General Motors Company (GM) Q2 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the General Motors Company Second Quarter 2018 Earnings Conference Call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded Wednesday, July 25, 2018. I would now like to turn the conference over to Mike, Director of Investor Relations.

Thanks, operator. Good morning, and thank you for joining us as we review GM's financial results for the second quarter of 2018. 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 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 Vice President and CFO. We will then open the line for questions from the analyst community. In the room today to assist in answering your questions, we also have Dhivya Suryadevara, Vice President of Corporate Finance and incoming Executive Vice President and CFO; and Tom Timko, Vice President Global Business Services and Chief Accounting Officer. 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. I will now turn the call over to Mary Barra.

Thanks, Michael, and good morning, everyone. Thank you for joining the call. Before I start and comment on earnings, I would like to share that at General Motors, our thoughts are with Sergio Marchionne's family and friends as well as the entire FCA team over his sudden loss. I think we all agree, Sergio will be remembered for the many, many accomplishments he had in our industry. And now, I'd like to move to the numbers. First, from a net revenue perspective, we generated $36.8 billion. We had EBIT-adjusted of $3.2 billion, EBIT-adjusted margins of 8.7% and EPS-diluted-adjusted of $1.81. Our ROIC-adjusted was 24.7%. And our adjusted automotive free cash flow was $2.6 billion. Our financial results in the second quarter, whilst solid, did not meet our plan. We faced significant external challenges including higher than expected commodity prices and currency devaluation in South America. We have been taking actions to mitigate these headwinds and that will continue. However, we expect this volatility to extend into the second half, and Chuck and I will share more on this in a few minutes. Before we do that though, I do want to point out the key accomplishments in the quarter that demonstrate we are executing the business with strength and discipline. We improved U.S. sales and market share through strong sales of crossovers, trucks and SUVs. In addition, China equity income was a Q2 record driven by record Cadillac and Baojun deliveries and strong market share. And GM financial growth and earning assets and continued loyalty performance contributed to a record earnings before tax-adjusted in the quarter. Production of our all new 2019 Chevrolet Silverado and GMC Sierra full-size pickups have begun on schedule, and we expect to begin delivering high contented crew cab models to customers in August. To support our commitment to quality, these trucks have been subjected to the most stringent testing and validation in our history, and we've accumulated over 7 million miles in that testing and validation. In addition, we secured landmark deals and alliances that will help us redefine the future of personal mobility. Let's take a deeper look at the core business performance by turning to the United States where sales are up 4% through June and where our brands gained market share in the quarter. Year-to-date, Chevrolet has posted record Trax, Equinox and Traverse deliveries. With a double-digit pickup sales increase in the first half of the year, Chevrolet and GMC outpaced the industry. Cadillac is on track to launch the XT4 luxury SUV this fall. And as I mentioned, our full-sized pickup launch is going very well, with our truck plants operating two shifts at over 100% capacity to meet the demand for current generation trucks while we're transitioning to our all-new Chevy Silverado and GMC Sierra. In the second half of the year, GM China will introduce 10 new models including the Cadillac XT4. The focus is on high-demand segments including SUVs and MPVs and luxury vehicles. We expect increased launch-related costs in the second half of the year and because of competitive launches, we expect pricing pressures to intensify. But we remain confident in our 20 years of market strength in China. Due to established local and U.S. brands and our strong Chinese partner, our current outlook does not assume any comprehensive impact in China beyond existing trade flows. We also continue to be committed to our vision of zero crashes, zero emissions, and zero congestion, and we signed a landmark deal with SoftBank valuing GM Cruise at $11.5 billion. The GM and SoftBank investments are expected to provide the capital necessary to reach commercialization at scale. And we took an important step toward our all-electric future by partnering with Honda on next-generation battery development for our respective EV models. As part of this deal, Honda will source battery cells and modules from GM, and this creates scale and manufacturing efficiencies. We began this year expecting pressure from raw material prices and foreign exchange rates and while we have mitigated some of this effect the challenge has become significantly greater than we originally expected, and we believe it will continue in the second half of the year. Because of this, we have updated our full year outlook for EPS in the $6.00 range and adjusted automotive free cash flow to approximately $4 billion. Chuck will go deeper into the numbers and share our expectations for the rest of 2018.

Thanks, Mary. As Mary mentioned, while execution continues to be strong, we did experience a challenging second quarter, and we are facing greater than expected headwinds in commodity pricing and significant currency devaluations in South America. Again, in total we generated $36.8 billion in revenue, $3.2 billion in EBIT-adjusted, 8.7% margins and $1.81 in EPS-diluted-adjusted in the second quarter. We also generated $2.6 billion in adjusted automotive free cash flow, in line with our expectations. North America generated $2.7 billion of EBIT-adjusted and 9.4% margins. These results are below our expectations. Q2 is down $800 million year-over-year primarily due to unfavorable pricing and trim mix from the sell-down of our current generation full-sized pickups, increased commodity pricing and timing of fleet sales. Our U.S. transaction prices which are net of incentives continue to grow in the second quarter. Our second quarter ATPs of almost $35,500 were $300 higher than the second quarter of 2017. We expect pricing performance to improve as we progress with the launch of our new trucks later in the year. And as we look into the second half, we remain focused and being disciplined from an incentive spending perspective. Regarding GM North America full-year EBIT-adjusted margins, we are on path to achieve our target of 10% margins. However, with the largely commodity-driven headwinds we are facing, a 9% to 10% range is more appropriate at this time. Moving to GM International, EBIT-adjusted performance in GM International is down $200 million year-over-year, driven by a significant devaluation of the Argentine peso and Brazilian real, partially offset by strength in China. China continued to deliver record results with equity income of $600 million for the quarter, up $100 million year-over-year. Pricing pressure remains a challenge, but was more than offset by the richer mix of vehicles, continued strong sales performance from Baojun, Cadillac, and Chevrolet and continued focus on cost efficiencies. Just a few comments on GM Financial, GM Cruise and our Corp segment. As we continue to progress towards full captive, GM Financial posted record revenue of $3.5 billion and record earnings before tax-adjusted of over $500 million in the second quarter. Earning assets grew $9.9 billion to just over $90 billion, supporting expected future earnings growth. And for the full year, we continue to expect a meaningful improvement in GM Financial earnings versus 2017. GM Cruise costs in the quarter were $200 million as we continue progressing toward commercialization. We expect to spend approximately $1 billion in GM Cruise for the full-year. The Corp segment reflects an improvement of $300 million year-over-year in the second quarter, primarily due to the revaluation of our investment in Lyft. We still expect the Corp segment cost to be approximately $1 billion for the full year. Turning cash flow and capital allocation. In Q2, as I said, we generated $2.6 billion of adjusted automotive free cash flow, in line with our expectations, and down $200 million year-over-year primarily due to the lower EBIT-adjusted performance partially offset by favorable managed working capital. During the quarter, we returned $500 million to our shareholders through dividends. With regard to our total company outlook for the full year, the pressure from commodity prices and foreign exchange rates has been more significant than our original expectations. While we've been able to offset some of the headwind, the challenges have been greater than anticipated, and we expect approximately a $1 billion net headwind versus our original guidance. As a result, the incremental impact from these headwinds is reflected in our updated EPS outlook in the range of $6.00 and adjusted automotive free cash flow outlook of approximately $4 billion which excludes GM Cruise. As mentioned, we expect significant year-over-year profit growth at GM Financial. In China, we expect elevated pricing pressure in the second half due to competitive entries in the market and an increase in launch costs across multiple brands. Regarding earnings cadence, Q4 will be stronger than Q3 on a relative basis, as we increase full-sized pickup truck production. So, to sum up the quarter, while we are experiencing significant headwinds primarily as a result of recent developments in commodity pricing and FX rates, we're making every effort to mitigate the impact. Our execution remains strong. And when you look at our absolute level of performance, you'll see that it remains very solid. The full-sized truck launch is on plan. Regular production began earlier this month, and our first customer deliveries will begin next month with a rich mix of high content crew cabs. We continue to see a medium term path to profitability in GMI driven by our recent restructuring actions, the launch of our new GEM program in South America, and improvement in macroeconomic conditions in South America. Additionally, we expect profit growth in our adjacencies including GM Financial, aftersales and OnStar, and we continue to make considerable progress in the future of mobility as evidenced by SoftBank's recent investment in GM Cruise. We're excited about these opportunities ahead of us and continue to expect strong execution both over the short and long term. That concludes our opening comments. We'll now move to the question-and-answer portion of the call. Thank you.

Your first question comes from the line of John Murphy with Bank of America Merrill Lynch.

Good morning, guys.

Good morning, John.

Just a first question on the raw material pressures. Obviously, you can take actions internally and execute better and better, which you're doing. But there's also the potential to pass this through in price increases to the customer or potentially push down to your suppliers to help out a bit more. I'm just curious in those two directions, has there been any action or thought put into place in doing those and how successful could those be?

Well, let me just kind of size up the challenge on that relative to the commodity challenge. I mean at the end of the day, I noted that we had a net unmitigated exposure or headwind for the year of about $1 billion. The unmitigated headwind when you look at both commodities and FX is something north of $2 billion, so we've already executed actions to offset more than $1 billion of those headwinds and a big portion of that is commodities. We're doing that through commercial – incremental commercial and technical savings which gets to the supplier, a portion of that. We're also doing that, where possible, through pricing. And if you look at our pricing for the year and the second half, we expect pricing to be favorable by roughly $800 million on just pure MSRP. So, to the extent that we can, we're recovering that through pricing. Obviously, John, the market in the United States is challenging. This is a market driven kind of – we're going to be competitive in the market, again, to the extent that we have opportunistic ability to pass along some, we will. But I'd say the big picture is we've already are in or have executed or will execute actions that's going to mitigate more than 50% of the headwind that we're seeing.

So, would it be fair to characterize $2 billion gross headwinds down to about $1 billion based on current actions that you've taken with the potential to maybe try to offset some more through other actions? Is that a fair characterization?

Well, I would say that remaining – when we look at the year, obviously, if we thought there were actions to mitigate the further $1 billion, we wouldn't have adjusted our guidance. I think on a go-forward basis, as we cycle through 2018, we have levers that we can pull that are longer term in nature. Obviously, we'll continue to work with suppliers, work with them across the entire value chain. We can look at footprint from a sourcing perspective. We can look at ultimately replacement or substitution of materials. So, we will not leave this unmitigated piece of this as a permanent erosion in margins, if that's kind of where you're getting at. And again, that's the commodity piece. For FX, I would say that you know that is largely the South American piece of the unmitigated exposure between the Argentinian peso and Brazilian real and I would say there's a lag effect. The FX is rolling through as we're cycling through this year. We're taking pricing action aggressively in Argentina and to the extent possible in Brazil. And we would expect as we exit this year, those to be relatively balanced. There's just a lag on how quickly you price for these things and the market acceptance.

That's very helpful. Then next on sort of mix in price in the pickup segment, it sounds like there were some incremental pressure, but is this really the sell-down of the old truck or is there something else going on sort of in the competitive landscape in pickup?

Yes. That's a good question, John. And again, starting at 10,000 feet when you look at North American results $2.7 billion and 9.4%. Both Mary and I stated that this was below our expectations. The biggest driver of the underperformance in the quarter was commodities. When you look at the price bridge year-over-year, I would say what we're seeing from a pricing perspective and what we're seeing in a mix perspective largely expected when you think about we're selling down the K2 and getting ready to launch the new truck. And the trim dynamic that we talked about from a mix standpoint in the second quarter is because our crew cab truck plant was down, getting ready to transition to the new crew cab. So, we were producing and selling largely regular cab and double cabs, which are clearly not as profitable as our high contented crew cab. So, that's more of a timing issue that will cycle through as go through the rest of this year and into next year.

Okay. And then just lastly on Cruise, as we think about sort of progression of that business from an operating basis and a funding basis, are we still on target for commercialization next year? Could there be the potential for a on-demand service, branded Cruise, before you get to truly autonomous level 4 vehicles? And as we think about sort of the monetization and funding of this with SoftBank, really just sort of the first tranche of what investors should expect to see and could there be more down the line in other rounds of funding?

So, John, we continue to progress and achieve the development that we're looking for. As we've said all along, we'll be gated by safety. But we are on track, and I think, very important investment with Softbank with the validation they did of – the approach that we're taking of having the deep integration. But beyond that, I don't have anything further to share. We're going to continue to look at what's in the best interest of growing this business, of creating first the safe technology (00:18:27) because that's what enables everything and then driving the network and then beyond. We do have the Cruise, I think it's called Cruise Anywhere where we're already leveraging our own network in driving Cruise employees. But I think we're focused as we've said and on a path for a deployment in a ride-sharing environment in 2019.

Okay. Thank you very much.

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

Thanks for taking the question. Just to follow on the thinking about the second half versus first half in GMNA, the improvement. The commodity cost remains, so the offset to get to that 9% to 10% considering where you are in the first half is really more some of that mix and some of those new programs – some of the new trucks coming on?

That would be correct. If you look at truck production in the first half of the year, we were down versus the first half of last year roughly 40,000 units. That's going to – we're going to be transitioning out of that. My big picture would be truck production is going to be kind of flat in the second half of 2018 versus the second half. So, we'll cycle past that. And you've got the benefit of the new trucks and what that's going to do from both a mix and a pricing perspective. So, I think as I think about the big picture in the second half, you've got favorable mix, favorable price of the new trucks which is more than going to offset kind of cost associated with launch primarily engineering and D&A and some of the commodity headwinds. Again, when you add it all up for the year, you end up in the zip code in 9% to 10% margins, and that will largely be the commodity headwinds that we are unable to offset. But fundamentally, the big drivers remain as they were back in January relative to second half versus first half. The new issue is the commodity escalation.

Okay. Just taking a step back from the quarter, there was obviously news coming out about some of the fuel economy standards sort of being pushed out and maybe even sort of withdrawing California's ability to regulate. Like I believe in the past you talked about how that was actually a positive because it made standards a little bit more homogenized across the region. So, is that still the thinking or I mean – I think just what do you prefer, sort of California's able to set their own stuff or if they pull back?

What we ultimately would like is a one national program across the country. And we are going to remain committed to improving fuel economy, reducing emissions and working toward an all-electric future, but it is in, we believe, everybody's best interest to have one national set of requirement that comprehends the new technologies that we're putting in place and the increase in sharing of the – increase in – what the opportunity poses for autonomous vehicles. But one national standard is very important.

Okay. And then last one on Cruise, as you think about the future – well, let me let me step back, so it seems like clearly as you're progressing towards this 2019 launch, you're sort of taking a do-it-all approach. But as you think about the longer-term potential for Cruise, if you got the technology to work, do you envision any scenarios whether it be for certain segments or certain geographies where you'd consider licensing out the technology?

Again – and I think you said it correctly, the key thing is to get the technology developed safely so we can deploy and validate that. And once we do that, we're going to look at any and all opportunities to really ramp up and maximize the use of the technology to drive shareholder value. So, we will be open to all opportunities. Key right now is getting the technology developed and be able to deploy safely.

Okay. Thank you.

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

Good morning. Thanks for taking my question.

Sure.

My first question is on trade. So, I think we've all explored how potential changes to the global trade environment could potentially be quite negative for GM, particularly around NAFTA. Has there also been though any scenario planning within GM that suggest that potential other changes to trade could actually shake out positively for you? I know GM management stands for free trade, but it seems to us that certain scenarios such as NAFTA remaining but Section 232 tariffs applying to imported vehicles from outside the NAFTA block, that could actually end up being quite positive for you from a pricing or share perspective? How are you thinking about the range of possibilities?

Well, the range of possibilities is almost infinite when you look at how many moving pieces there are. As you said, General Motors, we generally are free traders. We believe it's important to modernize NAFTA but we think it's important for the auto industry to have the right NAFTA agreements. What we've been focused on is providing input to the people in government across government and the administration and across countries to make sure they understand the complexities of the supply chain, the length of when we make investments. So, whatever moves are made can be done in a logical fashion. But again, we're very much focused on having the NAFTA agreement resolve. We think that's important. As we look at the opportunities that may come out of this as it shakes out with whether it's Section 232 or some of the other things that are being discussed, I think what our focus on is making sure we have the best products from a car, truck and crossover perspective that we're going to win in the marketplace. And obviously as those sort out and there's a lot of scenarios we're looking at but we're going to try to really make sure that we're going to be able to take advantage based on the strong product portfolio that we have.

I see. Thanks. And then on the currency headwinds you're seeing in South America, depending upon the performance of what was previously called consolidated IO, the headwinds there seem quite large given that International was softer while China was a record. So, can you kind of help us understand the magnitude maybe of those headwinds and what's driving it? I asked because last year you were only slightly profitable in South America. So, the lower currency translation of your EBIT profits there does not seem to explain the degree of the headwind. Are you may be having to like import certain components into Brazil and Argentina paid for with depreciated reals and pesos? And if so, are there any actions that you can take or that you are taking now to try to lessen that impact going forward?

Well, the net impact of the currency in GMI which was largely South America, in the second quarter was $200 million, broadly speaking. Significant devaluation of both the Argentinian peso and the Brazilian real. As I mentioned, when you look at this unmitigated for the year, just the South American piece you're talking somewhere close to $1 billion of exposure based on the current rates which had – pick a day, the Brazilian real has been at BRL 3.80 plus or minus, and the Argentinian peso at ARS 27.5. At the beginning of the year, it was BRL 3.15 and something around ARS 20. We can price and price aggressively in Argentina because it's a hyper inflationary environment, and we've been doing that. And as I said earlier, we would expect that there's a lag, but we would expect that to catch up assuming that there's some stability. Brazil's different. Brazil inflation is low. It's very, very difficult to pass those costs along. The solution in Brazil, assuming that these current – this exchange rate persists, which we don't believe it will, will be the execution of our GEM strategy because with the Global Emerging Market program which we're starting to launch now and we'll continue to launch over the next 12 to 18 months in South America, we're going to be much more localized. So, that's the path out of this. I think that everybody's got their point of view, but kind of the consensus view is once we move through the elections later this year and get some kind of clarity around the government in both Brazil and Argentina, the government policies and execution of some fiscal reform, that these currencies are going to recover, the biggest one that we're focused on obviously is Brazil, given the lack of pricing capability to offset the exchange. So, that is a long-winded answer, but I think it sized up Q2 in kind of what our view is for the rest of the year. Answered your question, Ryan?

Yes, it does. It's very helpful. Thanks. And then just lastly, quickly on metals, I heard in the prepared remarks that you expect the prices to remain high in the back half of the year. Steel prices, we can see clearly they were sharply higher in the quarter and they remain high. At the same time, the prices for some of the other metals that you're exposed to such as aluminum or copper, while they were also sharply higher in 2Q they appear to have significantly moderated after the quarter end just in the last few weeks here. So, the question is like what level of cost do you assume for metals in the back half? Do your assumptions reflect the level of cost you incurred in 2Q, the latest available spot prices or your own expectation of where they might trend going forward? Thanks.

Yes. We look at a number of different indicators of commodity prices – one's spot, one is the bank forward rates, one is our own informed view based on all of these inputs. I think that obviously, we've seen the pullback in some of the aluminum pricing most recently. All of that is factored into our thinking. One of the things that you need to understand is there's a lag effect. We have at least a three-month lag from when the price moves to when it ultimately works its way through. So, that's why when you saw the run-up in pricing kind of in Q2, we had a net commodity headwind of $300 million in Q2. We see that playing out into the second half of the year because the run-up that we saw in Q2, we're going to feel the full effect of that in the second half of the year given that kind of three-month lag based on the supply chain. So, all of those are factored in, Ryan, including the recent back up in aluminum. And I would say our biggest exposure, our biggest unmitigated exposure is really steel and aluminum when you look at all of the commodities. And frankly, the biggest driver of that is steel.

Very helpful. Thank you.

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

Great. Thank you. Good morning.

Hey.

Maybe a question on 2019 for Chuck, can you just update us on your latest thinking there? I think the original kind of outlook was for core EBIT to get better 2019 versus 2018. And then also how we should think about the kind of puts and takes on North America. Because I think your second half North America guidance implied about a 10% margin. So, does that kind of continue in 2019 with these headwinds and maybe talk a little bit about that?

Well, just a couple of comments, Itay. I'm not going to set guidance for 2019 because I won't be here to execute to it. So, it would be really easy for me to get aggressive and lean forward. But in all seriousness, I would say that the way I would think about 2019 is execution remains very strong. We continue to work to optimize those things that are in our control. We are in a very uncertain and volatile environment at this point in time and we're in the middle of 2018. But when you look at the truck launch and having a full year of light duty pickups next year, when you look at the continued strength that of GM Financial and the continued growth there, hopefully, some improvement in South America, I would say a foundation is there for us to continue to execute well, but I am not going to get out in front of my interference here given the macro environment and the uncertainty associated with that. We will continue to focus on strong execution and continuing to drive the improvement in those areas of the business that we've been talking about for the last number of years and I'm confident in whatever the macro backdrop is, we'll optimize results.

That's helpful. And then on the T1 launch, I think you previously highlighted a $2 billion opportunity mostly in terms of revenue on the crew cab mix. How much of that do you think you'll get in the second half? And can you talk about what the rough incremental margin on that $2 billion opportunity might look like?

You're going back to the – Ammann's chart at the Deutsche Bank Conference, right, as I recollect. And when we were looking at that, that was when you looked at kind of the K2 and some of the opportunities we have in the T1 vis-à-vis the K2. In other words the new entries up-level entries in both the Sierra and Silverado lines, removing the constraint that we had on crew cabs that we've seen in the past and I would say that is kind of like life cycle to life cycle opportunities. So, I wouldn't start booking benefit like that in the second half of 2018. I think that continues to build and will manifest itself in 2019 and 2020 as we move through the launch. Relative to 2018 second half, we're going to produce roughly 120,000 to 130,000 T1s. Obviously, they're going to be more profitable than the K2. And rich mix; rich mix because they're all crew cabs. But we're not going to see the full impact of that until 2019 and beyond.

That's very helpful. And then just lastly maybe a strategic question for Mary. With the announcements from Maven yesterday on peer-to-peer, can you talk about how the peer-to-peer sharing platform plays into GM's future AV strategy and even potentially EVs as you can maybe use that platform to make the monthly payment on an EV perhaps more compelling on a shared platform?

Well, Itay, I think you said it well. I mean, we have learned a tremendous amount with Maven in the different contracts whether it's Maven from a real estate perspective, Maven Home, what we've done in Ann Arbor with the City and then Maven Gig, and now this is the next installment with highlighting in the three cities the peer-to-peer. And we think especially with what General Motors has with our OnStar connection, it really allows for a pretty seamless way for people to make their car available to others and defer some of the costs. So, I think there will be people who do what you suggest and use it as a way to offset the cost of the vehicle and we also see it having a huge benefit from a Cap 8 on a regulatory perspective because once you use the vehicle more, we're demonstrating that a vehicle in a sharing environment and we've deployed a number of Chevrolet Volt EVs, is something that gets higher miles usage and therefore has a better impact on the environment. So, we're really excited about the peer-to-peer, learning about it in the three pilot cities, and then looking at what are the opportunities to expand from a current business today. And in many of the learnings we've already had for Maven that is being factored in and considered in our plans for Cruise. So again, good learning, continuing to expand, multiple benefits for the customer from a greenhouse gas perspective, and we see those learnings being leveraged in autonomous.

That's very helpful. Thanks so much.

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

Hi. Good morning, everybody.

Good morning.

Good morning.

I was hoping to come back to your first half to second half walk and specifically for GMNA. You're obviously assuming your very nice – or I guess a material improvement in both EBIT and margin for the second half, and you mentioned the factors behind that. I was just curious if you could just give an order of dimension for those for those factors because if my understanding is right you have commodities, that's where the lag will probably be a larger headwind in the second half, but then you have production up and then you have pricing which you expect to be stronger especially in the fourth quarter. So, any sense you can give us on dimensioning these factors?

Boy, I hesitate to do that because then, in Q3 and Q4, you'll be asking for a reconciliation of that. I would just say that when you look at – the biggest driver of the improvement, the biggest tailwind in the second half will be mix. We're going to be up roughly 100,000 crew cabs in the second half of the year versus the first half of the year. Second, the pricing dimension of that is pretty favorable, and I would put that in the zip code of $1 billion dollars of net price. And that's largely related to majors as well as typical model year 2019 pricing. So those two factors together are a significant $1 billion tailwind. Headwinds, overall, in the second half of the year overall volume is going to be down and you know that July and December are our shut down months, and we always have lower production in the second half. As I mentioned, cost is going to be up, call it in the $500 million to $600 million range. That's primarily engineering and D&A, launch-related. And then I would say the other piece of that, kind of the commodity headwind in the second half of the year unmitigated is several hundred million dollars. So, again if I'm just dimensioning those, the biggest positive driver is mix, followed by price, which will be partially offset by the biggest driver fundamentally being volume, typical second half seasonality launch-related costs, and then commodities.

All right. That's extremely helpful. And then just following up on the commodities piece, so you're obviously seeing – been increasing steadily throughout the year your estimates for the headwind. I think when you first guided this in January, it was $200 million, $300 million. Now we're obviously talking about net $1 billion. If the prices stayed at current levels, what does that headwind look like in 2019?

Yes. Let me – if I could go back, Emmanuel, and provide a little bit more clarity, the $1 billion net headwind for the year is not all commodities. I would say, broadly speaking, the unmitigated headwind is roughly $300 million to $400 million of FX, largely the South American piece and the unmitigated commodities $600 million to $700 million. A big portion of that falls into North America, obviously, on the commodity piece of this. So, as we exit this year and go into next year, on a run rate basis you're talking about maybe something like a $0.5 billion in the second half of the year which would equate to $1 billion for a full year, just commodities. But it's early days and we need to see how all of these different factors, market forces that impact that play out and what other actions we can take to mitigate it. All we're seeing is with the significant run-up that we've seen in the second quarter, we just can't pull enough levers in the second half to offset that.

Yes. That's super helpful. And just very finally, I wanted to ask you a question on Lyft. I saw that you marked up the GM stake in Lyft. Just curious what is your stay course at this point? And also more strategically, what is your plan with Lyft both with the stake and in terms of working with them? We obviously noticed Dan left the board last month, and so, what can you tell us about the plans going forward?

Yes. Relative to the value of the Lyft investment, we don't disclose that. We did, obviously with their latest funding round, pick up a gain which was booked in the second quarter as you noted relative to the strategy. And I'll turn it over to Mary.

Yes. So, again, we have a good relationship with Lyft. Other than drivers currently using the Maven Gig product, we don't have any formal joint projects going on right now. But as we have said, as we move into deploying AV vehicles, we're looking at will we deploy with one partner, two partners, or go on our own. So, I don't have anything further to share with plans with Lyft right now, but that's what we've said, and we continue to believe.

Great. Thank you.

Your next question comes from the line of David Tamberrino with Goldman Sachs. David Tamberrino - Goldman Sachs & Co. LLC: Great. Good morning. A question for you on the Cruise spend. Halfway through the year, we're at $300 million. You're still guiding to $1 billion. It implies a pretty significant ramp for 3Q, 4Q. What is that ramp associated with? Is that going to continue into 2019? So, call it $300-plus million per quarter is the right run rate, so maybe it's like $1.2 billion, maybe $1.5 billion burn in 2019. Just help us understand why it's starting to ramp, and why it hasn't yet.

Yes. Well, one, the Cruise spend, just Cruise, setting aside other movements in the Corp segment. I think we were somewhere in the zip code of $400 million in the first half of the year, but I'm not going to quibble on the round. Obviously, we're ramping up spending. We're hiring more engineers. There's more cost associated with the ramp-up. So, that's the spend rate to get to $1 billion in the second half of the year, and that's not inconsistent with our expectations. It wasn't going to be flat line in 2018. I think the best way to think about spend as we go exit 2018 and going to 2019, with the Softbank investment and our $1.1 billion alongside the initial $2 billion funding for Cruise. The expectation is that we'll be funding to get them to the commercial launch milestone which we've talked about in 2019. So, that will give you an indication. I mean if we expect to spend $600 million or $700 million from that point through the balance of this calendar year, we'll probably get another $1.3 billion roughly in 2019. But hey, if we need to spend an extra $200 million or $300 million to advance this, accelerate it, we'll do that. It's a great opportunity and right now that's just our current thinking. David Tamberrino - Goldman Sachs & Co. LLC: Okay. That's very helpful. Thanks, Chuck. And then thinking back to North America crossover segment, you guys were able to take share within the quarter but I think we tracked your incentives being up pretty substantially year-over-year. What are you seeing within that segment from your competitors? Is it going to get more competitive, more cash on the hood going forward or do you think you're going to be able to still maintain your kind of implied $7,000 of variable profit for a crossover? So, I think the original guide was for about $500 million of contribution from crossovers with an incremental $70,000 wholesales year-over-year?

Yes, I would say that when we look at the year so far and our expectations for the year, we're going to generate that kind of tailwind. I think what is driving that, there's a couple of different factors. One is we're performing better and our volume is better which is driving a bigger aggregate but the pricing dynamic is a little bit more challenging than we expected. And I think you almost need to look at this segment-by-segment, our mid-SUVs are strong and performing exceptionally well. The compact SUV segment is very, very competitive and I would expect – our baseline planning has that continuing to be very, very competitive and escalation in that. But again, the mid crossovers for us are performing really, really well, and we seem to be holding our own from a pricing perspective. But that $0.5 billion that we talked about earlier this year, that still holds, or could ultimately be slightly better than that. David Tamberrino - Goldman Sachs & Co. LLC: And generally that's from volume?

Yes. David Tamberrino - Goldman Sachs & Co. LLC: Okay. And then just lastly, China JV margins were up year-over-year. It seems like we're going through maybe a bit of an air pocket in June, July. Can you walk us through how you're able to, I believe, probably take cost out, and if that's repeatable into the back half? And really, what the change in guidance is from kind of above $2 billion or at least $2 billion to now just $2 billion in JV equity income?

Yes. Again, big picture, we've been able over the last number of years unlike if you look at kind of the overall environment, unlike some of the competition, to maintain a pretty healthy level of equity income because of improved mix and cost efficiency. That drove the business results in the first half of the year largely. In addition, there was a favorable FX component in the first half of the year. The renminbi had strengthened versus last year and versus expectations. As we look at the second half of the year – we earned $1.2 billion of equity income in the first half of the year. When we look at the second half of the year, clearly, we're in a dynamic now where the renminbi is weaker, and whether or not it's related to all the trade situation and everything else, I'll let somebody else opine. We expect more competition in the luxury segment because there's a significant number of launches which will drive a bit of a headwind from a pricing perspective, and we're launching 10 new models in the second half of the year which will drive launch cost up. So, I would expect the second half to be down versus the first half. With that said, we still expect very strong equity income in China and it's going to be $2 billion-ish as we go through the year. We're still very, very constructive there, but let's see how some of these other issues play out. And I think importantly, as Mary noted in her opening comments, we've got a very strong position there, we've got a strong partnership that's been built over a number of years. But what's not built into our plan in the second half of the year is if things could change relative to that overall China relationship and sentiment vis-à-vis American companies. That's a pretty significant uncertainty depending on where some of these other trade discussions go. David Tamberrino - Goldman Sachs & Co. LLC: Got it. Super helpful. Thank you very much for the detail, Chuck

Thank you.

Your next question comes from the line of Adam Jonas with Morgan Stanley. Adam Michael Jonas - Morgan Stanley & Co. LLC: Yes. The first question, just want to build off where you ended there, Chuck. On the potential anti-U.S. sentiment in China. I agree, I actually think that's the hardest to define, but single biggest risk facing GM or brands in China, especially if you look at the experience of Japanese and Koreans when there were similar kinds of national disputes and territorial disputes. Any sign of that right now or is this just – I know it's not on the numbers, but anything you're seeing all?

No. We have not seen any of that yet. And obviously, we're very cognizant of what happened to the Japanese and the Koreans and certainly have thought through those potential implications. But again, it starts with a very, very strong relationship with our partner. But we have not seen anything yet. Adam Michael Jonas - Morgan Stanley & Co. LLC: Okay. The second question is for Mary and on SoftBank. Mary, first of all, I want to – as on the side, thank you for your very, very thoughtful message on Sergio. I thought that was 100% class, and it meant a lot to a lot of people including me, Mary. So, SoftBank relationship with Uber, you've been developing the relationship more deeply with Uber kind of pulling away at least ostensibly from the outside, from Lyft, understandably these things move on. I guess what are you – are investors wrong to read into that there could be a number of commercial technological business opportunities within the SoftBank-Uber relationship that may be accelerating now post the investment in Cruise?

Well, I think we're going to do, at GM Cruise, what's in the best interest of the General Motors shareholder. And so, I'd like to think that we have a good relationship in the United States with both Lyft and Uber and across the globe with many of the other ride-sharing companies. Clearly, having the relationship and the investment from SoftBank does give us an opportunity to more directly look at opportunities with some of the different ride-sharing companies that they're involved in around the world, although many of those we already had strong relationships before. So, again we're just – this is a very dynamic space right now. It all gets gated and really the value gets created when you have the technology developed that you can deploy and meet the safety standards. But we're considering many, many options, and I think it's one of the assets that comes with the SoftBank relationship that we formed. Adam Michael Jonas - Morgan Stanley & Co. LLC: Okay. And maybe my last one back to Chuck, the Korean situation, I'm sorry if I missed anything in the prepared remarks, but could you just appraise us on where we are in terms of timing of one-off costs as you rationalize capacity there? And any delta and ongoing profitability as a result of those charges and the efforts with the union and the resources there? Thanks.

Sure. The vast majority of the charges actually rolled through our Q1 results. We had a tail effect which we expected of a couple hundred million dollars that rolled through in Q2. It was the final tranche of the VSPs and some supplier-related claims associated with the restructuring and again that was all consistent. There was a fairly significant cash impact in the second quarter as we ultimately paid the separation payments to the employees roughly $700 million. So, I'd say as we move through Q2, this is – the costs itself are largely behind us. As we talked about before, at an enterprise level, the run rate benefit associated with the restructuring there, both the Gunsan closure, the concessions that we negotiated with the union, et cetera, are in the zip code of $400 million a year. And we would expect to see some of that roll through starting in the third quarter and ramping after that and getting the run rate in 2019, that's broadly speaking. Adam Michael Jonas - Morgan Stanley & Co. LLC: All right. That's very clear, Chuck, and thanks, everybody.

Yes.

Thanks.

Your next question comes from the line of Brian Johnson with Barclays.

Yes. I have a couple of questions. First, it's primarily on GMNA raw mats. When you say raw materials, it sounds like you're including both direct purchases from steel and aluminum suppliers, mills, as well as what's indexed on your supplier contracts. A, is that correct? And B, given that GM in the bad old days used to try to renegotiate the contract with suppliers and get some of those commodity costs saves down, how are you thinking about that relationship with those indexed commodity costs this time?

Yes. The answer to your first question is it's the broad index of product and steel. And I would also broaden that to say when we talk about commodities/raw material that also includes oil-based like resins and diesel and all of those input costs that go in. The biggest driver though, going back to what I talked about before, at least the unexpected or accelerated pressure is really on the steel side of the business. So, lookit, three, four years ago, five years ago, we embarked on a path with our suppliers around having a more strategic long term relationship and working constructively and proactively instead of what we used to do in the past. And I think that that has been very, very beneficial for us when you think about our relationship, when you think about the opportunity to drive continued productivity, when you think about opportunities across the value chain, one input is cost, one input is efficiency, one input is warranty, one input is looking at global footprint and supporting us where we want to go, and I think we're going to continue that relationship. Where there's an opportunity to try to mitigate some of these headwinds through discussions and negotiating with suppliers, we're going to do that. But our first and foremost approach isn't to just go back to the suppliers and say no, right. As a matter of fact, index flows through, and then we'll work with suppliers to see what we can do to mitigate that through efficiency. On the flip side, the vast majority of our raw materials are not indexed. And clearly, there's pressure from suppliers on that side of it to escalate the component costs, take that into account, and we've been very, very proactive working with suppliers to try to mitigate that as well and we'll continue to do that.

Okay. Second question, over to trade. One of the proposals on the table and maybe light at the end of the NAFTA tunnel is to move to 40% high wage content on NAFTA vehicles coming up from Mexico obviously with the Canada, U.S. rates that already apply there. Can you give us a sense of what your content is currently? And then if that did go through, what you would be thinking about either in your factories or your supply chain to hit that content level?

So, I'm not going to get into the details of where we are from that level. But what I will share is we are working closely with the trade representatives to make sure that we maintain an overall cost base that allows us to be competitive globally and to help understand the intricacies of that. So, I'm not going to give you specific details. We're well aware of it, assessing it, and providing quite a bit of input.

Okay. And I guess as just a final question, Mary, on that note, with the sad departure of Sergio from the auto scene, are you stepping up as sort of the senior CEO in auto land who's been around the political world for a while to sort of fill some of that gap?

Well, clearly I'm going to do what I think is on the best interest of General Motors and in the best interest of all of our shareowners and that is my focus. And we work with our trade association to try, where we can, to come to an agreement to have a strong and appropriate voice into the administration, into governments around the world. But I think that's more for others to decide, not me.

Okay. Thanks.

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

Thanks for taking my question. Can you provide any color on what you could do if tariffs were imposed particularly since I know you have a lot of production down in Mexico, and that would be potentially a risk under Section 232?

I would say, there's almost an infinite number of things that could happen and what exactly would be a part of it. So, I'm not going to hypothesize on a broad base of a Section 232 or something specific with NAFTA. I would just again focus on the fact that I think it's in everyone's best interest to have a strong U.S. auto industry. It's a big provider of quality jobs. And we're also an industry that has high capital investment, so you don't move things on a dime, and making sure – and we've spent a lot of time with the administration and the appropriate departments to make sure everybody understands that. And we believe that there's a path for NAFTA to get resolved in some of these other issues and we're going to continue on that path. Clearly, if there's something specific comes out, we will respond quickly to the fullest extent that we can. But I think right now we're more focused on providing the right input so there's a right understanding made and things don't happen with – decisions aren't made that have unintended consequences that don't serve anybody.

Any color on what, if you have – 20% has been thrown out there as a tariff, I mean, what would that mean for your overall cost and interest?

Yes, again, as I've spent a lot of time on trade in this last several months, there's a lot of intricacies and details that really matter and drive what will be the end impact. So, I really can't speculate on something like that.

Got it. Any color on Corporate/Other, it's been strong year-to-date? I think you mentioned Lyft revaluation was the help in the quarter. How much was that on the quarter? And what are the other items that are helping there, just kind of a broad bucket?

Yes. The benefit from Lyft in the quarter was about $140 million, the revaluation associated with Lyft. We also had some improvement in our PSA recall from the transaction that we did last year. We have warrants and those get mark-to-market every quarter depending on what happens to PSA's stock price and, obviously, they've been on a favorable trajectory. Those would be the two biggest drivers of what we've seen so far, Colin, year-to-date and in the second quarter.

Got it. And just lastly, I mean any thoughts on the already announced tariffs in China? Does that actually create an opportunity for you? Some of your competitor luxury products will get some pretty large tariffs and you're pretty localized in Cadillac.

We're pretty localized across the board. We're the only vehicle that – right now – our general strategy is build where we sell. And so, we have a lot of manufacturing capability in China. There are some iconic Chevy products that we send there. And then of course the Buick Envision is sent here although it's important to note on the Buick Envision, the majority of Buick Envisions are sold in China. It's very strong in that market. And it wouldn't be something that we'd capitalize here so it's just something like bringing the low quantity or low volume of Buick Envisions that we bring here provides customer choice. And we think that's important as well to round up the portfolio and to do that efficiently. But again, we generally are building most of the products we sell there.

Got it. All right. Thanks for taking my questions.

Sure. Thanks.

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

Well, I want to thank everybody for participating. And I want to note, we are working hard executing our plan and we are committed to managing this business with focus, discipline and integrity. Our business fundamentals and our execution remain strong. We are optimistic about the industry, our strong portfolio of cars, trucks and SUVs, our position in key markets and in the technology and leadership that we have demonstrated in many aspects of the future of personal mobility. Our new crossovers and SUVs are growing sales and share in an increasingly competitive segments, and we're excited about the financial opportunities that our new full-sized trucks provide for the rest of the year and into 2019 and beyond. At the same time, we are connecting with like-minded investors and partners to commercialize self-driving vehicles and to realize an all-electric future. Before I close, I do want to recognize Chuck for his four decades of service and dedication to this company. And I also want to congratulate Dhivya on her new role as EVP and CFO, as well as Rocky Gupta who becomes the Treasurer and Vice President of Investor Relations. I think we all know that Chuck has played a very big part in developing and executing our core and future business strategies. In addition, he has been a very important and trusted advisor to me and I know he has strong relationships with many of you. With Dhivya's strong leadership skills and experience. I am confident that she and her team will build on the results that Chuck has been a major driver of, and help us continue to build and drive success and shareholder value. But I do want to say Chuck, thank you very, very much. So, as I close, I want to leave you with this, even with the recent macroeconomic challenges, I continue to be confident about this company's ability to create long-term shareholder value and a safer, better and more sustainable world for our customers and that's what we're committed to do as we execute our zero crashes, zero emissions, zero congestion vision. 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.