General Motors Company (GM) Q3 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the General Motors Company Third Quarter 2017 Earnings Conference Call. As a reminder, this conference call is being recorded Tuesday, October 24, 2017. I would now like to turn the conference over to Dhivya Suryadevara, Vice President of Corporate Finance. Please go ahead, ma'am.

Thanks, operator. Good morning, and thank you for joining us as we review GM's financial results for the third 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 had the key takeaways from each chart in the notes pages in order to provide color on the results. This morning, Mary Barra, GM's Chairman and CEO, will provide some brief opening remarks; followed by Chuck Stevens, GM's Executive VP and CFO. We will then open the line for questions from the analyst's community. Before we begin, I would like to direct your attention to the forward-looking statements on the first page of the chart set. The content of our call will be governed by this language. In the room today, we also have Tom Timko, Vice President, Global Business Services, Controller and Chief Accounting Officer; and Rick Westenberg, Vice President and Treasurer to assist in answering your questions. I will now turn the call over to Mary Barra.

Thanks, Dhivya, and good morning, everybody. Thanks for joining. The results we are reporting today on a continuing operations basis demonstrate our commitment to extending our strong core business performance while redefining the future of personal mobility. Taking a look at the numbers we posted, EBIT adjusted is $2.5 billion. Year-to-date, EBIT adjusted is $9.8 billion with a margin of 9%. And our EPS diluted adjusted is $1.32. We returned $2 billion in cash to shareholders through share repurchases and dividends and our return on invested capital adjusted is 27.6% on a trailing four quarter basis. We delivered solid results even with planned lower third quarter production in North America. Although market is more challenging than expected, we will deliver another strong year. Chuck will share additional details in regional numbers in a few minutes. Our work to strengthen the business and focus on areas with higher shareholder return continued with the closing of the sale of our Opel-Vauxhall business. We expect to close the sale of GM Financial's European operations by the end of the year. In addition to the international operations restructuring we previously announced, earlier this month we shared that we will combine all GM operations outside of China and North America under Barry Engle, effective 01/01/2018. This allows us to realize greater efficiencies and supports our disciplined plan to operate in the right markets to strengthen our performance and to focus on long-term growth opportunities. From a product and brand standpoint, customers are responding favorably to our new vehicle launches. In the United States, retail sales of crossovers from our Chevrolet, GMC, Buick and Cadillac brands were up 25% year-over-year for our best crossover sales quarter in history. The second generation of the 2018 Buick Enclave is arriving at dealership. It builds on the success of its predecessor and ushers in Avenir, Buick's new upscale sub brand. We have high expectations for Avenir as it joins Denali GMC's premium sub-brand in our Buick GMC retail channel. Denali makes up more than a quarter of GMC's overall sales and generates higher margins and average transaction prices. Avenir and Denali will offer our customers attainable luxury from our premium brands. Also arriving at U.S. dealerships is the 2018 Cadillac CT6 with Super Cruise, hands-free highway driving technology. Journalists and influencers recently traveled coast-to-coast to demonstrate its capability with overwhelmingly positive reviews. Super Cruise will also launch in China next year on the CT6. Sales in China are tracking at a record pace, led by the growth at China – or excuse me at Cadillac and Baojun. To continue this momentum, we launched five new models in the quarter, including the Baojun E100 EV. This is a niche build-to-order electric vehicle from our JV partner SGMW. We plan to launch six additional models in Q4. Last month in Shanghai, I helped celebrate our 20-year joint venture with SAIC GM and the production of our 15 millionth vehicle. It was an important milestones representing a productive partnership in our largest market. And in South America, we are now gaining market share and making money in an industry still significantly depressed from prior high levels. Now, I'd like to talk about the future of personal mobility. We all know the industry is changing very quickly. By staying focused and disciplined, we have repositioned our core business to be more resilient through the cycle and we have made key investments that will help us create a safer, better and more sustainable world and a healthy business model well into the future. We believe our future mobility initiatives will be accretive to our core business because they give us an opportunity to increase our exposure to new customers in urban centers and coastal markets. At the same time, our core operations will continue to generate strong profits in the markets that will be the last impacted by these new mobility trends. Regardless of where we do business, we are committed to an all-electric future, and we have announced plans for at least 20 new all-electric vehicles by 2023, including two in the next 18 months. We've already done a lot of the hard work, investment and innovation necessary to meet this commitment. Our extensive track record with electrification, including what we have learned from the Chevrolet Volt and the Chevrolet Volt EV along with strong supplier partnerships and mass market EV manufacturing experience give us confidence that this portfolio puts us on a path to a new profitable generation of electric vehicles. We will pursue both battery electric and hydrogen fuel cell technology because we will need both for solutions to meet all of our customers' transportation needs. For example, we revealed a new autonomous capable hydrogen fuel cell platform called the Silent Utility Rover Universal Superstructure or as we refer to here SURUS. It was designed to provide commercial vehicle solutions including flexible cargo delivery and utility services. But its ability to solve tough transportation challenges created by natural disasters, complex logistic environments and global conflict also make it adaptable for military use. I'm also pleased with the progress our team is making on self-driving vehicle technology. GM and Cruise Automation recently deployed our latest generation self-driving electric test vehicle. We believe it will meet the redundancy and safety requirements necessary to operate without a driver. It is our third generation of AD technology in just 14 months. The GM and Cruise teams have worked together to integrate the best hardware and software with an almost completely new and fault-tolerant systems that are unique to a driverless vehicle. In fact, the latest generation of self-driving electric test vehicle has about 40% unique content compared to previous generations. Another reason we are moving so fast is because we are testing in one of the most challenging urban environments anywhere, San Francisco. In this environment, we encounter almost 50 times more interactions with pedestrians and other vehicles and complex road intersections compared to driving in a suburban environment. This testing is accelerating our deployment of self-driving technology, and we believe it will put us on the path to the fastest path toward deploying self-driving cars safely and at scale. To move with even more speed, we also recently announced we will be opening a Cruise office in New York City to begin testing our self-driving cars there as well. And just two weeks ago, we acquired Strobe, gaining access to new LIDAR technology that will significantly improve the capability of self-driving cars and reduce the cost of each LIDAR on our self-driving cars by 99%. Finally, in August, we launched Cruise Anywhere, a ride-sharing beta test platform for select Cruise Automation employees in San Francisco. Employees use a GM smartphone app to hail a ride in a self-driving electric test vehicle. Focusing on all aspects of the self-driving experience gives us more flexibility to develop the appropriate go-to market strategy. Our vision is ambitious, and I believe GM is uniquely positioned to transform how we provide personal mobility for our customers. We have the right team with the right technical and business expertise to solve problems along with the passion to change the world. We will host an investor event later this year to share more details, so stay tuned. And now I'd like to turn it over to Chuck.

Thanks, Mary. Our third quarter results from continuing operations demonstrate the resilience of our core business and continued disciplined execution of our plan. All of our operating segments were profitable this quarter for the first time since Q4 2014. This did not happen by chance. Our strategic initiatives, including the closing of the Opel-Vauxhall deal, in addition to our cost efficiency measures and product launch cadence are paying off. We remain solidly profitable and generated 8.3% margins in North America even with the planned downtime for our next-generation full-size trucks, and decisive actions to reduce production of passenger cars to right-size our inventory. South America had its first profitable quarter in three years. China continues to generate consistent equity income and GM Financial had a record third quarter. We generated net revenue of $33.6 billion, EBIT adjusted of $2.5 billion and an EBIT adjusted margin of 7.5% in the third quarter, contributing to a strong first nine months of the year. We've generated year-to-date net revenue of $107.9 billion, EBIT adjusted of $9.8 billion and an EBIT adjusted margin of 9%. During the quarter, we consumed $1 billion in cash as we expected with cash flow primarily impacted by our production downtime. As production levels normalize, we anticipate working capital to meaningfully contribute to fourth quarter adjusted automotive free cash flow. And importantly, we still plan to return approximately $7 billion in capital to shareholders this year. Moving to the segment details. North America has delivered year-to-date revenue of $82.6 billion, EBIT adjusted of $9 billion and a 10.9% EBIT adjusted margin, consistent with 2016 margin levels on 6% lower revenue. For the third quarter, North America revenue was $24.8 billion. EBIT-adjusted was $2.1 billion with an 8.3% margin despite a $2.1 billion headwind from a largely planned 26% reduction in wholesale volume. The performance was driven by improved mix of about $600 million as we reduced production of cars which more than offset the mix headwind from truck retooling. Solid improvements in cost including warranty of about $300 million also contributed to the performance. The actions we've taken will allow us to end the year with dealer inventory down compared to the end of 2016. And our focus on cost continues. During the third quarter, we have generated more than $5 billion in cost efficiency since 2014 and plan to achieve our more aggressive goal of $6.5 billion by the end of 2018, which more than offsets incremental investment in engineering, technology and D&A. Based on our disciplined cost initiatives and the strength of new crossovers, we continue to project strong 10-plus percent margins in North America for the full year 2017. Moving on to China. China generated another $500 million of equity income in the third quarter for a total of $1.5 billion of equity income year-to-date, both flat year-over-year. Pricing remains challenging with deterioration of at least 5% calendar year-to-date. Our focus on cost efficiency and the strength of our recent launches and growth in Cadillac have allowed us to mitigate the pricing headwinds as evidenced by another quarter of strong equity income, and we are forecasting that 2017 will be another year of strong overall equity income. Turning to South America. Year-to-date revenue was $6.8 billion, an increase of $1.8 billion or 36% year-over-year and the EBIT-adjusted loss was less than $100 million, a $200-million improvement from a year ago as the actions we've taken over the past several years are yielding benefits in a slightly improved macro climate. Our progress in South America paid off in the third quarter as the region generated $15 million of EBIT adjusted of $2.6 billion of revenue, our first profit in three years. Another segment that had strong third quarter performance is GM Financial. GM Financial generated quarterly revenue of $3.2 billion, up 30% from $2.4 billion in the third quarter of 2016, resulting in third quarter record earnings before taxes of about $300 million, up more than 60% year-over-year. Year-to-date through the third quarter, GMF generated almost $900 million of earnings before taxes, up about $300 million or almost 50% versus the three quarters of 2016 driven by a 38% increase in revenue to about $9 billion. We do see some headwinds in the fourth quarter for GM Financial driven primarily by residual value and used car pricing. One bit of housekeeping. Beginning in the three months ended December 31, 2017, we intend to change our segment reporting because of changes to our organizational structure. As a result, our South America and international operations will be reported as one combined international segment called GM International. Our North America and GM Financial segments will not be impacted. To summarize, overall this was another solid quarter even with significantly lower volumes. Our solid margins illustrate the benefits of the strategic actions we've taken resulting in a simpler, most focused business with a leaner cost structure. With the disciplined production actions we are taking, we project to be well-positioned going into 2018 with lower dealer inventory levels than year-end 2016, and that inventory will be better balanced to meet customer demands. As we think about our full year guidance, the operating environment is more challenging than we expected at the beginning of the year. We continue to take actions to adjust production in response to lower passenger car demand in North America. Raw material costs are on the rise, and we recently resolved the labor situation in Canada that resulted in unexpected down time. Despite these headwinds, we project strong financial results for the year including revenue, EBIT adjusted and EBIT-adjusted margins generally in line with the record results we posted in 2016 and adjusted automotive free cash flow of approximately $6 billion. We also continue to forecast earnings per share in the middle of the range of $6 to $6.50, ROIC adjusted of greater than 25%, North American margins of 10-plus percent, China equity income of about $2 billion, and we continue to project to return about $7 billion to shareholders as previously committed. This 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 Itay Michaeli with Citi.

Great. Thanks. Good morning, everybody.

Good morning.

Good morning.

Just on the results in North America, Chuck, hoping you could talk about how pickup trucks performed relative to other segments in terms of pickup truck variable profits, particularly as you prepare for the new launch in the next couple of years. How much of the resilience do you kind of attribute to the pickup truck segment relative to other segments in the company?

Yeah. Good question, Itay, and I've talked about this before on some of these results, quarterly results. Number one, we've continued to hold our share and we view that as especially constructive given where we are in the lifecycle of that truck at about a 35% segment share. But more importantly, when you look at the actual data on kind of a same-store basis trim to trim, crew cab, extended cab, regular cab, on a variable profit basis, our margins are up calendar year-to-date in 2017 versus 2016. So, we've been able to continue to generate strong and improving variable margins as we move through the life cycle of this vehicle, and we would expect to see more of the same given the overall demand. We've taken actions over the last couple of years opportunistically from a price perspective. And clearly, that's paying off, and that's one of the big drivers of the overall 8.3% margins when you look at the significant production downtime we had in North America.

That's helpful. And then just as we think about 2018 for North America, I think last quarter, Chuck, you alluded to kind of perhaps being able to maintain that zip code of 10% margins under accommodative macro conditions. Hoping you can update us on your kind of preliminary views for 2018 in North America.

I would say at this point in time, no update that is consistent. That view has not changed, In the current macro environment, our expectations is that we've built a business model especially when you consider our product launch cadence and the cost actions that we've been taking that will generate 10% margins in North America, and that's certainly what we're focused on executing.

Great. And maybe if I could sneak in a quick product question. There's been a lot of talk, I think one of your competitors as well talked about looking to get more aggressive in the off-road category and some of the demand we're seeing for SUVs. And so just, as you kind of think about your product plans going forward, is there anything you can do as well to maybe attack those segments? And one thing maybe that comes to mind is the HUMMER that you used to have, and any opportunities for GM to penetrate some of these markets that some of your peers are talking about as well as you think about redesigning the new truck platform?

I think when you see the new truck platform come out both full-size truck and SUVs, you're going to see us having a broader portfolio that really addresses specific customer needs including from an off-road capability.

Great. That's very helpful. Thanks so much, everyone.

Our next question will come from the line of John Murphy with Bank of America.

Good morning, guys. Just one additional sort of follow-up on North America. I mean, Chuck, when you look at the 86.2% CapUt in North America versus the 8.3% EBIT margin and the wholesale drop of 26% in volume year-over-year, I mean it kind of looks like we went through sort of a shock test here on the downside in the cycle, yet you put up 8.3% margin. So, if you're old school and maybe I'm dating myself a little bit, if you thought about CapUt around 80%, you'd be breakeven and wholesale of decline of negative 26%, you'd be losing money. But you put up a big number here. I mean, is this the kind of thing that you think is repeatable or was there anything going in on the quarter that was an outsized benefit, it might not repeat in a shock like this again?

Well, I think clearly we've got a fundamentally restructured business model and we've been talking about that for the last number of years, maintaining a breakeven point at a SAAR level of 10 to 11 million units. And I think this is a proof point that that business model can withstand the kind of volume reduction that we've seen. Obviously, one of the big drivers of that is the significantly improved mix, not only full-size pickups and full-size SUVs but crossovers and the launch cadence associated with that. But I think interesting comparison would be to look at Q3 results of 2017 versus Q4 last year. In Q4 last year, 8.6% margins on wholesales and revenues that were significantly higher than Q3 this year. And again, that just demonstrates the resilience of the business model, the continued execution of our plan and fundamentally reinforces our breakeven point thesis that we've been talking about for the last number of years.

Yeah. That's very helpful. And then, Mary, I mean, as we think about sort of the execution of finally getting the European sale done here, I mean, could we hear about sort of a Cruise office opening in Paris, London and Berlin, and this mobility service business would be how you would attack or actually operate in Europe and it could be actually be a lot more profitable than what you've done historically? I mean, do you need a presence outside of – I mean, obviously you're getting away from manufacturing, but can you have a presence like that and actually operate there?

Oh, absolutely. We are going to be looking globally. We're working extremely hard on the technology to have self-driving vehicles and looking at it from a safety perspective, a performance perspective, but we're working hard to lead in that area, and then we're already evaluating what markets make the most sense to generate the most shareholder value.

And European markets are obviously on that list?

Absolutely.

Okay. And then just lastly, on all the funding for your future car efforts, are they contemplated in your existing R&D and CapEx budgets, or are there any significant step-ups we should be thinking about in 2018, 2019 and beyond?

Generally, when we look at the capital spend that we'd had in the engineering spend, we are able to do the work that we want to do from AD perspective, and by the way an EV perspective and a connectivity perspective. We're going to continue to evaluate that, but our current view is that that largely is all included, because we've been driving a lot of efficiencies, especially in the capital budget. When we look at being able to reuse architectures, reuse equipment, and then also the synergies and the work that's going on in product development. So, we will evaluate because we don't want to be constrained by being able to fund. We know speed is important to get the first mover advantage. But right now, I'd say generally it's within those bounds.

And just one quick follow up to that. Is there any need to do any more vertical M&A or integration like you did with Strobe on different parts for the AD each or do you feel like you have a lot of those puzzle pieces already?

Yeah, I feel that we do have a lot of the puzzle pieces. We continue to look at it. This is a very dynamic and evolving marketplace. I think the real opportunity with Strobe is we saw an opportunity, also partnering with the work that we do at the Hughes Research Labs to look at that technology, how to really improve the capability of the technology which gives you the ability to open up the areas where you can do autonomous vehicle while taking the cost significantly out and really getting to an automotive-grade LIDAR capability. So we'll continue to evaluate. I don't have anything to share right now. But again, this is fast moving and we're going to look at what makes the most sense to allow us to go with speed, with safety, and to deliver value.

Great. We're looking forward to seeing these things in New York. Thanks so much.

We are too.

And our next question will come from the line of Brian Johnson with Barclays.

Hi. I'll start with some questions on today's business then follow up on the economists. Within North America, can you kind of dimension the walk a different way? Specifically, what was the drag from the downtime in cars, the downtime in pickup trucks versus the uptick from the crossovers and just how can we kind of gauge the impact of the crossovers in that GMNA EBIT?

Boy, really good question, Brian, but I'm not sure that I'm ready to break down volume and mix by segment within, I would say, the following. Here's the way to think about it. Our volumes were down roughly 250,000 units. Half of that was launch related, roughly. Of that, 50,000 were full-size trucks and 60,000 were CUVs. And then the balance was passenger cars. The planned piece of that was roughly half, which was the full-size trucks and the crossovers. Aligning supply and demand on cars was the other portion of that, roughly 100,000 units or so. And as you look at the number, obviously, the volume impact we talked about was $2.1 billion, but mix was favorable in the quarter, and that was largely reduction of passenger cars that drove that favorable mix. So hopefully, that helps dimension that a little bit. But as far as numerics associated with each of those moving pieces, not ready to share at that level of detail.

And pricing less materials for crossovers, I assume that's positive. Is that, I mean, put other ways, majors mostly the crossover launches?

Yeah. Majors were the crossovers and carryover was largely passenger car driven, right, as that segment continues to be very, very competitive and as people shift away.

Okay.

And I would expect fourth quarter pricing to be favorable versus third quarter largely on the back of the crossover launches.

Okay. And how about the planned downtime for trucks? Are you through the CUV downtime and is IHS roughly accurate for the truck downtime or anything you could say around that?

What's the IHS number for next year? I mean, are you talking about 2018 or 2017?

Well, 4Q 2017 and then into 2018.

Yeah. I would look at it like this. We expect Q4 production factory unit sales to be up versus Q3, roughly 150,000 units. We don't have any downtime on full-size trucks or SUVs. Actually, we expect versus Q3 to be up, production to be up on those segments. We will continue to make adjustments as appropriate on passenger cars. And when we look into next year, clearly, and we'll have more to say about this in January, but clearly there is incremental downtime in 2018 related to the truck launch.

Okay. And you'll probably talk this more about the Investor Day. But sort of a lot of talk in the press, analysts, around not just building autonomous cars but putting those into revenue producing shared autonomous ride-share service. Can you provide us any update on your preliminary thinking of that, kind of how the test with Cruise with their own employees are in terms of using, admittedly, human backup drivers and the timetable to taking the driver out?

So, I don't have anything new to say. What we've talked about is it will be, first of all, will be gated by safety, so being able to take the driver out will – we have our metrics we defined to look at that and when we'll be ready to do that, but we think that's in quarters, not years. And as it relates to how we deploy, we very much believe we want to maintain the relationship with the customer. And so, we're exploring many options and we could partner with someone, partner with many or work on our own the Cruise application that is being used with our employees at Cruise is going quite well, in fact we have some of those people participating in their pilot that are using it for all of their transportation needs. So, it continues to – we continue to develop that, and we're keeping our options open.

Okay. Thank you.

Our next question will come from the line of Rod Lache with Deutsche Bank.

Thank you. Just following on that last question for the global mobility business. Can you envision a scenario where some of these partners invest in your mobility business? And is that something that maybe needed for certain markets such as China?

Certainly, that could be possible. We're keeping all options open. It's kind of in this point where the technology is evolving and the opportunity is evolving. We're having a lot of conversations, kind of everyone is talking to everyone. And we're going to continue to look at what provides us the greatest value for our shareholders over the long term because we think this is a very significant business that is accretive. And we're going to look to get – it gets gated by the technology and that's why our focus is on technology. The fact that we have everything under one roof and we can move so quickly. I mentioned that we have our third generation of vehicle – AD vehicle, test vehicle on the round, we're in parallel already working on our fourth. So, that speed with technology that is evolving so quickly, both from a hardware and a software perspective, is our primary focus. But then we're going to look to how do we launch and put a business model together that's most advantageous for our shareholders.

Interesting. And then just talking about the auto business, you mentioned that you're targeting 70 days of inventory at the end of the year in the U.S., and I think that that's lower than you had previously targeted. Is that an adjustment to your production expectations, maybe for the fourth quarter? And if it is lower production, is that the primary factor driving the decline in the free cash flow target for the year?

I would say a couple of things, Rod. First, let's start with the nominal number because the day supply will be largely dependent on the sales rate in December.

Right.

So, our target is to be in the 70-day range. I think the more important number is the overall nominal number. And our view right now is we're going to be significantly lower at the end of 2017 versus the end of 2016. Just to dimension that, we had 850,000 units in dealer inventory at the end of 2016. We think that we'll be in the zip code of somewhere around 800,000. Importantly, within that, it will be better balanced. We expect to have roughly 80-day supply of trucks and SUVs which is normal for us, an appropriate level of crossovers, 60, 70 days of crossovers and somewhere in the zip code of 50 days of passenger cars as we work through that. I think that that is a good launch point as you think about 2018 to end the year with that kind of inventory level and that day supply. Built into our free cash flow forecast, obviously, there's continued rightsizing and aligning production. But there's also the impact that we have from the strike. At the end of the day, we lost 20,000 units in the strike that we had in Canada, which won't be made up and that has an impact on working capital and the timing. So, I think the adjustment of guidance from $7 billion to $6 billion is more about production timing, including the strike impact than overall earnings generation, obviously, since we've maintained our guidance. And I think, importantly, within that, though, is we still expect to distribute about $7 billion to shareholders and end the year in a strong cash and liquidity position. So, very, very consistent overall when you look at those parameters.

Great. Thank you. And could you clarify – you were asked about this earlier – what's the magnitude of the production downtime year-over-year that you're expecting for trucks in 2018? And as we look out to 2019, I think it seems like you should be benefiting from the truck launch, as well as the GEM's platform launch. Any just preliminary thoughts on how we should be thinking about the longer term?

Yeah. I would look at this broadly speaking because it's early days and we always are evaluating the best ways to optimize the downtime and everything else. But I would say, overall, there'll be less downtime in 2018 versus 2017 overall, significantly less, but trucks will be more. And whether that's four weeks or five weeks or six weeks, we will look towards optimizing that. So, it's hard for me to sit there and say it's going to be X thousands of units at this point in time because, clearly, we want to be able to minimize the impact. Once we get through the launch of the first – remember, the T1 launch will go for a couple of years as we work our way through that very broad portfolio, but I think the biggest portion of that will be next year, and we'll get that full benefit in 2019. We'll also be well on our way of the GEM launch, which will favorably impact South America and China. I don't want to provide guidance on 2019 yet, Rod. It's a little bit early. But, certainly, when you look at launch cadence, the benefit of the full-size truck launch, continued cost execution, again, in this broad macro environment, I see no reason why you shouldn't continue to see us progress towards our 10% margin objective in the core business.

Great. Thank you.

Thanks, Rod.

And our next question will come from the line of Ryan Brinkman with JPMorgan.

Hi. Good morning. Thanks for taking my questions. Maybe firstly on South America, I see that you're making money there at lower volumes than in past periods when you lost money. Just a couple of questions there. Firstly, does the cost reduction there put you on any better footing structurally such that you could earn higher profits when the volume normalizes? And then secondly, are the operations there now anymore flexible so that the next time there is another sharp downturn that you could maybe avoid the same degree of losses that you experienced in this last down cycle?

Well, I think yes and yes is the answer to that, Ryan. Thanks for the question. I mean, fundamentally, we've reduced our breakeven point in South America by 40% versus the prior peak not only in South America but importantly in Brazil. And you're seeing that play out in the results that we've started to put on the board the last two quarters where there was a minor recovery at least directionally, a minor recovery in the market and we're highly leveraged to that upside. So, we're constructive about the market in South America, the continued improvement in the market in South America, and layer on top of that, the global emerging market portfolio when you talked about flexibility. 90% of our volume will come from that architecture by 2020 in South America, which means huge scale benefit across multiple product entries produced largely in our low-cost facility in Gravataí and we've shifted more of our production there out of São Paulo which is higher cost within the country to Gravataí. So, fundamentally, across the board the team in South America has done an exceptional job running kind of the same playbook we ran in North America back in seven or eight years ago on rightsizing the business, driving more flexibility from a cost structure perspective. And if you look at some of the advances and benefits they've got from the labor negotiations well out in front of the competition, building more flexibility around that, the ability to take people out and do it without a lot of, I would say, speed bumps along the way with our labor partners there makes it a much more dynamic and resilient business model.

Okay. Thanks. And then, just lastly from me on the improvement also in the consolidated international operations. Firstly, did 3Q benefit already from some of the actions that you announced on the call last quarter such as the sale of some of the African operations or wind-down of domestic sales in India or are those savings yet to come? Secondly, I think you just ended assembly in Australia, how to think about the sequential improvement in 4Q and 1Q? And then, thirdly, there has been some discussion in the Korean press about possible changes to your operations there. What are the options on the table relative to Korea and how much of a profit improvement might you be able to drive for the investors there?

Wait. Those were a lot of questions in one sentence, Ryan. Let me see if I can remember them all. In the GM consolidated operations, the restructurings that we took which were India domestic business, exiting South Africa and fundamentally winding down the headquarters, we said that that was going to be a run-rate benefit of about $100 million a year on a go-forward basis. There was obviously a portion of it that impacted Q3, but not materially. I think most of that you're going to see in 2018 as we wind down and exit those operations. Australia manufacturing, we've been on kind of that path of starting to reduce production, but if you just think about a typical facility, I would think that on a year-over-year basis that's a $115 million a year benefit, given the level of production. We're only producing the Commodore in Australia. So, I would expect to see that wind through, all else equal, in 2018. Obviously, our objective with all the actions we've taken in those markets is to drive that business to profitability. And slow going thus far, but we're starting to get some traction, and you saw it in the third quarter, and we've got more to go. Relative to Korea, that is a challenging market for us. We have a strong presence there. We have a strong brand there, a healthy market share, but the cost structure there not only for us, but the overall industry in Korea, has grown to where it's not sustainable. And we're going to have to take action there on a go-forward basis to address that, to build a viable sustainable business. And I would say more to come on that. Clearly, there's challenges there with our labor partners, a very, very dynamic and challenging environment to get things done, but we've got a strategy that we're starting to execute, and like I said, I think more to come on that as it progresses. It's just too early to talk about it right now.

Great. Thanks for all that color.

Yeah.

Our next question will come from the line of Adam Jonas with Morgan Stanley. Adam Michael Jonas - Morgan Stanley & Co. LLC: Thanks, everybody. I just have one question and one follow-up. The first is on the GM International kind of creation. Understand the logic of using this opportunity to kind of change the transparency in the reporting structure, but does this signal a deeper strategic shift to kind of think of all of GM's non-U.S. businesses together, not just for reporting purposes, but in terms of, let's say, architecture and strategy?

Yes. Absolutely. First was the combination from a reporting responsibility perspective under Barry Engle. And he is now responsible or will be responsible for South America and GM International markets. Obviously, the reporting is a manifestation, the external reporting is a manifestation of that structure once it's in place January 1. But fundamentally, the strategy is to take advantage of our GEM architecture and our presence in these markets to optimize across all of these businesses. So, there's clearly a strategic aspect of this, as well as an external reporting to align with the strategy. Adam Michael Jonas - Morgan Stanley & Co. LLC: All right. Thanks, Chuck.

Adam, Adam Michael Jonas - Morgan Stanley & Co. LLC: Yes, Mary?

I was just going to add that when you look at going back to what Chuck said about South America, Barry Engle and his team have done a great job of setting that business up in a even more cyclical business. And so, looking at that and taking that leadership team and looking at all of those business together is definitely going to be a benefit, and Barry is the right guy to do it. Adam Michael Jonas - Morgan Stanley & Co. LLC: Thank you, Mary. And, Mary, just a follow-up for you. OEMs everywhere seem to be kind of creating these new legal entities where they house kind of their future auto, new tech or new business models. I think you alluded to one of the benefits in your comments earlier, Mary, about being able to move very quickly in the speed of tech. But if I just back up for a moment, how would you describe the pros and the cons to potentially creating a separately seated legal entity, whether it's publicly traded or not, but just that kind of separation of an auto 2.0 business? Kind of what are the pros and cons in addition to the speed of tech under one roof that you could add? Thanks.

Sure. I think we've already been transparent in what we're reporting from in the Corp segment and been clear about the amount of money that we're spending on autonomous. But I think when we look it, our focus, Adam, right now is to move as quick as possible to develop the technology, have a first mover advantage and be able to not only have the safest technology, but be able to deploy it at scale. That's where our focus is right now. And there's the integration and not when you – depending on how you would separate it of where is IP, where is IP formed, right now, that's why our focus is keeping it all together. And I really do think it's enabling us to move quickly. The amount of work that goes on between Warren, Israel, Canada and San Francisco on a daily basis is stunning. And the fact that we're working on our fourth generation, that's where our focus is right now. And I think we'll have time to look at it as that develops and as the business model develops, what is the best reporting and structure from a company perspective to drive the best shareholder value. Adam Michael Jonas - Morgan Stanley & Co. LLC: Thanks, Mary. I appreciate it.

And our final question for the day will come from the line of David Tamberrino, Goldman Sachs. David Tamberrino - Goldman Sachs & Co. LLC: Great. Thanks for taking our questions back here. First one, just you just recently released the Super Cruise business or product on your Cadillacs, and it was delayed, I don't know, one and a half, maybe two years. What's the difference from that technology that did see about a year or two delay to your bullish tone that you've been putting out on your AD solution where you think you're going to be coming obviously faster to market than anyone else?

So, Super Cruise, which you're correct that we did delay because we were gated by safety. There's a lot of learning that went into that system. And it's the base that the core organization has that is now the Cruise Automation team is benefiting from of safety, of redundancy, of looking at the – one of the technologies was critically important. Super Cruise is the way we monitor the driver to make sure that they're paying attention. And so, all those learnings go into Cruise. And then – but as I look at that and I look at where the schedule we put ourselves on Cruise and how the technology is developing, I continue to be very forward-leaning on that with the work that I see happening there, and all the learnings we had from Super Cruise are transferring into Cruise Automation. David Tamberrino - Goldman Sachs & Co. LLC: Got it. And then, two last ones. Chuck, I think you mentioned this in the comments but, for residuals, did you say that you're expecting headwinds in the fourth quarter for GMF from residual values in used car pricing? Can you elaborate on that?

Sure. We've been talking about, through the year, that we expected used car pricing to be a headwind in the year, and it fundamentally would manifest itself in the second half of the year. We didn't see it as much in the third quarter. We had talked about 7% year-over-year. I think with the recovery that we had seen already starting a lower year-over-year decline in the latter part of the second quarter and the third quarter somewhat impacted by hurricane issues that we see less than 7% at this point in time for the year, but still a headwind. And when you think about the timing of the depreciation and everything else, most of that is going to impact Q4 from that perspective. And that 's consistent with what we've been talking about all year long. David Tamberrino - Goldman Sachs & Co. LLC: That's fair. In the quarter, did you see a benefit to your residual values as a result of the hurricane? And, again, as of September, I mean, how much of that increased selling rate in September really helped to lower your inventories for the quarter?

First, on the first question, I think the improvement that we saw in used car values in the third quarter, if anything, just delayed the mark-to-market that we're going to see in the fourth quarter as we continue to see used car pricings moderate. So, I wouldn't say there was a headwind. There was an absence of a – I wouldn't say there was a tailwind, there was an absence of a headwind in the third quarter when you think about GMF results. And on your second question, relative to inventory, the biggest driver of the inventory reduction was the production adjustments. Obviously, as we think about our plan for the year and everything else, we've built in a sales forecast that goes into that. Certainly, a 18.5 million light SAAR in September helped with that on the margin, probably 15,000, 20,000 units in the month of September overall, but not a big driver of that 160,000 unit inventory reduction. David Tamberrino - Goldman Sachs & Co. LLC: Got it. And then my final question on corporate expenses. It was a lot lower than what we were forecasting. I think the slide deck mentioned a couple of favorable non-recurring gains. Could you just elaborate on what those were for the quarter? And we should be going back up $400 million or not?

Yeah. We will be going back up to the $400 million to $500 million range. I think importantly, within the numbers that we reported in Q3, we spent something north of $160 million on AV. And we'll continue to spend at that pace, that $600 million to $700 million pace that we've been talking about. In Q3, we had the benefit of some non-recurring gains related to the PSA transaction. Primarily, the mark-to-market on the PSA warrants that were part of the transaction and the movement in Peugeot stock price. And that was the biggest driver of that. David Tamberrino - Goldman Sachs & Co. LLC: Understood. Thank you.

Yeah.

Thank you. I'll now turn the conference over to Mary Barra for her closing comments.

Well, thanks, everybody. I appreciate you participating today. I hope that you see we're demonstrating that we are a very disciplined organization, that we're going to take the bold actions and make the tough decisions to drive a profitable business and a very resilient core business. Also, we are committed moving with speed and we're going to continue to invest in EV, AD because we see huge opportunity in the future of personal mobility. We are intent on leading the transformation of this industry, and we have created a vision of zero crashes, zero emissions and zero congestion that we believe is the future for this industry. We are in a leadership position and we think it is the best way to generate long-term shareholder value and you will hear more as we move forward. So, thank you very much.

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