General Motors Company (GM) Q4 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the General Motors Company Fourth Quarter and Full Year 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 is being recorded Tuesday, February 6, 2018. 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 fourth quarter of 2017. Our press release was issued this morning, and the conference call materials are available on the GM Investor Relations website. We're also broadcasting this call via webcast. Included in the chart set materials published this morning, we have 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 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 Solutions (sic) [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. Good morning, everybody, and thanks for joining. 2017 was a transformative year for GM. The very strong results we reported this morning demonstrate the earnings power of our core business and extend our track record of meeting our commitments. Let's look at the full year results. Our EBIT adjusted of $12.8 billion repeats 2016's record performance. We had a record EBIT adjusted margin of 8.8%, and record EPS diluted adjusted of $6.62. We returned $6.7 billion in cash to shareholders, and our return on invested capital adjusted was 28% on a trailing four quarter basis. GM begins this year as stronger, more resilient company because of the decisive actions we have taken in the past few years to: first, reshape our business; second, to focus on higher return opportunities; and third, invest in technologies that enable our vision of a future with zero crashes, zero emissions and zero congestion. We plan to continue our momentum in 2018 and position the company to accelerate further in 2019. This year, we expect continued strength in North America where, in 2017, we achieved a record EBIT adjusted margin. We expect improved results in GM International where we saw strong equity income in China and return to profitability in South America. We expect momentum from a full year sales of new crossovers and, later, our all-new full-size pickups, and we expect improved performance by adjacent businesses including GM Financial, and of course, we'll maintain a very strong cost efficiency focus across the entire business. Chuck will share additional details in a few minutes. In the core business, where a strong mix of winning vehicles helped drive another outstanding year in 2017, in the U.S. specifically, GM was the pickup truck sales leader for the fourth year in a row. Chevrolet grew retail shares for the third consecutive year, and we became the fastest-growing crossover company in the industry with retail share up 1.6 percentage points. Building on the success of our refreshed crossovers will be the 2019 Chevrolet Silverado and GMC Sierra full-size pickup, which go on sale later this year; and also the global launch of the Cadillac XT4 luxury Caddy CUV crossover. With GM International, GM China delivered a year of record sales led by Buick and Baojun, and our luxury brand Cadillac, which grew 51%. To continue this momentum, GM China will introduce 15 new or refreshed models including seven SUVs and crossovers this year. Finally, in South America, Chevrolet continued its market leadership, where sales rose 13.8% last year. In addition to great products, we are strengthening our performance through cost efficiencies that offset incremental investments in the business. We are on track for our commitment to achieve $6.5 billion in efficiencies by the end of this year on the 2014 baseline, and we'll continue that focus on costs beyond 2018. In addition, we are making remarkable progress in advancing our vision for the future of personal mobility. This year, we expect to increase our investment in transportation as a service initiative to $1 billion. Last month, we filed a safety report that is available on GM.com and a safety petition with the U.S. Department of Transportation to allow us to safely deploy our fourth-generation self-driving Cruise AV. It is the first production-ready vehicle built to operate safely with no driver, no steering wheel, no pedals or manual control. The Cruise AV is another milestone on our path to deploying self-driving vehicles in a ride-sharing environment in 2019. To advance our vision of a zero emissions world, we also announced the General Motors will introduce at least 20 new all-electric models by 2023. As we continue to make meaningful progress and lowering battery costs, we are confident that our next-generation EV architecture will be desirable, attainable and profitable with a range that our customers want. We will begin unveiling these vehicles in 2021. Now, I'd like to turn the call over to Chuck to share additional details.

Thanks, Mary. I'd like to give some perspective on the quarter and provide additional insights into our 2018 outlook. Our strong fourth quarter results kept another record year of earnings as we met our commitments for the fourth year in a row. EBIT adjusted for the year of more than $12.8 billion repeats 2016's record performance, and we delivered a record margin of 8.8%, despite significant volume and commodity headwinds. We also achieved a record $6.62 in EPS diluted adjusted. Net revenue was $145.6 billion, down 2.4% from 2016 as we right-sized dealer inventories in the United States. Our strong results for the year were driven by a record North American margin of 10.7%. This was achieved even with wholesales being down more than 10% versus 2016 and flat versus 2015. In addition to the record margin in North America, GM Financial generated record earnings before taxes. And within GM International, China sustained its strong equity income, and we returned to profitability in South America. Turning to the fourth quarter, we generated $37.7 billion in net revenue, a record $3.1 billion in EBIT adjusted, and delivered $1.65 in EPS diluted adjusted. In the fourth quarter, North America generated $2.9 billion of EBIT adjusted, a Q4 record and an increase of $200 million year-over-year. We generated these strong earnings off $28.8 billion of revenue, resulting in another quarter of 10-plus percent margins for North America and leading to our third straight year of 10% or higher margins. Volume continued to be a headwind the fourth quarter, with wholesales down 135,000 units on a year-over-year basis as we reduced our U.S. dealer inventory as planned. We ended the year with 63-days supply and 753,000 units of dealer inventory, down 8 days and 92,000 units from the end of 2017, both far surpassing the targets we committed to early last year. We generated the record results in North America, despite the decline in volume and an increase in raw material costs of about $200 million in the fourth quarter through improved mix, pricing, and cost performance. Both our fourth quarter and calendar year performance demonstrate the resiliency of our North American business. For the calendar year, the North America team delivered EBIT-adjusted of $11.9 billion with a record 10.7% margin even with a 447,000 unit decline in wholesales and $600 million of commodity headwinds. And pricing remained strong. Our U.S. average transaction prices continued to grow, despite increased industry-wide incentive spend and a slightly weaker industry volume. Our fourth quarter ATPs of about $37,000 were $1,500 higher than the fourth quarter of 2016. The underlying strength of our business continues to improve as actions we have taken to reduce our fleet sales, improve residual values, and drive cost performance are playing out favorably in our results. Moving to GM International, this is the first quarter for our new reporting segment which combines the former GMIO region with the former GM South America region. Overall, EBIT-adjusted for this segment improved $200 million year-over-year driven by cost and price improvements. South America continued to improve. The fourth quarter was the second straight profitable quarter resulting in breakeven for the year, and we anticipate continued improvement in 2018. China continues to deliver solid results with equity income of $2 billion for the full year, about equal to 2016. A few comments on GM Financial and our Corp segment. As we continue to progress towards full captive, GM Financial posted record revenue of $3.3 billion and record earnings before tax adjusted of $300 million in the fourth quarter. Earnings assets grew 25% to about $86 billion, supporting expected future earnings growth, and we anticipate continued earnings growth in 2018. In the Corporate segment, costs were about $500 million for the fourth quarter and about $1.5 billion for the full year. This was in line with our expected costs for the year. As discussed at the Deutsche Bank Conference, spend on transportation and service is expected to increase about $400 million in 2018 versus 2017 as we prepare to deploy self-driving vehicles in a ride-share environment in 2019. As a result, we expect the Corporate sector quarterly cost to run in the $500 million to $600 million range for 2018. Turning to cash flow and capital allocation, Q4 adjusted automotive free cash flow improved by $1.7 billion year-over-year primarily due to favorable working capital as a result of normalization of production from the third quarter of 2017, partially offset by the impact of reduced dealer inventory. Adjusted automotive free cash flow for the full year of 2017 was $5.2 billion, down $3 billion year-over-year primarily due to lower automotive EBIT-adjusted of $400 million and movements in dealer inventory levels and the resulting impact on sales incentives of $2.2 billion. As Mary mentioned, we returned $6.7 billion to our shareholders through $2.2 billion in dividends and $4.5 billion in stock repurchases through 2017. And as a result of our strategic sale of Opel/Vauxhall, we were able to reduce our cash target by $2 billion. This is reflected in our year-end cash balance which is $2 billion lower than the 2016 year-end cash balance. Now, I want to share more details on our 2018 outlook. As we outlined last month, we expect to deliver full year 2018 EPS diluted adjusted in the mid-$6 range. We expect core EBIT-adjusted and core automotive adjusted free cash flow to be largely in line with core business performance in 2017. Core results consist of all operations excluding our autonomous vehicle operations, including Cruise Automation, Maven, and our investment in Lyft. Core automotive free cash flow will likely remain flat in 2018 as GM North American production levels and ending dealer inventory are expected to be relatively flat. Capital spending, as I said last month, will be about $8.5 billion for 2018, and we expect our annual run rate to decline as we get past our next-generation truck launch. Looking at 2018 cadence, we expect Q1 and Q4 to be the weakest quarters driven by typical seasonality, as well as our retooling downtime related to our new full-size pickup trucks. We expect Q2 and Q3 to be the strongest. North America will be impacted in Q1 by an approximately 60,000 unit volume decline primarily due to truck downtime. As a reminder, Q1 is typically our weakest cash flow quarter due to working capital seasonality. Given the anticipated lower production I just mentioned as well as CapEx spend to support the truck launch, Q1 cash flow is expected to be meaningfully below our historical averages. Our pace of buybacks for 2018 will be dependent on our free cash flow generation, our quarterly dividend which will remain at $0.38, and any additional calls on cash throughout the year. In North America, we expect to sustain an EBIT-adjusted margin of 10%-plus primarily due to continued strength of the U.S. industry, favorable mix due to a full year of new crossovers, the launch of our all-new full-size trucks, and a continued focus on overall cost savings. In GM International, we see improvement in 2018 driven primarily by the continued strengthening of our business in South America. In China, we see a similar dynamic as in 2017 and the past few years: continued pricing pressure offset by a richer mix of crossovers and anchored by strong sales from Buick and growing sales from Baojun and Cadillac resulting in another year of strong equity income. In Korea, we've had recent discussions with key stakeholders regarding the need to improve Korea's financial and operational performance. As we strategically assess our performance, additional restructuring and rationalization actions may be required. More to come on this topic as we move through the year. We see a significant opportunity for growth in adjacencies in 2018, specifically GM Financial, where we expect to once again improve earnings. Globally, while we expect a continued increase in raw material prices, we currently expect to largely mitigate through other cost performance. So to sum it up, a record fourth quarter, another record year of profit, margins and EPS diluted adjusted in 2017 in the face of significant volume declines and commodity headwinds. And our organization is focused on meeting our commitments again in 2018, as we've done for the last four years. That concludes our opening comments. We'll now move to the question-and-answer portion of the call.

Your first question comes from the line of Joseph Spak with RBC Capital Markets.

Thanks for taking the question. I guess just to level set everyone, your core EBIT and core free cash flow, which you were saying flat in 2018, those metrics are about $13.5 billion, and just a shade under $6 billion on free cash flow?

That would be the math when you look at what we delivered in 2017 and adjust for the investment in AV.

Okay. Thanks. And the $300 million increase in AV and mobility that you're pointing to in 2018, is that the level that you think gets you ready to launch at scale in the first quarter of 2019, or should we expect a step-up in the quarter you actually go live?

Yeah. I would say it's $400 million roughly, from $600 million to $1 billion on AV itself, $700 million to $1.1 billion overall in the TAS (17:22) segment when you factor in Maven and some of the other activities. But specific to AV, it's $600 million to $1 billion, Joe. And that's the run rate for 2018. That's what we think we need to spend in order to continue on that path, and we'll have more to say about 2019, as we exit through 2018.

Okay. And last one, just – because you mentioned some of the adjacency growth in GM Financial, and clearly, there's – I know there's a lot of economic factors that go into the forecast, but there's been a more recent focus on rates. Do you feel confident with that on a reasonable range of rate outcomes for 2018?

Well, clearly our expectations for – or maybe not so, but I'll make it clear now. Our expectations for 2018 were based on a set of assumptions from a macro perspective. Here specific in the U.S., it was an environment where there are going to be moderate increases in interest, 75 basis points, moderate inflation, moderate wage growth, continued GDP growth and an industry that was going to be in the low 17 millions. Under that construct, we would expect the growth in GM Financial as indicated, as well as another strong year in North America with 10-plus percent margins. And that's our baseline assumption, and that's what we're executing to at this point.

Thanks.

Your next question comes from the line of Emmanuel Rosner with Guggenheim.

Hi. Good morning, everybody.

Good morning.

Just wanted – could you give a little more color on the puts and takes for your GM North America EBIT in 2018? So I guess if we maybe refer to the typical bucket that you're reporting it in the slide, how should we think about those puts and takes for this year?

So, you're looking for an EBIT bridge, Emmanuel. So I'll give you kind of a high-level view, because we kind of paint at the macro backdrop. So the way I think about it and going back to the Deutsche Bank Conference, and look at from a tailwinds and a headwinds perspective, clearly, as we think about 2018 headwinds – and it's global, but obviously a big component of North America – commodity prices are going to increase, pricing is going to continue to be challenging in the carryover space, and we expect a lower industry. And then we've got the added specific issue in North America as we talked about of the incremental truck downtime roughly 60,000 units. To generate 10% margins in North America and offset some of those tailwinds – or headwinds, we have the full-year impact of our crossover launches, specifically the mid crossovers – Traverse, Enclave and Equinox – and we think that's going to be a pretty significant tailwind from a pricing perspective. We expect volume to be relatively flat year-over-year, but mix will be a headwind because of the lower truck production. And we expect cost performance to be favorable as we've demonstrated over the last couple of years with commercial and technical savings in GPSC and further SG&A efficiencies more than offsetting the incremental impact of commodities and launch-related costs. So, that's kind of the broad buckets. Obviously, as we've done over the last number of years, that's the baseline plan. And as we go through the year, we will make adjustments and course correct in order to continue to execute towards that objective, again contextually within the macro environment that I described earlier.

That's helpful. And I guess specifically within GMNA pricing, do you see any risk of just increased competitive conditions on the truck side? I mean, I understand on the crossover side, you have new product. But I guess on the pickup truck side, it seems like conditions are getting extremely competitive. I guess what is the directional assumption in your guidance for that?

Yeah. I would say, broadly speaking, we will have favorable pricing on new major, primarily driven by the full year of the crossovers and then the launch of the new truck later in the year. And there'll be a headwind, as we've seen over the last few years, on carryover pricing. As you know, incentive spend continues to amp up. But I would say, in that context, we still think truck pricing is going to be reasonably constructive. And just one data point, if you look at truck pricing transaction prices, say, Q4 versus Q3 in 2017, from a segment perspective, they were up another $1,000 a unit from a transaction pricing perspective. We were down slightly given the age of our truck, and we've built that into our plan as we go through 2018. So on balance, we feel reasonably good about truck pricing. Certainly, we're looking forward to the next-generation truck which we think is going to be a significant tailwind for us.

Great. Thank you for the color.

Your next question comes from the line of Itay Michaeli with Citi.

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

Thank you.

Maybe a question on the strength of the pickup truck franchise, but I'll ask it in a different way. Chuck, if I look at your guidance of kind of mid-$6 EPS, and I remove the $1 billion of Cruise AV investments, would it be fair to say that kind of all else equal, GM could still earn $6-plus in a, call it, high 15 million light vehicle SAAR. How can you think about the sensitivity now to the SAAR given what we've seen in terms of the pickup truck variable profits for yourselves and the industry?

Good question, Itay. So, the basic math would be, if we're in a 16 million industry versus 17 million, our wholesales are going to come down roughly 200,000 units, right? So 200,000 units at our average variable profit, the math would suggest that we would be north of $6 EPS in that environment for sure. I mean, it's a reasonably easy math exercise. I think the key is how that develops, right, and how that 17 million to 16 million industry develops, because there's other factors that would come in play; what's the pricing environment as you're going down in aggregate, what's the mix. But I would say that that's how we're trying to position this business. I've always talked about North American EBIT margins of 10%, and building a business model that would sustain that in a mid-15 million to low-16 million range and that's what we've been progressing to. And I would say the resilience of the business model last year would suggest that. We're kind of wholesaling or producing at a SAAR level that was less than 17.6 million when you look at our year-over-year volume decline.

That's very helpful. And just my follow-up. On the $1.5 billion of adjacent profit growth, I think for 2021, can you just share the cadence around that? How much might you be seeing this year and how much might that be contributing to your expectation of earnings improvement in 2019?

Yeah. I would say that without providing specifics over that kind of direction, where we're going to see and what we said back in January was a significant improvement in 2018, primarily GM Financials, as we continue on the captive. And then, we'll leg in the benefits in aftersales and OnStar as we go through kind of the 2019 to 2021 timeframe. The aftersales will be driven by continued growth in the car park after we bottomed out kind of in 2016, troughed out and then continue to increase our service loyalty, and OnStar is just continuing the growth of 4G LTE and some of the other related opportunities for revenue growth from that perspective. So, long answer. Simple answer is most of that improvement is going to come in GMF in 2018, and then between the three of them, kind of leg that in 2019 to 2021.

That's very helpful. Thanks so much.

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

Oh, great. Thanks for taking my questions, and congrats on a good quarter.

Thank you.

Any color – you've talked in the past about small cars losing money. Any update there in terms of maybe turning those around that could be the only area that is underperforming, I guess, and is it still losing money?

Last year, we had a focus and we took several actions to improve the overall performance across our car portfolio. Although, as you saw the shifts in the market, significant pressure on cars especially in the U.S. So, we continue to look for opportunities. We are well positioned though when you look at the fact that it was in the 2015 timeframe when we invested in and launched the compact and the mid-size with the Chevrolet Cruise and the Malibu. So we're well positioned with those being very robust architectures to continue to respond to the marketplace with very little capital investment as we move forward. I'd also say if you look broader globally from a car perspective, when we start to launch GEM in the 2019 timeframe, I think that sets us up very well especially in emerging markets, Mexico, China and South America to have a very strong car platform and really reach into the marketplace where customers are focused.

Got it. And any color on the size of the raw material headwind that is based on your guidance in terms of number?

Yeah, I mean, just to put it in perspective, last year, when we look at it in aggregate on a year-over-year basis, it was in the $700 million ZIP code. I think our baseline planning assumption is something a little bit less than that in 2018. So, roughly speaking, call it, $400 million to $500 million. But I think the important point is, as we see that develop, obviously, we were able to offset that impact last year through really strong performance across all other cost drivers. And we will react as we see how this develops during the year. But again for baseline planning assumptions, call it in the ZIP code of a $0.5 billion or so.

Got it. And just one last question, how should we think about the uses of free cash flow this year? I think you indicated in your comment that would be about flat year-over-year. Do you think the majority of the excess cash will be used to repurchases? Or should we model it in that way or do you need more de-leveraging? Any thoughts there?

Well, I think that our capital allocation framework is relatively transparent. We've been executing to it with discipline over the last number of years. So our guidance is flat free cash flow year-over-year in the core business. So call it roughly, ex-TAS (28:57) $6 billion, with TAS (28:58) roughly $5 billion, and we pay dividends, so that will be $2.2 billion. That will leave $2.8 billion for other actions. Other actions being M&A, not that I'm suggesting there's anything on the radar, but that's what that's for and/or restructuring and/or share buybacks. And I would say, as we go through the year, you would start with a $2.8 billion kind of opportunity for share buybacks and we'll see what develops. But to the extent that we have free cash flow available, that's what we're going to do. We're going to buy back shares.

Got it. All right. Thank you very much for taking my question.

Your next question comes from the line of John Murphy with Bank of America.

Good morning, guys.

Hey.

I hate to beat the dead horse here, just kind of staying on North America for a second. But when we look at it, the performance in the second half of the year has been pretty remarkable with volumes down and margins incredibly strong and actually in the fourth quarter up. I'm just curious, as you look at the market, I mean, the two levers that you've been able to pull is product launches and strong mix and the second one is cost cutting. So I'm just thinking, as you look at sort of your product cadence going forward, do you think there's an opportunity to upsell consumers into products that are better for them at higher prices and higher variable margins? Do you think you can kind of clip off another 5-point move towards crossover? Just kind of how you're thinking about that upselling opportunity. And then also, how much further you have to go on cost cutting in North America to potentially offset any weakness or create just absolute upside to earnings going forward?

Yeah. Let me focus on trucks, John, because we spent a fair amount of time talking about that at the Deutsche Bank Conference. While we've done very well with the current truck franchise, we think there's significant upside with the next-generation because we've released a number of constraints that we've had that will allow us to drive richer mix. The Silverado, we will have eight very distinct models that will cover the breadth of the portfolio, including up level where the current truck has really underperformed. We've also eliminated the constraint on crew cab mix that we've had. We underperformed versus the market on crew cab mix, and I think we talked about in general a $2 billion opportunity for revenue growth just by releasing those constraints. So that's an example of something that we're executing. We're executing with the next-generation truck. I'd also say that as we think about the overall truck, not only are we releasing some of these constraints and have a broader product offering, there is going to be significant differentiation between the Silverado and the very premium Sierra, and we're going to continue to focus on that and we think that's going to provide upside as well as the Denali mix that has been very favorable to us. And I think you'll continue to see that focus on differentiation when we launch the heavy-duties as well as the SUV. So, very, very purposefully, as we did the full-size truck pickup, we're trying to address some of the challenges we've had over the number of years to really drive the best possible mix and profitability. And we think – I think we solved that with this truck that we're going to start launching later in 2018.

Chuck, just to clarify, the $2 billion revenue opportunity, that does not include the HDs? Or does that include the HDs as well?

That was – that was on LDs, just looking at crew-cab mix.

Okay.

So, a high-level number, John, right? But if you just look at our penetration or our average transaction prices versus kind of the segment leader and that opportunity and we think that we can close 75% of that just by releasing the constraint on crew-cab mix.

And I got to imagine that's got pretty high variable margins?

It does.

Yeah. Yeah. Then a second question. Mary, I mean, I think a lot of us here in New York and even in the investment community are looking at the potential launch of a test fleet of Cruise vehicles here in New York City this year. I'm just curious where that stands as far as the launch and what we should be looking forward to hopefully for an event, an investor event around it.

So, we are on track and proceeding to be able to launch in a geo-fenced ride-sharing environment autonomous vehicles in the 2019 timeframe. Clearly, the focus continues to be on the development we're doing in San Francisco because of the complexity of that environment and the learnings that we get and the speed of learnings that we get from San Francisco. We are in the process of mapping New York, and I don't have anything specific to share of when we'll actually have a fleet deployed, but we are on that path as we announced last year and we'll continue. But I'd say the primary focus is on San Francisco.

Okay. And then just lastly real quick. Chuck, when we look at the GMF dividend, it looks like it went in reverse from the ParentCo to the GMF $600 million in the fourth quarter. What's going on there? And when can we expect to see sort of the more traditional dividend up from the FinCo to the ParentCo develop and, I mean, when will that occur? And should we looking at $1 billion size out in 2019 or 2020 when GMF matures?

Yeah. The dividend came from GMF to the parent in 2017. It was not included in our free cash flow numbers. It was related to the transaction of divesting our FinCo in Europe. And as you looked at the proceeds and the leverage ratios and everything else, they had the capacity to dividend about half of the proceeds to us, which we did. Again, that's not captured in the free cash flow number for 2017, obviously, in liquidity. Relative to long term – I think good question, John, and I think I would think about it in the context of our view on long-term cash generation capabilities of the company. Clearly, where we sit right now, pretty heavy CapEx load with the next-generation truck, incremental investment in AV, we're in the ZIP code of $5 billion to $6 billion of free cash flow. As you think beyond the next couple years in this kind of environment, we think our cash generation capability increases significantly. A couple of drivers to that. One, we'll be cycling past our high capital spend, and as we've indicated, we expect capital spend to come down. And two, we're going to at some point in time start to get the benefit of dividends from GM Financial, and I would say stay tuned on that. We'll have more to say as we get closer to that, but that is certainly part of our go-forward kind of plan relative to cash and cash flow and enhancing the overall cash generation of the business.

Great. Thank you very much.

Yes.

Your next question comes from the line of Adam Jonas with Morgan Stanley. Adam Michael Jonas - Morgan Stanley & Co. LLC: Hi. Thanks. Just two questions. First, you've made some really bold moves, your team on rationalizing and exiting businesses where the chances of generating a positive return on capital are really, really remote. Obviously, Europe's being the biggest and most significant of that. So as you assess the portfolio today, are there still some either product areas or regions, and I guess I'm thinking Korea, although I won't say Korea, that areas where really you maybe couldn't justify being in long-term?

Well, if you look at it, I mean, I think we have a track record of demonstrating that we're going to look at, to your point, those segments and regions and/or countries and look at our ability to generate the right returns over a long period of time. Clearly, Korea is a challenge for us. We have a strong presence there. We've grown market share. The brand has – Chevrolet brand has done well. But the current cost structure has become challenging, and we're going to have to take actions going forward to have a viable business. We've already begun conversations with the key stakeholders in GM Korea, including our minority owners and the union, and being very clear that we need to improve the financial and operating performance. So we're right in the middle of having those conversations. We know, within Korea and there's a few other countries, where we have to look at, that we're going to take the steps necessary to have the right franchise going forward that may result in some rationalization actions or restructuring that potentially could have a material impact on our results. But it's too soon to tell right now. We're right in the middle of the conversations to make sure everybody, all the stakeholders, understand the steps we need to take. Adam Michael Jonas - Morgan Stanley & Co. LLC: Thanks, Mary. And you mentioned a few other countries. Any of these countries outside of Asia or could you be more specific?

I would say primarily in our GMI operations. But I would say Korea is the one that we're most focused on, the others I think would be less significant. Adam Michael Jonas - Morgan Stanley & Co. LLC: Right. All right. And then my second and final question on the robo-taxi fleet, can you – a bit of a round numbers are helpful here. How many Level 4, Level 5 vehicles does GM have on the road in their testing fleet right now? How many would you expect by year end and maybe an order of magnitude for 2019? I asked that question because it's important for us to kind of put to your guidance some transparency on the amount of money you're putting towards it to try to think of it on a unit basis, to kind of have an understanding of the size of your footprint. So if you could help us with it, that would be appreciated.

Right now, we have about 100 vehicles that are driving primarily Gen 2, Gen 3. And so, that's where our focus. That will be growing through the course of this year. Remember where we talked about when we were together in the fall, getting to a point where we're collecting a million miles per month and so we're on that path to get there throughout this year. Beyond that, we haven't sized it and that is something that we'll share more as we get through this year and into the 2019 timeframe. Adam Michael Jonas - Morgan Stanley & Co. LLC: Thanks, Mary.

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

Hi. Good morning. Congrats on the quarter.

Thanks.

Thank you.

You mentioned in the slides that you've now achieved by the end of 2017, $5.5 billion of the $6.5 billion cumulative cost saves targeted through 2018. These savings, I think they started in 2015. So I guess like 75% of the savings period has elapsed and you've now realized 85% of the targeted savings. So, is the takeaway that the cost savings continue but at accelerated pace or maybe that – and if history is any guide, since you've increased the number a couple of times, there could be some upside in 2018 to that $6.5 billion number? Do you think if there there's some incremental pressures in 2018, like higher than anticipated commodity prices that you might be able to push a little bit further on cost to try to offset that?

Well, I'd say first, when we first rolled out this objective, it was at $5.5 billion. And as we overachieved it last year, early last year is when we raised it to $6.5 billion. Importantly, just to level set that this is primarily commercial savings, SG&A and manufacturing which we've said would more than offset the incremental investment in marketing, engineering and D&A. And what we like to do is achieve the commitments that we make and then move from there. So, clearly, we are very focused on achieving the $6.5 billion that we committed to back in 2015. Clearly, we believe there's opportunities above and beyond that that we're going to continue to pursue. And once we hit the $6.5 billion, we will set the next objective for ourselves, because I do believe there is, and so does Mary, further opportunities beyond that. And I'd also say, Ryan, that if you look at last year and look at the EBIT bridges that we sent, you'll see pretty significant, across the board, cost performance outside of these buckets as well. So we had significant improvement and warranty, driven by improved quality, reduced recalls, all the things that we talked about back in 2014, and we are really focused on that. So more to come, but first, we're going to get the $6.5 billion commitment in the bag. And then, I'm quite sure that we'll have more to say on above and beyond that.

Okay. That's helpful. Thanks. And then, Chuck, I think I heard you say that there would be a 60,000-unit headwind in truck volume in the first quarter due to the changeover to the new pickups, which I think was a little surprising because the launch doesn't, I think, take place until 3Q. But all along you've been approaching this launch a little bit differently than in the past, even taking some downtime in 2017, for example, to prepare for a 2018 launch. So maybe could you just talk about some of the efforts that you've already taken and then are going to take in 1Q to kind of help to prepare for this smoother-than-typical launch in the back half of the year? I think it might be helpful because consensus is below your forecast currently. And I think a primary reason for that is that the Street is maybe not fully understanding why your profits can maintain at such a strong level while you're launching a new truck, because typically in the past both GM and Ford have seen, at least temporarily, lower profits in the year that they launch a new truck.

Yeah. Specific to this truck, again, start at a high level, Ryan, this is an all-new architecture. Our last three generations of truck were fundamentally off the same architecture, with changes in sheet metal. So, this is an absolute all-new architecture which requires all new body shops. So, when we take downtime at certain facilities, it's because we're either converting or constructing new body shops to facilitate this launch, and we've been opportunistic around doing that around holiday periods so that you can get extra time to make these transitions without a full impact on downtime. So, again, taking advantage of Christmas time and leading into Q1, we've taken that opportunity with this transition. As I said back in January, we expect the unmitigated impact of launch and volume for the next-generation truck in 2018 to be about 130,000 units. We've tried to leg that in over the 2017/2018 timeframe by taking, again, opportunistic downtime to do the work that we needed to do at the facilities. In addition, we will be launching this year, and we're in process right now, of building what we call the Oshawa Shuttle, where we're taking bodies from Fort Wayne through the old body shop, shipping those to Canada and painting and assembling trucks there, which will fill about half of that gap. So, that's a mitigating action to take, a pretty significant headwind of 130,000 units, in essence, mitigate half of it and we're confident that that's going to turn out to be a benefit for us in 2018. Again, this is a massive level of change in our four facilities with an all-new architecture, and we're going to have to manage this and execute this flawlessly over the next couple of years, and so far, so good.

Very helpful. Thank you.

Your next question comes from the line of David Tamberrino with Goldman Sachs. David Tamberrino - Goldman Sachs & Co. LLC: Great. Thanks for taking our questions here. Want to talk a little bit about solid results this year, with free cash flow coming down obviously from 2017 to 2018, you're going to have that to be flat year-over-year again. But as we head into 2019, is there any reason to think that we can't get back up to that pro forma $8 billion that you laid out for 2016?

I think 2019 might be a little bit premature for that, David. Again, this is early days, right? But going back to what I talked about earlier, what's going to drive kind of moving off the run rate that we're at right now into what we talked about before, it's going to be as we cycle through our heavy CapEx cycle, we're launching and starting to launch of the light duties in the T1 this year. And next year, we still have HDs and then the full-size SUVs. And we're launching GEM as well in 2019. So, I would say that we need to cycle through 2018, 2019 capital spending, and then we'll start to see a meaningful decrease in that beyond the 2019 timeframe. And I think that would be kind of the trigger point to see that inflection. I mean, again, very early days and all premised on kind of the environment we're operating in right now. David Tamberrino - Goldman Sachs & Co. LLC: Yeah. That's fair. I mean, just kind of picking through the results and thinking about some of the positives from an adjusted EBIT perspective, things like warranty expense, I mean, just trying to understand what's going to drop through that could maybe give you better free cash flow than kind of what you're guiding to for 2018 and then also picking up into 2019.

Yeah. And let's talk about warranty for just a second. Clearly, a good tailwind in 2017 from a P&L perspective. The drivers of that – half of that was kind of an absence of reserve adjustments that we took in 2016 and half of it was what we were seeing come through in base warranty, extended warranty experience which resulted in an adjustment to our reserves, but then on a go – the go-forward accrual. I think the cash impact of that bleeds in over time, because as you're adjusting reserves and the repairs, obviously, warranties extend for three to five years. So, that would be another area that we would expect to see an improvement in the cash associated with that, but probably beyond 2018. David Tamberrino - Goldman Sachs & Co. LLC: Got it. And then just following up on a line of questioning earlier, I think, Mary, you were saying generating about a million miles per month with the test leads that you have. How much you augmenting that real world mileage with simulated miles? And does that grow over time and how much incremental expenses that really weigh on the P&L and CapEx for the autonomous development?

So, just to be to be clear, we have about 100 vehicles, we'll be growing that fleet of the Gen 2, Gen 3, getting to a million miles a month. Not there yet, I just wanted to be clear on that. But we are absolutely supplementing and doing quite a bit of simulation both here and in San Francisco using the experiences that we have or the miles that we're capturing and the work that we've done in that space. So, I can't give you the specific number of simulated miles that we've done, but I will tell you it's very significant. David Tamberrino - Goldman Sachs & Co. LLC: Okay. Is there any rule of thumb or ratio we should be thinking about? I know, I'd say one of your larger competitors, it's a very still number, but they were doing maybe 3 million miles overnight with some of their compute power. So, any color you can kind of give us there from a ratio of what you would think you need on simulated miles versus real world miles could be useful?

I don't have the specifics on that. We can look into that. I don't know if we've come out and said exactly how much we're doing from a simulation perspective. I would say I think when you look at the real performance that's happening, look at the rate of improvement, and there was just a study that came out where the substantial rate of improvement we had from disengagements and also the number of miles we traveled, I think it's pretty significant. So, I think all of that comes together with the real measures of what we're seeing in, again, in a very complex urban environment. We saw a 63% reduction in disengagements from 2016 to 2017. And also the average monthly miles per disengagement improved over 2,500%. So, very significant when you look at what we're doing with the miles we're experiencing and learning from in San Francisco added with the simulation. So I think it all comes together in those numbers, which I think is probably a better thing to look at. David Tamberrino - Goldman Sachs & Co. LLC: Understood. Thank you.

Your next question comes from the line of Rod Lache with Deutsche Bank.

Good morning, everybody.

Hi, Rod.

I had a couple of questions remaining. One is just could you clarify what the Korea losses are running at right now within GMI?

We don't report country-level profitability, Rod. So, sorry.

Okay. Maybe just switching gears to North America, obviously, pretty impressive pricing and ATPs. And I'm wondering if you can clarify – you've given us some of the components, but when you think about the net outlook for 2018, you said components were crossovers positive, obviously some weakness in the carryover, and it sounded like you're assuming higher subvention for a higher rate environment. The unusual thing this year is that you've got pretty tight inventories on the trucks, which I presume could help mitigate some of the normal incentives that you have on the run out. Any thoughts on how we should be thinking about your positioning for net price?

I think overall, net price will be positive in 2018 versus 2017. The benefit – the tailwinds will be crossover pricing, a full year of that, and really cycling off of pretty low transaction prices – pretty low, pretty tough pricing environment for us, given the age of those products into the new products. So that will be a tailwind. And the new truck will be a tailwind, I think, February 6. But those combined will be greater than carryover headwinds. And you bring up a good point. Clearly, we ended the year very lean from a truck inventory perspective and our production is going to be lower this year versus last year, so we expect to continue to run pretty lean inventories on a go-forward basis, and that will help mitigate some of the truck challenges as we kind of run through that. But net-net, overall positive with new being greater than carryover headwind.

And presumably you've incorporated some rate subvention associated with that 75 basis points you plotted. Is that correct?

Well, we've certainly built that into our baseline set of assumptions; a 75 basis point increase in rates as well as a continuation of kind of what we've seen over the last number of years as incentive spend as a percentage of transaction price. We've seen 60 bps to 100 bps on a year-over-year basis increase in that, so that's kind of the environment we're assuming is going to continue. A tough pricing environment in the U.S.

Great. And just lastly, you've given in the past a really helpful analysis that basically helped us bridge to breakeven at like an 11 million SAAR. Just could you remind us what some of the cost elements are in your downside scenario? What are the levers that you can pull from a fixed cost perspective, maybe Tier 2 ad budgets, things like that?

Yeah. Sure. Again, this is – the proof is – this will be a very, very detailed assessment that we would have to go through, but if you look at our workforce today in the U.S. specifically, much more variable than it was in the past, we've got roughly 25% Tier 2 and a few percentage points of temporary, so call it 30% percent overall. Through 2019, we have no caps. We expected that to grow closer to 40% to 50%. So in theory, at a system level, if there was a 10% or a 15% reduction in volume, we should be able to take 10% to 15% of the labor-related costs out over a relatively short period of time. So that's one fundamental driver. Our manufacturing cost for modeling purposes would come out at the same pace as volume. Number two, we would obviously reduce marketing expense. Marketing expense over a baseline level is highly variable, right? And if you just tag that to a percent of next sales, if there's a 20% reduction in volume, you could reduce marketing expense by at least 20%. And clearly, another significant component would be our compensation structure which is largely variable. And if we're making less money, we're paying less variable compensation. Those three items in combination – and obviously, there'd be opportunities on the margin, not insignificant, but opportunities on the margin, those three will drive $3 billion to $4 billion roughly of fixed cost opportunity or cost opportunity in a typical downturn. And that's what's built into our U.S. breakeven or North American breakeven at a U.S. industry level of 10 million to 11 million units.

Great. Thanks. That's real helpful.

Thank you. Our last question comes from the line of Brian Johnson with Barclays.

Couple of questions; one managerial and one more around housekeeping on accounting. The managerial ones is, with the cost reduction efforts both for material and employee-related, you haven't made a big deal of – unlike some other firms that are reducing costs of big, high-level programs that smell of consultants and program offices. But could you give us a sense of how the material cost saves and how the employee costs saves show up in terms of managerial actions that – are there ongoing targets? What are the key areas? How do you kind of balance getting the costs out without kind of going back to the old bean-counting reputation of GM?

Yeah, sure. And this all started back in 2013, 2014, and I think we laid that out at the Deutsche Bank Conference the journey we've been on when we looked at the business and looked at the opportunities for the business and where it should be. And we did a lot of benchmarking. We did benchmarking around our material costs and the GM penalty we were carrying. We did benchmarking around harbor, manufacturing costs, benchmarking around world-class levels of SG&A, and we established benchmarks for all of the leads in those areas. And we have fundamentally been executing to those benchmark areas since 2014. Beyond that, we enabled the achievement of some of these benchmarks through a couple of important initiatives that we've launched: Operational Excellence and Global Business Solutions. Between the two of those, one was GBS. It has taken in a significant amount of work globally in the SG&A space that was very fragmented and not optimal and efficient, and brought it under one roof, common processes, common systems, end to end and drove significant savings in the more transactional side of the business. Operational Excellence is the way we do business now. When you look at a cost challenge or a business challenge and aftermarket challenge, we use operational excellence tool, Six Sigma, Lean, the whole toolbox to really at an enterprise level drive from where we are today to a target. And I think we do this in a very, very disciplined way. It gets a lot of visibility. The $6.5 billion by key driver, we review it with the management team and Mary on a regular basis. We review it with the Board of Directors. And I think that as opposed to consulting/bean-counting exercise, you're seeing it show up in the bottom line results as we continue to generate strong performance in an environment that is tougher than what we expected over the last couple of years. And we're going to continue to do that.

Yeah. I would just add to that. It's really driving the culture of everyone understanding that we need to continuously improve processes. And also, when we see challenges we've got to figure out ways to overcome them. So that's the mindset that Chuck is talking about. When there's a challenge or a target, we need to make sure we have a plan to address it, and every employee has the tools to – outside the structure tools like Six Sigma to go after those.

So it's more of an ongoing culture than a one-time consulting exercise?

Absolutely. I mean – and the $6.5 billion that we set up a few years ago and talked about, purposefully, Mary and I talked about that externally to put the stake in the ground, so that we would hold ourselves accountable to it and be transparent around that commitment. And I would expect that, as I said earlier, once we cycle through that, there'll be a next round that we want to be held accountable to and people should build a track to the P&L – we wanted cost savings, because that would roll through to the P&L. And again, we're seeing that.

Okay. A couple of accounting questions. One, any impact of the FASB accounting rule change around net periodic pension costs in terms of North America EBIT where you're generating pension income? And second around $9 billion write-down of deferred tax asset, you still have about $24 billion left. Can you give us a sense of when you, given your business plan, would likely flip to becoming a U.S. taxpayer, cash taxpayer?

Yeah. Sure. On the first question, no impact on North American EBIT, it's just geography both above the EBIT line, so no impact. And I don't know where the $9 billion came from, but it was like $7 billion for the impact of tax reform going from the statutory rate of 35% to 21% on our deferred tax assets. We have about $23 billion left after that adjustment, and I would expect that we would remain a very low cash tax paying in a position for the foreseeable future, 2022-2023 timeframe.

Okay. So any impact of tax reform on cash taxes would be well after that. In the meantime, you're not a significant U.S. cash taxpayer?

Yeah. The way I would think about it is, absent that, beyond 2022-2023, we would start to move up into – closer to a 35% range or 28% range, and now we're not going to – it's a longer term benefit for us from a cash tax-paying standpoint.

Right. Despite the GAAP adjustments?

Yeah.

Okay. Thanks.

Yes.

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

I'd like to thank everybody for participating today. I hope you see that GM is a stronger, more focused company than we were just a few years ago, and we have much more work to do. In fact, just last week, we had our senior leadership team together to have – so everybody is perfectly aligned in what we need to accomplish in 2018 and beyond. We recognize that our industry is changing rapidly and with that, there are opportunities and there are also challenges. But as you look at the strategy that we've been executing, we believe that we will continue to capitalize on those opportunities, minimize the challenges and drive long-term shareholder value. That's what we come to work for every day. So, thank you all 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.