolet Camaro, the Baojun 510 SUV, and a new variant of the Buick GL8 MPV. Baojun and Cadillac achieved Q1 records, with deliveries up 25% and 90% year over year respectively. Half of the 18 new and refreshed models that we introduce in China this year will be in the higher margin SUV, MPV, and luxury segments. GM continues to expand its electrification portfolio in China with plans to introduce more than 10 new energy vehicles between 2016 and 2020, including hybrid electric vehicles, plug-in hybrid electric vehicles, and battery electric vehicles. GM in China launched the Cadillac CT6 PHEV late last year and last week launched the Buick Velite 5 extended-range EV. In addition, Buick will introduce, at least, one all-new locally produced battery electric vehicle model before the end of the decade. In South America, we expect significant year-over-year improvement in 2017, despite initial industry weakness. Chevrolet continued its 16 years of leadership in the region with sales growth of nearly 11%, outpacing the industry and market share of 15.7%. Losses were unchanged year over year and we remain confident that we are well positioned for growth when the market fully recovers. In Brazil, Chevrolet has maintained its market share lead for 18 consecutive months. In our ongoing work to lead in the future of personal mobility, we are making progress in autonomous vehicles, electrification, and connectivity. We just announced we will invest $14 million in a new research and development facility in San Francisco, where Cruise Automation will expand development of self-driving vehicle technologies. Cruise will hire more than 1,100 employees during the next five years and link them with our global engineering talent across the globe. We are running our autonomous vehicle program like a startup to give us the speed that we need to stay focused at the forefront of these technologies and the market applications. As autonomous car technology matures, our talent needs will increase, and Cruise's presence in the Bay Area gives us access to a world-class talent pool. These are men and women who want to be part of a fast-moving technology company that can also manufacture autonomous vehicles in scale. This month we announced Super Cruise. This is the industry's first true hands-free highway driving technology. It will be available later this year on the 2018 Cadillac CT6 sedan. Super Cruise is the first assisted driving technology that will use precision LiDAR map data in addition to real-time cameras, sensors, and GPS. When engaged, Super Cruise accelerates, brakes, steers, and keeps the car centered in the lane, even in stop-and-go traffic. And a camera-based driver attention system exclusive to Cadillac ensures drivers keep their eyes on the road. Super Cruise is a very promising technology that lays the groundwork for a safer future. On electrification, we are maintaining our industry lead in reducing battery cell costs, key to bringing affordable electric vehicles like the Chevrolet Bolt EV to market. We are ahead of the impressive battery cell projection cost we established two years ago, and our internal focus is to make GM the first maker of profitable, highly desirable, range-leading, and obtainable electric transportation. Advancing our lead in vehicle connectivity, in March we became the first mass-market automaker to offer an unlimited data plan. Since then, we have sold more than 100,000 unlimited data plans across our four U.S. brands. GM has more than 5 million OnStar 4G LTE-connected vehicles on the road today, more than any other automaker. Now if we look at the calendar year 2017, given the used car pricing, a softer than expected industry in South America, a more challenging pricing environment in the U.S. and China, and more pressure on commodity costs, there is absolutely no question the global environment is feeling tougher. Having said that, this management team is focused on taking the actions necessary to deliver the commitments we made in January, including EPS diluted adjusted of $6.00 to $6.50, and EBIT-adjusted margins greater than or equal to 2016. Our pipeline and mix of new products are strong. In the U.S., 10 all-new or recently redesigned crossovers are expected to drive sales and market share higher this year. At the same time, we continue to adjust passenger car output to meet consumer demand. We'll realize full-year sales of popular crossovers like the Cadillac XT5, the GMC Acadia, the Chevrolet Bolt EV, the Buick Envision, and a refreshed Buick Encore launched in 2016. They'll be joined this year by the next-gen Chevrolet Equinox and Traverse and the GMC Terrain, Buick Enclave, and the all-new Regal Tour X crossover wagon. Our intense focus on cost efficiency continued. In January, we increased our savings target to, at least $6.5 billion through 2018, which we expect will more than offset incremental investments in engineering, brand building, and technology. And we are always seeking additional opportunities to streamline the business and identify further savings. Our solid quarter follows three years of record-setting performance and a track record of taking bold and decisive actions to execute our strategic plan, put the customers at the center of everything we do, and deliver shareholder value. And, with that, I'll turn it over to Chuck.

Thanks, Mary. As we expected, we had a very strong start to the year, generating first quarter records for revenue, EBIT-adjusted, EBIT-adjusted margin, and EPS diluted-adjusted. In North America, we once again had a record first quarter for revenue, EBIT-adjusted, and EBIT-adjusted margins. Revenue increased 11% to $29.3 billion, up from $26.5 billion for the first quarter of 2016. EBIT-adjusted of $3.4 billion was up over $1.1 billion versus the first quarter of 2016, which included $200 million in restructuring expense. EBIT-adjusted margin was 11.7% for the quarter, up 3 percentage points year over year through improved pricing and reduced cost. The first quarter was driven by strong carryover pricing, primarily on our pickup trucks, as well as the aforementioned cost performance. While our majors were not a significant source of EBIT improvement in Q1, as the majority of the launches last year were in challenging car segments, we see our crossover launches driving favorable price performance throughout the balance of the year. As we have said, our crossover launches are significant opportunities for the company. Our lineup will go from arguably the oldest to the newest portfolio in the industry, as we launch the Chevy Equinox and Traverse, the GMC Terrain and the recently unveiled Buick Enclave in 2017, following on the Cadillac XT5, Buick Envision, and the GMC Acadia in 2016. Shifting to inventory, as I said during the January DB conference and in our recent Office Hours webcast, we expect to build inventory in the first half of the year, which will then decline in the second half, very much driven by product launch cadence and scheduled K2XX downtime. And through the first trimester of the year, we are very much on plan. Admittedly, passenger car inventory remains heavy and we have been working to bring that down to more appropriate levels by cutting production, and we remain committed to match supply and demand. We expect to end 2017 with inventory in line with 2016 at about 70 days' supply, with significantly reduced passenger car levels. Our expectation is that the industry SAAR [Seasonally Adjusted Annual Rate] will remain in the mid-17 million-unit range, and we are on plan for a third straight year of 10-plus percent EBIT margins in North America. Shifting to Europe, revenue was $4.5 billion, down $200 million year over year, primarily due to foreign exchange rates. EBIT-adjusted was a loss of $200 million, driven primarily by foreign exchange due to Brexit. This compares to breakeven for the first quarter of 2016. As Mary mentioned, we see significant opportunity from the exit of GM Europe, which will immediately improve our overall EBIT-adjusted and EBIT-adjusted margins. In addition, we have been spending approximately $1 billion a year in CapEx in Europe. We would expect this to be fully recaptured and create about $1 billion annual improvement in adjusted automotive free cash flow, all else equal. Once we satisfy various legal and regulatory conditions to close, we will report our Opel/Vauxhall business and GMF European operations as discontinued operations, potentially starting as early as the second quarter. Moving on to China, China had another strong quarter with equity income of $500 million, about equal to a year ago. Wholesale volume in the first quarter was essentially flat versus the first quarter of 2016. We continue to see pricing pressure, which was offset by improved mix with stronger Cadillac volumes and Baojun launch vehicles, as well as continued cost efficiencies. The industry was down roughly 3% in the quarter due to the partial expiration of the government's purchase tax incentive. However, there is strength in luxury, SUV and crossover segments where we are well positioned. Despite the slow start, we still expect low single-digit industry growth in 2017 in total. Given continued growth expectations, our strong launch cadence, continued mix improvement and cost efficiencies, we expect another year of strong equity income in China. Turning to South America, revenue for the quarter was $2 billion, an increase of about $600 million year over year. Our EBIT-adjusted loss was $100 million, essentially flat versus a year ago. The macro environment in Brazil was not as strong to start 2017 as we had expected, as the industry was down 2% in the first quarter. In spite of that, GM volume in Brazil was up to 8%, resulting in a market share increase of 1.5 percentage points. We started to see some positive signs for the industry in Brazil in March, and we still expect year-over-year profit improvement overall in South America. A few words on GM Financial, the corporate sector and free cash flow. GM Financial generated a quarterly record revenue of $2.9 billion, up from $2.1 billion in 2016, resulting in record earnings before taxes of $300 million, up about 16% year over year despite the pressure we've seen in used-car values. We estimate the 7% decline seen in recent months will continue through the rest of 2017. Obviously, used-car pricing impacts us in many ways, including pressuring our residual values, increasing the cost of leases for our customers, and reducing off-rental auction pricing. This is why we have put such an emphasis on strengthening our brands and reducing our reliance on rental car sales. And while a decline in used-car pricing puts pressure on GMF, we still expect GMF and our other adjacent businesses to be tailwinds for the full year versus 2016. Corporate costs were $300 million, up $100 million year over year, as expected. As we previously indicated, corporate costs will remain higher throughout the year, as autonomous and mobility investments are included in this segment. Adjusted automotive free cash flow was a seasonally expected burn of $600 million for the first quarter. This is an improvement of $800 million compared to the first quarter of 2016. The improvement was driven primarily by improved automotive EBIT-adjusted. With regard to our total company outlook for the full year, Q1 was strong. In fact, it was our strongest Q1 in history and very consistent with our expectations entering the year. This strong start puts us very much on plan for full year profit margin equal to or better than 2016. We're also on track to generate approximately $6 billion of adjusted automotive free cash flow for the full year. While we were restricted from repurchasing shares in the first quarter, due primarily to the pending GME transaction, we expect to execute up to $5 billion of share repurchases, pending the close of the GME sale and resulting reduction of $2 billion of cash on our balance sheet. These repurchases are expected to be weighted to the second half of the year. Our first quarter was a strong start to the year we expected and puts us on track to achieve our EPS-adjusted guidance of $6 to $6.50 for the full year. That concludes our opening comments. We'll now move to the question-and-answer portion of the call.

Our first question is going to come from the line of Rod Lache with Deutsche Bank.

Good morning, everybody.

Hi, Rod.

Can you hear me?

Yeah.

A couple of questions just focused on North America. The pricing is very impressive especially relative to the market and, I guess, I'm wondering of what your view is on, at what point the $1,100 to $1,200 per vehicle decline in auction values actually starts to become a headwind for affordability and mix and start to affect new vehicle pricing for you. And then also on North America, that fixed cost savings number of $300 million in the quarter, can you give us some idea of what the net opportunity for fixed cost reduction might be this year or next?

Yeah, clearly in the first quarter, speaking about the pricing, that was largely related to truck pricing on carryover trucks and that was a number of pricing actions that we took last year. So, I wouldn't expect to see that kind of run rate through the rest of the year on carryover pricing, Rod. With that said though, we do expect, as we've talked about before, overall pricing to be favorable for the year as we launch our new crossovers and that's going to drive obviously in that tailwind through the balance of the year. Relative to impact of used-car pricing on affordability and everything else, obviously, that's one driver of affordability, continued availability of low-cost interest is another driver, continued low gas prices is another. Clearly, that's something on our radar and something that we're very focused on and that's why we're intensely focused on driving cost efficiency, because the market's just going to become more competitive as we go forward. Again with that said, we're very constructive and optimistic and confident around our 10% margin objective for the year. On the cost front, if you look at North America in the quarter, we had $700 million year-over-year improvement in cost, $200 million of that was absence of restructuring charges. You may recall we took the SAP, the attrition program last year in Q1 as part of the 2015 UAW negotiation. So, kind of recurring was the $0.5 billion of savings in the first quarter and that $300 million was really absence of launch cost, because we were relatively light. I would expect that to amp up as we go through the rest of the year. Both from a manufacturing and a marketing perspective, we've got a heavy launch cadence. With that said and looking at total cost, from a fixed cost perspective, material cost performance, warranty, our overall cost, we expect cost performance to be a favorable tailwind year over year, something north of $1 billion. And again, as we've talked about repeatedly, we are very, very focused on driving cost efficiencies and it's starting to show up in our results from a North American perspective.

Great, thank you, and just one last one, you're achieving this performance in North America, despite some pretty significant drags, obviously, still from passenger car, and it's very apparent when you see the contribution margins in the K. Could you give us a sense of the range of options that you're contemplating for that business, and is there a very sizable opportunity still left in improving the performance in North America through reconfiguring that or coming up with some creative solutions for that business?

When you say that business, Rod, are you referring to passenger cars? I wasn't sure of your question.

Correct. Obviously, more than 100% of your earnings in North America is coming from the trucks. So, there's obviously a significant drag here, and there are a lot of options for that business each short term and long term, but how are you thinking about the range of alternatives?

Yeah. First, I would say, if you look at the cars, the Cruze, the Malibu, specifically that we just launched last year, they are on very efficient architectures; architectures that we'll use for multiple generations, not only from a light-weighting efficiency from a performance perspective, but also efficiency from a cost perspective. So, that's one opportunity that we're already putting in place – or we've already put in place. The brand building that we're doing is very important, also looking at the material cost performance that we continue to drive, and then really looking at configuring the vehicle and making sure we have the right vehicle offering to best satisfy and create the value for the customer. There's also opportunities with OnStar and the performance and what we can drive into the vehicle there. So, there's several things that we're looking at and that we continue to work on as we continue to improve the profitability of cars. So, we're very focused on doing that and are making good progress.

If I could just add a couple of points to what Mary said, Rod, number one, we certainly, as Mary said, see opportunities to drive improvement in profitability in cars and it's like a key focus area for us here in North America. But the cars that we just recently launched are more profitable than the vehicles they replaced. And we continue to make progress from that perspective. Secondly, and I think speaking more broadly about passenger cars globally and not just North America, our execution of our global emerging market program which will fundamentally replace emerging market architectures, 11 or 12 separate architectures with one. Engineered and co-sourced in China with 2 million units of scale is going to drive huge benefit in passenger car profitability at a company level. And just to give you a data point, 90% of South America's volume will come off the GEM architecture once it's rolled out, which is a huge opportunity from that perspective. So, very, very focused, big opportunity for us. We continue to make progress in North America, more to do and I think the global emerging market program that we'll be starting to launch in 2019 is going to be another significant enabler to improve our quality of earnings.

Great, thank you.

And our next question is going to come from the line of Itay Michaeli with Citi.

Great, thanks. Good morning, everyone.

Good morning.

Good morning.

So just first maybe for Chuck on the 2017 outlook, when we think about the strong result and some of the industry headwinds you've mentioned, is there any kind of early bias around kind of high end, low end of the range? And then also kind of how we think about the cadence of earnings in the remaining three quarters of the year?

Let me answer the cadence part first because this is consistent with what we've talked about, again going back to January and then in the Office Hours, we would expect earnings – unlike typical years, you guys know Q1 is relatively weak, Q4 is relatively weak, Q2 and Q3 relatively stronger. We would expect this year, kind of a more evenly cadence level of earnings generally. Q1, obviously, stronger than typical and Q3 is going to be weaker than normal and that's because of the significant downtime that we're having related to launch products. We've got somewhere in the ZIP code of 13 weeks of downtime in Q3, a little more than half of that's related to full-size pickups and SUVs getting ready for the next-generation launch. There was some crossover downtime as well as Bowling Green for Corvette. So, I think from a cadence perspective, in North America we'll drive this largely, Q3 would be relatively weak compared to the past years, from an overall cadence perspective. What was the first part of your question?

Just in terms of any bias around the low end, high end of the range?

I think we're very confident in the guidance that we provided of $6 to $6.50 for the year. And Mary just indicated in her remarks that, we expect revenue to be up and EBIT and EBIT-adjusted to be greater than or equal to 2016. So, we fundamentally haven't changed our view. And again, the comment that I made, we expected a strong Q1, we delivered a strong Q1 and that's consistent with the guidance that we provided earlier in the year.

That's very helpful. And then just secondly, maybe kind of a long-term strategic question. In the past, you'd talked about targeting first to scale with autonomous ride-share services, you've also recently talked about profitable electric vehicles. I was hoping we could talk a little bit more about that in terms of what the timing is for the two goals and how you benchmark GM relative to some of your peers and competitors out there.

First to talk about autonomous vehicle, we continue to make very strong progress with Cruise Automation. We've given the Cruise Automation team with the right resources that we've added, responsibility not only developed from a technology perspective and integrate with the core engineering elements of General Motors, but also the commercialization. And so we really are running that as a startup. We haven't put specific timing out there, but I think what we've said several times it will be sooner I think than most people think and we're aggressively working on that and you'll hear more from us as the year evolves on that. So I'm very pleased with the progress we're making. And also, I think one of the key things, there's a lot that is said right now about autonomous vehicle development. But when we are doing our development in downtown San Francisco, also in Scottsdale, also now in Detroit, downtown San Francisco is one of the most complex environments, and the progress that we're making with zero incidents as we take many routes around that city I think gives me confidence that we're on a very good path. As it relates to electrification, when I look at all the assets that we bring to electrification, and this is why Mark has challenged the team, that we are the first OEM that is profitable in electric vehicles again from a technology, from a performance, and from an affordability perspective. And I think we have a steady ramp of products that you're going to see over the next couple years in electrification, but as we continue to evolve our BEV architecture, I think that will be the step. We are ahead of the curve on our cell costs. We started at – just a couple years ago we were at $145. We're now below our curve as we get to our goal of being under $100. And so that is progressing very well. The experience that we're seeing with the Chevrolet Bolt EV and the great response we're getting, because that is a car that is not only an electric vehicle, but it's fun to drive and it's really a technology platform. So when I look at what we've already got into the marketplace with our leadership position in the actual cell technology and the scale that we can leverage across the globe, specifically China, which will be the first and we believe largest electric vehicle market, I think that well positions us. So I'm not going to give you specific timing on either, but autonomous sooner than you think. And on electrification, that will really as we continue to evolve the BEV architecture.

That's very helpful, Mary. Thanks so much, that's all I had. Thank you.

Our next question is going to come from the line of Ryan Brinkman with JPMorgan.

Great, thanks. Congrats on the strong quarter, by the way. Just a couple questions on international operations. First on China, you showed an interesting chart at the Detroit show that illustrated your average wholesale price has been steadily rising there in recent years despite the increase in discounting. Mary mentioned in her remarks Cadillac was up 90% in 1Q. So, can you maybe give us an update in terms of how your average prices are trending, how you expect them to trend in 2017? What's going on especially in the period after the purchase tax there stepped up from 5% to 7.5% in terms of discounts, peer pricing in light of those discounts, and then your actual average prices which also take into account mix? I think that can be very helpful for investors forecasting profits for the remainder of the year in China.

A number of questions buried in there, Ryan, so I'll try to address them all. As we did show in Detroit, as mix continues to improve, and it's driven in both channels, both through SGMW and SGM, SGMW because they launched the Baojun brand with a number of crossovers, which obviously generate better price than the very small commercial vehicles. And on the SGM side with the growth of Cadillac and the launch of crossovers, we saw that increase in average revenue per unit, and we'll continue to see that on a go-forward basis. If you look at Q1 results, we had equity income that was fundamentally flat year over year, our net income margins down slightly from 9.7% to 9.3%. and what we're seeing play out is very significant improvements in mix that's fundamentally offsetting carryover price headwinds and improvement in carryover material cost that's fundamentally offsetting fixed cost increases as we've started to run more of our plants on a full line and fully utilized basis over there. And I would expect as I think about the rest of the year for that trend to continue, as it has over the last couple years because the Cadillac brand will continue to get new portfolio entries. Luxury is running strong. We've got a number of crossovers that we'll be launching over the next period of years, this year and next year, at both SGM and SGMW. So that's a trend we would expect to continue to play out. Relative to the industry, obviously there was a pull ahead into last year, as customers expected a pullback on the purchase tax. Payback in the first quarter, the industry was down 3%. We would expect to see the industry grow, as I mentioned, in low single-digit margins and some of that could be back-end loaded because I think there will be another reaction as customers expect a full pullback on the purchase tax by the end of this year, but that's our expectation. As we entered the year, we anticipated that carryover pricing was going to be negative 4.5% to 5%. I'd say through the first trimester, it's been a little bit north of 5% at SGM. However, again the results speak for themselves. We've been able to offset that with improved mix and cost performance at SGM and SGMW.

Great, that's very helpful. And then just lastly for me, I'd like to probe a little bit on the consolidated side of IO. It looks like the losses there grew year over year to $184 million, despite you're having taken some aggressive actions to try to right-size the operations and more selectively compete. Can you walk us through the actions that you have announced to date and the degree to which the associated savings are or are not already reflected in the results that we see? So for example, like Australia manufacturing, I think that still hasn't wound down, so maybe some more tailwind. The actions that you've announced in Thailand and Indonesia, are those savings reflected in the 1Q numbers? And then just beyond what you've already announced, even as some of the savings still are to come, is it fair to say that the remaining savings would not be quite enough to get you to profitability there? And if that's so, then what additional levers remain to be pulled like in India or Korea?

Yes. Let me talk to the Q1 results for a second. Clearly, we're running against a challenging environment, specifically in the Middle East. The biggest driver of the year-over-year deterioration in GMI more than accounting for the year-over-year deterioration is a contraction of the Middle East industry given low oil prices and we saw reasonably profitable vehicles there. So, that's the big driver. You're right, the impact of Australia, we won't start to see that until we exit 2017 and get into 2018. When we fully wind down manufacturing, that will be kind of we'll cease production in October timeframe there. So, that's something we'll see run rated in 2018. The Thailand downsizing of passenger car profitability and Indonesia ceasing manufacturing, clearly those savings are included, but in the big scheme of things, not necessarily a big driver. I mean, it's tens of and twenties of millions of dollars, not hundreds of millions of dollars. I would suggest when you look at the rest of the region, the best thing I can say is stay tuned. We continue to evaluate our operations there, and I think the lens to look at that is, if we can't find a path to a sustained long-term return in markets, we will take decisive action and that's something that we continue to evaluate and, again, I would suggest stay tuned.

Okay, that color was helpful. Congrats again on the quarter.

Thank you.

Thanks, Ryan.

Our next question is going to come from the line of David Tamberrino with Goldman Sachs. David Tamberrino - Goldman Sachs & Co.: Oh, great. Thanks for taking our questions this morning. Chuck, I just want to understand the first one for me in North America, as we think about the movement into 2Q and 3Q for your inventory levels and into 4Q, are we at the right levels at the end of March, the last data point that we saw? Should we see levels come up even further heading into the end of the second quarter, should they be coming down? And I ask this because I think overall, at the end of March, it was about 98 days, 108 for pickups, 89 for SUVs and 101 for passenger cars. Should we see passenger cars start to come down throughout the second quarter, SUVs drift up and maybe pickup trucks coming down?

The way I would think about it generally is, our expectation – again, this is a bit of a forecast because it depends on the strength of the industry and everything else as we go through Q2. But our expectation is that the overall level will be at a roughly 90-day supply at the end of Q2 roughly. Passenger cars will be down significantly, will still be at somewhat elevated levels on trucks and crossovers because of the downtime that I talked about before in Q3. And what we're driving to as we get to the end of Q4, as we've discussed before, is overall inventory on a days supply basis generally in line with 2016, roughly 70 days and our kind of objective is cars at about 50 days when we exit the year and obviously trucks will be a little bit more than 70 and crossovers will be kind of in that ZIP code, because we typically carry more than 70 days of trucks. David Tamberrino - Goldman Sachs & Co.: Understood. Thank you. And then just following up on that, the China pricing discussion, I mean, it sounds like it was a little bit worse than you had expected in the first quarter, obviously, did a very good job of outperforming that on the cost side. But as we progress through April, are we seeing a sequential acceleration in that negative pricing environment, given at least, I think, the industry inventory levels are a little bit elevated year over year or have you seen kind of a steady state in that 5-plus percent range, but not accelerating the negative 6%, negative 7% pricing headwind.

It's been relatively steady through April so far. Not a surprise is the industry contracted and it's a very competitive environment and people were – competitors were being very aggressive from a pricing perspective, it's kind of just steady as she goes in April. Our expectation though is, we work our way through the rest of the years, this should moderate a bit, but that's not our baseline planning assumption. We're planning around and driving the business around something in the mid-5% range from a year-over-over carryover pricing. But it should moderate as we start to see growth again because just naturally, it might take some pressure off the supply and inventory dynamic that we saw in the first quarter. David Tamberrino - Goldman Sachs & Co.: Understood. And just last one from our end. As I think about, you're a couple of months into now the Chevy Bolt launch, you've been manufacturing this vehicle. When you compare that to maybe some of the other passenger car launches, how much easier it is really to manufacture that vehicle, that pure electric vehicle versus your internal-combustion engine portfolio?

From a componentry perspective, to your point, it is a bit simpler to put together. It is in one of our very efficient plants, the Lake Orion plant in Michigan. And so, when we look at the launch, it's on track, we're currently selling in eight states, California, Oregon, Virginia, Maryland, Massachusetts, New York, New Jersey and Washington. We'll have some remaining northeastern states that will launch in May and then later in the year available across the United States. So, we're right on plan with where we expect the Bolt EV and also important that it will have some global launches as well. So, again it's in one of our most efficient plants. It's been engineered to be very efficient to build, so we're right on track and we're pleased with the progress on the vehicle. David Tamberrino - Goldman Sachs & Co.: Thank you both very much for the time. I appreciate it.

Thanks, David.

Our next question is going to come from the line of John Murphy with Bank of America.

Good morning, guys.

Good morning.

I just wanted to follow up sort of on the cost question. I mean, I think there are some people out there that still fear that you guys are sitting in the sort of the hypothetical downturn war room and you press the big red button, it says pricing and incentives on it. But I just wonder if you could sort of remind us and sort of talk about the other levers that you would pull along before you would ever push that button to really address sort of what might be some decremental margins and what kind of cost cutting you would do at least temporarily to offset the volume downturn.

So, assuming there's a volume downturn, right, because this is still...

I said, hypothetical, yes.

Hypothetical. So, clearly and first, again, I like to start these things at 10,000 feet and work my way down. We are very cognizant of that we operate in a cyclical industry, and we're eight years into expansion and it's not like we're sitting and waiting for a downturn to be prepared. I mean, day-to-day we are very focused on acting like we're in a downturn from a cost performance perspective and really taking a hard look at cost. With that said, if there was an event-driven downturn, immediate opportunity is to reduce costs, obviously, marketing. Marketing costs are a significant – I view it as significantly variable, right, depending on where the industry's at. And you could scratch out of that pretty easily something north of $1 billion. As we've talked about before, our manufacturing cost is much more variable now, and I think perhaps people still have the mental model of pre-bankruptcy where, as you took volume out, the manufacturing cost was very sticky. That's not the case now. We've got roughly 30% of our workforce that is short term that would not carry an unemployment benefit. And as we go through the next couple of years, that's going to increase to 50%. Clearly, as we see a downturn, there is a component, I hate to even bring it up, but incentive comp and profit sharing, that's a significant opportunity for reduced cost, it doesn't make any of us happy, but that's a fact. And we are continuing to look at opportunities through operational excellence, Global Business Services to drive savings in GBS. And one point related to this, we've talked about the sale of Opel/Vauxhall to PSA. We are engaged right now in an enterprise initiative to look at how this simplification of the business will allow us to take significant structure out of the business, whether it's corporate staff, whether it's engineering, because the portfolio is going to be more simplified, really across the business and we think that's going to generate significant cost savings. I would say, again stay tuned as we work through that. We will communicate it and likely it will have an upward impact on our $6.5 billion target.

Absolutely.

That's very helpful. Then just a second question, obviously, there's a lot of pressure on leasing right now or there's a lot of push on leasing to sell vehicles. And one of the big challenges, I think, the dealers are having is, a lease payment is a lot cheaper than a six-year loan payment. So, the consumer is gravitating to that, not recognizing some of the back-end cost. Just curious as you look at leasing, what kind of other instruments are you passing along to your dealers through GMF to help deal with this, because I think the dealers are kind of struggling with this. I mean, it seems like – it sounds like the automakers are pushing it, but the consumer is pulling it in a huge way and it's creating this, sort of this lease bubble. I'm just curious what you're doing with GM Financial and your dealers to help get cars sold via loan as opposed to lease?

Yeah. I mean there's a number of different drivers, obviously, and I agree with you, with low interest rates kind of the subvented financing is not as effective as it would be with normalized interest rates. And that's what's kind of driven a few folks over to leasing to chase that monthly payment. We work very, very closely and collaboratively with GMF to try to optimize across our overall incentive spend and mitigate the growth of leasing and mitigate our exposure there. And one thing, a specific tactic is down payment assistance on APR, instead of allocating the money to leases, we allocate the money to provide down payment assistance. That's had a significant impact in a relatively short term in driving more standard APR business to GMF. So, it's those kinds of tactics that we deploy. And we look across all of the tactics, whether it's leasing, whether it's our subvented financing, cash offers, down payment assistance, loyalty offers, I mean there's a number of tools in the toolbox and it's really to optimize kind of the overall mix of sales on spending and not create imbalances as we go to market.

Okay. And then, just one last question. I mean there's some companies out there that are pure electric car manufacturers that are basically raising no cost capital right now, which is difficult to compete against, I mean not so difficult for you right now, because volumes are incredibly low with those companies. But when you think about potentially separating pieces of the company, Mary, is there a potential to do that, not just to necessarily unlock value for shareholders, but to get access – what this is – the sort of a seemingly voracious demand for this growth in the new car future that's being given no cost capital, so that you could get some access to that cheap capital as well?

We constantly evaluate that and I think the steps that we took at the beginning of the year with what you see, we're doing in autonomous, are leading in that direction. So, we're looking to create the right business model, demonstrate – we're in a little different position with how we come at this and just to get to the core business and some of the – just a different perspective that people have on this company. But that's why we are being so aggressive in autonomous, so aggressive in electrification. And frankly aggressive with leveraging our 20-year lead with OnStar and having connectively in the car and unlocking the data monetization opportunities as well as just leveraging the data to provide a distinct and better value to the customers, so they buy our vehicles. So we continue to evaluate that. We want to put a few more I'll say proof points on the board and demonstrate that we are, I believe, best positioned, especially in electrification when you look at our track record, our scale, the leverage that we have across the globe. So we're going to continue to push on that. And as we evaluate, we'll look at the right time to make sure that we're doing the right thing for our shareholders, of which is having the right availability of capital.

Okay, thank you very much.

Our next question is going to come from the line of Adam Jonas with Morgan Stanley. Adam Michael Jonas - Morgan Stanley & Co. LLC: Hi, everybody. Hi, Mary.

Hello. Adam Michael Jonas - Morgan Stanley & Co. LLC: It's incredible. It's been already three years since – or more than three years since you got the CEO role. And I think you've probably done more in three years than a lot of other CEOs have done in 30. That's been a real whirlwind. And so please accept this question in the way it's intended. But there's been – I just want to know if you care to comment on some of the press speculation that as President Trump looks to bring in some expertise, including expertise from industry, to help him with strategy and infrastructure and transportation that your name has come up very high, if not at the top of the list. Just any, do you care to comment on that? Again, I'm not suggesting that your services aren't incredibly valuable in your current seat, but just it is a relevant topic for transition.

Adam, thanks for your comments, and I am 150% committed to General Motors. In my 37-year career, this is an incredibly exciting time because not only do I believe we are putting the best vehicles on the road that we have in my career here, but when I look at the opportunities that we have with autonomous, with electrification, with connectivity, I'm very passionate about it. And so I'm 150% dedicated to this company and continuing to demonstrate that General Motors can be the industry leader in transforming transportation and also being very responsive to the environment, and I think we're well positioned to do that. So that's where my focus is and will be going forward. Adam Michael Jonas - Morgan Stanley & Co. LLC: Thank you, Mary. That's very clear. Just my follow-up question, second question, China, I believe you're still number one in that market in terms of the broadest definition of light vehicle sales in China. Now in a market where U.S. tech firms like Google and Facebook are not legal in China due to data privacy issues, thinking on your business as your cars become pretty quickly data capturing, HD mapping machines, collecting passenger information and making life-and-death AI decisions, do you see any risk, Mary, however long term to your ability to continue to position, to maintain that position in a Chinese future mobility model with the obvious data privacy issues which that regime might naturally feel sensitive about from an economic or national security perspective? Thanks.

So you bring up a very good point, one that we're very cognizant of, and so we look at what the landscape is. We do have OnStar deployed quite successfully in China right now. But we also think there are opportunities that we're exploring of how we work in that whole ecosystem because it is a very different ecosystem, not only because of some of the issues that you've raised and the different companies that really are leading in that market, but also because of where the country is and how they're adopting technology and in some cases skipping whole generations of the way developed markets use the technology in going right to an end game solution. So when I was there just last week, we spent quite a bit of time on that topic and developing the plan of how we're going to pursue that, very specific to the Chinese market, that environment, and the potential people we might work with there as we continue to evolve the OnStar platform in that country. Adam Michael Jonas - Morgan Stanley & Co. LLC: And, Mary, you currently have full access to all consumer data from OnStar in China?

Through our SGM. Yes, SGM has that. The way we view data, Adam, is that the customer owns it. And so if someone signs up for this service, they give us permission to how we're going to use that data. So again, complying with all the laws and regulations in each of the countries, that's the way we use it. But through our joint venture, SGM, we do have access to that data, as we set it up with permission from the customer. Adam Michael Jonas - Morgan Stanley & Co. LLC: Thank you, Mary. Take care.

Thank you.

Our next question is going to come from the line of Colin Langan with UBS.

Oh, great. Thanks for taking my question. I just want to follow up on one of the initial questions on the mix and pricing in North America. And I guess I'm a little surprised with the directionality of both. The quarter's sales release indicated ATPs were about flat. So how is pricing so positive? And on the flip side, we know that truck production was quite strong and fleet was cut. Why was mix negative? I'm not sure if it's a definitional issue that falls in those buckets.

First, transaction price is unadjusted for mix. At the end of the day, it's a compilation of everything. So when we looked at the first quarter of this year versus the first quarter of last year, from a transaction price perspective, we sold a heck of a ton more Cruzes in the first quarter this year versus last year. So, that is why we can have favorable EBIT pricing or profit pricing on trucks, but transaction prices are relatively flat. And then I think if you look at the North American EBIT bridge, you see the other piece of this equation play out. Mix was unfavorable, fundamentally because we sold a lot more Cruzes in the first quarter of the year this year than we did last year as we are launching the product. So that's the overall answer to that question, Colin.

Okay. And can you give any color on commodity mix? What is your expectation for headwind this year and if there was any impact in the quarter?

As we entered the year, on my little chart that I showed at Deutsche Bank and Office Hours, there were tailwinds and headwinds, and on one of the headwinds was commodity pricing and we expected to see a few hundred million dollar headwind year over year, and we built that into our expectation. For 2017, I would say as we sit today through April, that headwind is greater than we thought by another few hundreds of millions of dollars, I mean, $200 million to $300 million. Obviously, we're taking actions to mitigate that. And in the first quarter on a year-over-year basis, broadly speaking, commodities were about a $200 million headwind.

And just lastly in your comments you mentioned that battery costs are $145 and trending better – cost coming down faster than expected. Is the $145 – that's just the cell, right, that's not cell and pack. And then at what levels do you think you need to get to, to make an EV more compelling than the internal-combustion engine?

Right now when we talk about it, we have a cell cost per kilowatt hour that's around $145 and that's for the Bolt EV and we're working that – what we showed a couple of years ago, we're working on a path to get that, like I said, around $100 or below $100 and we're ahead of the curve on that. You have to look at the whole vehicle, how it comes together, the scale, the different offerings, is it in sharing environment. So, when we drive to that profitability, I can't just say we got to get it to act because you've got to really look at, there's many other levers that get us to be profitable in electric vehicle. Now, we're going to keep working aggressively on the cell cost and leveraging our scale. To drive you the profitability which is I think where you're asking the question, getting below $100, we'll get there and then we'll set another target.

Got it. All right. Thank you very much for taking my questions, and congrats on a good quarter.

Thank you.

And our final question for the day will come from the line of Brian Johnson with Barclays.

Yes. I want to follow up with Chuck and Mary on again sort of this whole issue of big data. A question for Chuck is, in 2015 you outlined an incremental $350 million impact by 2018 from 4G LTE. Wondering where you're tracking to that, is it part of the cost savings we came through this quarter? And then for Mary, you've talked about the car architectures being relatively set, but on the other hand, it's pretty clear at least to some of us that big transformations needed in the vehicle data architecture, the connectivity. And just where are you on that and how do you expect that to evolve?

To the first question, yeah, back in 2015, we said we expected OnStar to improve profitability and it was part – let me just start with – most recently we've talked about one of the drivers of improved profitability on a go-forward basis around adjacencies and within that, between the 2015 timeframe and 2019 timeframe we talked about roughly $2 billion of improvement in profit adjacencies. It's split between three areas, Customer Care and Aftersales or service parts, GM Financial which made up about half of it, and OnStar. So, if I was sizing the opportunity, I'd split the $2 billion, $1 billion GMF and $0.5 billion each roughly between OnStar and CCA. We're still driving towards that. We're still executing towards that. I would suggest in the results that we've seen thus far in North America relative to OnStar, it's been relatively limited because we're building up the foundation and building up the capability and it goes across many dimensions. 4G LTE is part of it, monetizing the data through vehicle management and onboard diagnostics is another piece, the application framework is another piece, but we're still very, very focused and constructive on driving that profitability because we think it's a huge opportunity. And Mary mentioned, we haven't even started to scratch the surface yet on data monetization and that wasn't factored into that outlook. So, that's another significant opportunity.

And then, Brian, on the technical piece of it, we last year spent a considerable time. There'd already work being done, but had my personal attention and Mark Reuss on it as well as Randy Mott from an IT and we put the resources together much more into one integrated organization to drive, how did we quickly. Because now if you think about it, the car used to stop, it's a pain and now the car doesn't stop there because there's so many services or apps that you can use outside of the car to get the speed and the quality and the integrity to make sure we do it right from a safety and a cyber security perspective. We pulled that whole organization together, they operate under one person that we brought into the company. So, that's the way we're leveraging the engineering and then we do have a new electrical architecture coming in our vehicles that has been under development for a couple of years and will be launched shortly. So, we have addressed, I'll say, the core electrical architecture, but I think more importantly, bringing the resources and having the view that the car extends outside of the pain to make sure that we have the systems integrated well and that's the way that we operate today. And so, that's how we're addressing, I'll say, the tech piece of it to support the opportunity that we have to be first and fast in really leveraging this new area.

Okay. Thanks.

Thank you. I'd now like to turn the call over to Mary Barra for her closing comments.

Thank you, operator. I just got a couple of comments. I'm really proud of the team and what they've accomplished in this first quarter. This again, I think, demonstrates our resolve that we are going to continue to strengthen the core business, generate the best possible return for our owners and then continue to execute with a huge sense of urgency on the transformative technologies that are really going to allow us to have a leadership position and make people's lives safer, simpler, and better as we move forward. We are a very disciplined company as we approach this. I think, you've seen actions from us, you'll continue to see actions that represent us because myself, the leadership team and every GM employee, we are here to win. And that's what we focus on doing every day when we are at work or wherever we are. So, thanks again for participating.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.