Thanks, everybody, for coming back. Next up, we have General Motors, a company that we believe and we think is arguably recognized many of the industry mega trends long before everybody else really in the industry. They've taken actions to rationalize the business in some reasonably aggressive ways, with the sale of Europe a few years back, focus on high profit, you know, trucks and crossovers, and really, we believe, really leveraging their core to invest heavily in the future. Including EVs with the Ultium platform, Ultifi on the connected car side, and software side, Cruise, obviously, on the autonomous side, OnStar, that goes along with the, you know, the Ultifi, great connected car technology, and in many other ways, you know, including stuff like BrightDrop.
So they're really far along on their way on this core to future transition, at least in our opinion. Today, we're very happy to have Paul Jacobson, who joined GM, I think, in late 2020, as Chief Financial Officer, and he came from Delta, so another heavy capital-intensive industry. So Paul is very well versed in all things as a CFO in businesses like this. So Paul, we're very happy to have you here today. Thank you for joining us. I'm gonna kick it over to you for some opening comments, and then we have a long grill session for you, after that, so thanks.
Well, first of all, thanks for that, John, and I might have you reintroduce me to my wife with that intro. That was really kind, because I tell her that, "You know, hey, this has been fun." She sees it differently, but it's all good. But want to thank everybody for coming today. You know, obviously, the story at GM has had, you know, some challenges, but some real successes, as well. And as you know, we look at coming out of 2023, as we said on our earnings call, we've applied, you know, some of the lessons that we learned. I think the year has gotten off to a really, really good start, and I'll talk about the market in just a second.
But we're in the early stages of scaling up EV production. We're setting, you know, monthly records on the Cadillac LYRIQ. It's already become the second most highest volume brand in Cadillac portfolio, the LYRIQ. We've seen really good acceptance of that. You know, we are launching with the Blazer. We've got more EVs coming out later this year. And we're on track to hit our 200,000-300,000 vehicle production goal that we've set out for ourselves for 2024. On the commercial side, you know, we talked a little bit about some choppiness in January, which we really were hoping and attributed to some of the weather challenges that we saw across the country.
Pleased to report that February and and March, we're almost done with March, have actually come in really, really strong, so we're seeing gains on the retail side. We've lost a little bit on the fleet side. I would say that's probably a little bit just driven by some specific targeted availability issues around vans and some mid-size trucks. But the retail portfolio is really strong. We are coming off some of our incentives in February and March. You'll remember that we ticked higher in January primarily as a result of what we call the Ultium Promise.
So for those approximately 25,000 vehicles that we produced, that weren't eligible for the IRA tax credit, the $7,500, based on the rules at year-end, we did the right thing. We stood behind the customer. We didn't, we wanted to remove all the confusion, so we backstopped that $7,500. It caused us to tick a little higher on incentives, but we're starting to bring that down, and March incentives have actually come back down a little bit, even while others are raising some of their incentives. And we've seen share hold in, seen average transaction prices hold in. So all in all, really, really good start to the year, and feel good about where we're trending.
So, let's. If we can start sort of a big, big picture for a second. I mean, there's a lot of consternation on, you know, volumes this year, whether it be demand or production. You know, everybody's kind of operating a global volume flat to down, you know, 2%. You know, U.S. is, you know, flat to maybe slightly up. I think it. You know, in our opinion, it could be up 4%-5%. As you think about sort of the global stage, you know, how do you think about the, you know, the environment for demand and production globally, and particularly here in the U.S., which is all important from a profit perspective for you guys?
You know, particularly in the U.S., we came in with a plan that was, you know, assuming a 16 million unit SAAR. We've hung in pretty close to that, and I think, I think it's been good. We also, as we've talked about, we assumed a 2%-2.5% price decline year-over-year. That was, as we said, a planning assumption similar to what we did last year, not necessarily an expectation. And sure enough, as, you know, we're two and three quarters months into the year, we actually haven't seen that. So prices have been pretty consistent with where we were a year ago, and I think generally consistent with how we exited 2023.
So, so far, and it's, you know, a long way to go for the year, but the way it's getting started, demand is actually hanging in pretty strong. Internationally, you know, there have been pockets of challenges. We talked about China being a little bit of a challenge in the first quarter. Still believe that we'll post an equity loss in China in the first quarter, as we articulated before. But still believe that we'll be able to get to results that are pretty similar to where we were a year-ago quarter. But overall, I would say that, you know, I wouldn't necessarily change much about the way the year has gotten off to a really good start.
So, pricing is really interesting because if you look at, you know, dealer lots across the industry, and, you know, you're good at high end, well, you know, it's debatable. You know, we're looking at, you know, vehicles in operation that are sort of late model vehicles continuing to shrink for the next couple of years. You know, at the same time, we also have a capacity utilization rate that's, you know, 70%-75%, you know, in North America. So I mean, you're saying, okay, short-term inventories are rising, sort of installed base is shrinking, but then there's also this capacity that could be flexed up dramatically, right? I mean, if we're running 70%-75%, yet pricing is holding in really well, right? I mean, and, you know, I. We generally agree, you know, it might actually be closer to flat. You know, what do you think is really going on here?
And on the pricing side, and when you look at this in an ATP, there's a dealer gross profit per unit that's in that ATP, which often people masks, you know, I mean, people don't understand it's in that leg. It went from $2,000 pre-COVID to $6,000 peak in 2022, and now it's $4,500. So it has room to come down and absorb some of ATP price, you know, price pressure, if possible. I mean, how do you really think about that? I mean, and I understand 2-2.5 is a good place to plan, but it's not happening, and there's always kind of these moving parts that could say, "Hey, it could get really bad," but then there's areas of cushion. I mean, how do you think about pricing? It's a bazillion-dollar question for you and the industry at the moment.
Yeah, slightly less than a bazillion.
Well, yeah, yeah.
But still pretty significant. So, you know, look, I would rather be on the side of the coin where we're pricing or we're building a plan on some pricing degradation and not seeing it than the opposite side of that. Right? 'Cause what, what we're trying to do is make sure that we've got a lot of investment to make, and we've been doing that on the EV side, as well as refreshing the ICE portfolio. And I think part of what's going on with pricing is we have the best portfolio probably in the history of GM, and, and that's borne out by the customer demand. When you look across the spectrum, whether it's the full-size SUVs or now the new Chevy Trax, which, you know, is incredibly popular among folks, and, even my daughter now wants one, so,
She'll be driving a new Chevy Trax in Los Angeles to school. But you know, it's one where that full gamut of the portfolio, customers are really, really exhibiting their preferences, and we've seen that. But I think also you've got to go back to COVID and the semiconductor, et cetera. I think we learned a lot about ourselves. I think the industry learned a lot about itself as well in terms of how do we manage inventory and production, and how do we respond quickly to changes in demand? So, you know, we've said pretty clearly we're gonna operate around 50-60 days of inventory, and, you know, we'll sometimes pop above it, sometimes pop below it, but that's kind of our targeted range. That's well below traditional levels of inventory.
So to your earlier question, I'm not sure we ever go back because I've heard similar language from others, et cetera. Ours is just more prudence in terms of how we deliver and how we take some of the slack out of the system. It improves working capital, improves logistics costs, et cetera. So, we're doing a good job of that. And the vehicles are selling. But the most important thing we've got to do is make sure that we're customer-centric, and we're building vehicles with features that customers want.
Yeah, it seems like it might be a real, you know, good guide for the industry and for you going forward. On another hot topic, EVs, right? I mean, it seems like, you know, every day we hear of, you know, demand cooling, volumes, you know, coming down, particularly here in the U.S., but a little bit on the global side. I mean, how much of this do you view as sort of a transitory, you know, blip as we're going through the transition? 'Cause it still is early days. You know, and how much of it do you kind of view as potentially more structural?
You know, look, I think at the end of the day, everybody's got a pretty clear view of kind of where it's going, where policy wants to go, where manufacturing is going, and I think ultimately, where consumers are gonna go. But the path from A to B, nobody really knows what that's going to be, and, you know, I'd like to make the statement that, you know, most of the people that I've asked to say, "What are your thoughts on EV adoption?" will draw a line that looks like this. They'll draw a line that looks like this, but it'll always be straight, when the reality is it's gonna be choppy, right? There are gonna be times where adoption is rapid.
There are gonna be times when it slows down. We've got to make sure that we are ramping our production to be able to maximize what I think is a real asset of GM, which is our ability to flex production between ICE and EV. As we've talked about many times before, the plant in Spring Hill, we can pull the levers, and we can ratchet up ICE, we can ratchet up EV, we can do down, and just make sure that we're nimble.
So what we're really trying to do is make sure that we focus not necessarily on the number of EVs versus the number of ICE, but rather, irrespective of how that works, how do I keep a margin trajectory consistent, and how do I drive the business for free cash flow? Because that's gonna hold in, and by pulling the levers and by using the optionality we have in the business, is actually driving the business to that because it's gonna work itself out in the end. And I think we've got a good platform, we've got a good suite of vehicles, and I feel good about where we're heading.
If I could follow up, that's the flexibility you have at the plants to swap in and out of EV versus ICE. Are you able to do that with multiple plants, or is there a few plants that have that capability? 'Cause that could be a big advantage as we kind of have uncertain demand.
Yeah, you know, it varies by plant and vehicle, so as you know, we pretty much run pretty full capacity on full-size SUVs-
Right, right, right.
On, on the ICE side. Spring Hill is the plant that has the most flexibility, but, you know, the module production that we have, at, Factory ZERO gives us a chance to, to scale up and down fairly easily. And, so, you know, I think you're gonna continue to see that from us. We've got more vehicles coming out, because we really want to meet the customer where they are.
Yeah.
So when you look at the LYRIQ and the Hummer, and now you look at the Blazer, and then when you've got the Equinox EV coming out, which will be the most affordable vehicle with 300 mi of range, that's offered. And so-
Big one, yeah
We think we've got the right recipe, and we've just got to be able to manage that. But, you know, I think what the team's done a really good job of is, you know, looking at fixed costs, looking at margin performance, looking at pricing to really drive what's been fairly consistent free cash flow.
And when you, when you think about this, there's a lot of EVs coming to the market, there's competition from the incumbents, Tesla, and now also from, from the Chinese. That's more globally, but, you know, eventually maybe here in the U.S. You know, how do you think about sort of, you know differentiating the GM product in, in what might be somewhat more of a, a crowded EV, EV field over time? Is it Ultium and Ultifi, you know, enough to do that? Is it, you know, doing it, you know, at the high end with, you know, Lyriq and, and the Escalade IQ or, or, you know, what? I mean, how do you, I mean, how do you think about how you differentiate the product in, in that new world order, with this new competition that's coming in, which is pretty extreme?
Yeah. Well, I mean, it starts with the brands, right?
Yep.
You know, we lead in brand loyalty, and we've got to keep that up. But you don't, you don't lead in brand loyalty by just keeping the product consistent. You've got to continually raise the bar, similar to what we've done with this most recent generation of trucks and SUVs across the spectrum. So give customers what they want. Loyalty is a good starting point. Digital connections is another one, right? How do you make it as easy and as seamless as possible for people to continue to own your vehicles? By giving them the things that make their lives easier, and we're working through that.
I think when you look at the software team that we've brought in, really, really accomplished group of folks, that know not only tech, but also how to connect that to the customer, and really do it from that customer perspective. And then lastly, we got to get our costs down. We've been, you know, pretty good. We'll get the $2 billion cost reduction program done this year. I feel very, very good about that, and we've got to keep that up. We've got to maintain discipline around the structural costs because we've got to be able to compete around the world, and the only way we're going to do that is producing great vehicles very efficiently.
You think about scale on the EV side, right? You have it on the ICE side right now. You know, how do you think about where you need to get to to drive the scale and the adequate margins and return on invested capital you need there? You know, is there constraints internally? Is there constraints on demand or the constraints, you know, with the supply in the supply base? How do you think about getting to scale and what that really means for GM?
Well, you know, I think, number one, it's got to be paced and measured. So I'm a believer that we need to stay with capacity slightly ahead of adoption, and where we think adoption is going to go. Because I don't want to be in a situation where we get an uptick, and we're not there to meet it. We saw that over the last couple of years, and we weren't, we weren't there for that when. You know, I think it'd be a little bit of a different picture if we had more of our Ultium vehicles out on the road and people could see their capabilities and, you know, begin to have them talk about. We just haven't had enough on the road.
So I don't want to be behind the curve playing catch up because I think that leads to what we've seen in the industry, doing some short-term things of trying to just, you know, fix solutions rather than really mold around that platform. On the capital side, you know, I'm a big believer, and, you know, the company has really embraced this. And, you know, capital budgeting is a function of two things. Number one is affordability. Am I generating enough cash flow to pay for it? The reality is, when you look at our free cash flow, we're generating a lot, and we have the wherewithal to invest more. But the second leg of that stool is, do I have the resources in place, the fixed cost infrastructure, the people, the facilities, to be able to deploy that capital effectively?
So if we were to spend significantly more, we've got to go hire more engineers, get more facilities, and so on, but we want to make sure we balance that with keeping our fixed costs down, so we're not growing too fast. And, and that's the other governor on capital investments. So I think the team's done a good job. We've kind of pivoted up. We've kind of scaled that back a little bit as we brought the cost structure down. I think you're going to see more of that, coming in terms of really, really prudent management of the capital budget.
So, more recently on the, on the Chevy Blazer, there was, there were some software issues. I just want, you know, kind of run through that and, sort of maybe the lessons learned. But also in that, question, sort of maybe as a second part, you brought up connectivity. You know, I think people kind of. They just kind of pass through connectivity when they, when they think about autonomous and EV, and, and nobody's talking about connectivity anymore. And you guys have, you know, through Ultifi and, you know, OnStar, and, and your, your, your software that you're, you're embedding in vehicles now, great connectivity. You know, how do you leverage that connectivity? I mean, because, I mean, you know, I mean, some bulls are saying, "Oh, you could create all these, you know, incremental subscriptions," maybe over time.
But us, you know, we, we kind of look at this on a little more practical term of, like, the $1.2 trillion, $1.1 trillion-$1.2 trillion that goes away from you guys outside of your dealers and outside of your purview to capture revenue, which is equal to or greater than the $1.1 trillion, you know, captured at the dealerships right now in stuff that's kind of blocking and tackling. So that connectivity could help you capture more of that iceberg of opportunity underneath the surface. I'm just curious, we could talk about the software issues and then what connectivity really could bring to the table for you, because it seems like it's massive, and nobody's really, you know, focused on that right now.
Yeah. Well, I mean, software architecture is hard, and I think you've seen a number of people have challenges, not just us, and we're not immune to it. But, you know, I think the important thing is, okay, how do you, how do you learn the lessons, and how do you scale up? So we've invested pretty heavily into incremental validation work. The teams that we've brought in are really focused on doing this at scale, and that's what we need to do. And, you know, at the end of the day, with the stop sale that we had on the Blazer and things like that, I'd rather get it fixed before we put it into customers' hands, even if that costs us a little bit on working capital.
Because we've got to make sure that the customer is impressed with the capabilities of what we deliver. So, I think they handled that well. I think we've put some things in motion to help that. But this is a journey, because you've got to get connectivity right, and that means you've got to get the vehicle architecture right to be able to do that. I think the potential of the vehicle is still really high. And you know, I think there's still a lot of opportunity around that, but we've gotta make sure that we're bringing the customer along with that.
The customer knows what the features are and how it's going to make their lives easier, and then begin to build the vehicle around that. I think there will be a lot of revenue opportunities. I think in the frenzy of the last few years when, you know, people tried things like paying for heated seats and features that people are already comfortable with, that's not the way to do it. It's how do you make the vehicle additive to their experience? That'll draw even tighter bonds to future vehicle sales as well.
Got it. There's been a lot of partnerships, your investments to help secure, you know, supply of key components, I mean, be it on the chip side, lithium side. I was wondering if you can kind of talk about those broadly, you know, as things are maybe a little bit slower on the EV side, if some of that was a little bit of an overinvestment, getting ahead of your skis on some of that stuff, or whether it's still behind, I mean, sort of your take on that. And really, what that means, you know, for the capital intensity of the business and, you know, sort of the vertical integration of the company, which some claim is exactly the way to go. Some claim it's exactly that, you know, not the way to go.
So
Yeah.
I mean, you know, if you talk about all that, that would be great.
Well, you know, I think some people like to talk about the business in really short-term bites and increments, and, you know, the reality is we're playing the long game here, from that standpoint. So still a big believer that what we did was the right thing to do, and will be proven out, you know, because I think it's important to highlight what we did and why we did it. Number one is security of supply, on, you know, critical components and critical components that qualify for the IRA, while we're in that sort of early-stage production, because there's lithium, and then there's IRA-compliant lithium. There's nickel, and there's IRA-compliant nickel.
And, you know, we took some chances in a portfolio approach with some new technologies here in the States, particularly around lithium, with LAC and with CTR. And, you know, it's become a little bit more challenging for them, you know, with lithium prices coming down. But there isn't anything that we have done that either puts us into a position where we have a lot of lithium that we don't know what to do with, or a lot of material that we don't know what to do with, or we're stuck paying historical prices that are well above market.
You know, we bring patient capital to these ventures, but we also expect that that's gonna mean that we are getting a deal, right? Sometimes that means we'll take on floor pricing risk to make sure that the venture can be successful, but in exchange for that, I want a cap, so that if lithium goes into, you know, strong demand, like it did a couple last year and a couple of years ago, I don't wanna have to pay those rates. So, that's one way to do it.
We've done tiered discounts where, you know, there's less of a discount as the price goes down. As the price goes up, there's more of a discount. So a lot of things that we've done in a balanced way to make sure that we don't get stuck behind an adoption curve that is driving uneconomical investments for us. I think the team's done a really good job of that, whether it's lithium or it's nickel or it's graphite, and then some of the deals that we've done.
Getting to CapEx allocation, and I think your EBIT forecast this year outlook is 12-14, I think, y ou know, there's tremendous spending that's going on for EVs. I mean, horses and hand grenades is kind of our rough estimate. I wouldn't ask you to bless this, but, you know, it's 5, you know, kind of 5-ish billion, maybe more, plus or minus. That would kind of put you in the stratosphere of the upper teens on EBIT generation, exiting that out. Those are the kinds of numbers, I've been doing this for 25 years, that, you know, you would've looked at somebody like they were completely out of their mind, right? Your core business is, you know, far stronger than anybody is recognizing at the moment.
For the record, it's on sale with a historically low multiple, too.
Well, that's really where we're going with the CapEx allocation. So these, therein lies the, you know, the opportunity, I think. You know, as you think about the CapEx allocation, because you're still generating a ton of cash to go along with this, once again, also, including this massive, you know, incremental investment for the future when it comes. You know, how do you think about, you know, CapEx allocation? Has anything changed in your framework? And clearly, it has recently with the, you know, the share buyback, you know, that you guys are going hot and heavy on which, you know, I think investors are pretty happy with, and the stock price is reacting to it.
You know, and then also, you kind of before we're talking about sort of the cadencing of EV investment, you know, could some of that, you know, be cadenced, you know, more slowly to go with what's happening in the market, to therefore allow for higher EBIT and cash flow generation in the short run and maybe greater return to shareholders, or even some of it building up on the balance sheet to then be spent in, you know, in the future? There's a lot of moving parts in that, but, I mean, how do you think about cap allocation and how things may be changing, you know, given the strong performance and then potentially toggling how you're laying capital out for the future?
So, you know, I'm a big capital allocation guy. That's kind of the, you know, a lot of the ways that I learned this trade of being a CFO as well. I think capital allocation is probably the most important thing that we do. You know, you assume you can run the business regularly, and you can respond to it, but how you allocate capital is what the shareholders hire us to do. So, you know, I think we've got a good policy. I would say that we're deploying it much more consistently nowadays than we have been. So we went through some challenges of COVID and the chip crisis and, you know, labor uncertainty and so on.
That caused us to build up a lot of cash and just kind of put the third leg of the stool on hold, which is explained by the $10 billion share repurchase. So, you know, the steps in our capital allocation is, first, invest in the business. You know, we are a business that is capital intensive because we've got to continue to refresh the portfolio. And, you know, we can tweak it, we can narrow it, we can rechange the focus, et cetera, but we're working on a fairly long cycle time for products, and we've got to make sure that we're staying ahead of where customer trends are, etc . So, I think that's been really, really balanced.
At the same time, we're also having to pivot and change manufacturing facilities, you know, conveyance systems that can't support the weight of an electric vehicle and going in and updating plants, et cetera. And I think we've done a really good job of balancing that. While CapEx was higher than that kind of 7-9 trend line that we've seen, it's actually still pretty reasonable, especially when you look at the financial outperformance and the cash generation of the business, where it stands today versus where it's at 5 or 7 years ago. So, you know, I think that's been really good. The second leg of the stool is the balance sheet. And you look at our balance sheet, you look at the way our pensions are funded, we're actually in really, really good shape.
You know, I think, you know, I think there can be logic for trying to take our credit ratings up a little bit, from where they are, but there's not necessarily an urgency to it. Because I don't think you get a big bump in cost of capital. I think there is some bump in stability that you could get, particularly with the captive. But we're in really, really strong position, which leaves the third leg of the stool, which is returning capital where it belongs, which is back in shareholders' hands, after you've deployed what you can effectively. So, you look at what we've done, more than two-thirds of our free cash flow now over the last couple of years has been returned to shareholders, and I think we need to be able to do more consistent returns as that.
So as we manage the business for free cash flow, we pivot where we can. So you saw us delay the truck plant in Orion by a year. Some of that was in response to demand, some of that was in response to some early lessons that we saw, we picked up at Factory ZERO, to find ways to change the product and change the manufacturing to make it more efficient to produce. So we were meant to do that, and we took advantage of some of the slowdown to be able to incorporate that. You've also seen us, you know, slow down on vehicle programs. So the Bolt is a great example of that.
We talked about how we had earmarked nothing in the immediate short term, but we had earmarked about $5 billion for a whole new line of affordable electric vehicles. We took that out because what we saw with the demand for the Bolt, the customer response to the Bolt, was an opportunity to retool that with Ultium, with LFP, in a model that will significantly improve the profitability versus the prior line. And we saved $ billions in capital because it's much easier to do that than it is to go create a whole new line and launch those vehicles. So a lot of, a lot of capital discipline and a lot of responses to what you've seen the market changing, but that's what I mean by making sure that we're nimble.
We're not giving up on the long game of, of where we think this is going, and I think we're really well positioned. And then the last thing I'll say about it is, you know, we talk to everybody at every weekly senior leadership team meeting we have. The number one thing that we've got to get right is we've got to get EVs to profitability in 2025, and everybody is singularly focused on that. We've already seen some good step function improvement, because remember, we said we'll be variable profit positive this year by the second half of the year, and get into that mid-single-digit margins in 2025. We're making really good early progress. A lot of it this year is scale, scaling into what we've built. But, you know, we've got to continue to manage that.
Well, so just real quick, Doug has a question, but the volume in 2025 that would go along with that profitability, have you guys. You're talking about 200,000-300,000 this year. What, what sort of volume gets you? I don't know if you've said that yet. You might pass on that. That's fine, but-
Yeah, we've not given any volume because, like I said, I think the journey is about profitability.
Okay.
What we have said is, you know, it's the low 200 thousands to get us to the-
Variable.
Variable profit-
Got it, okay.
Positive in the second half. But, you know, we also said, if you go back to what we said in the fall, you know, we talked about 60% of the profitability improvement from 2023 to 2024 is volume driven. That goes down significantly 2024 to 2025 b ecause we're kind of growing and optimizing into what we've built. So, it's less, it's less of a driver in 2025 than 2024, but we've got a lot of efficiencies that we can build in.
Got it. Thanks.
The balance sheet's in great shape. You've got leverage almost at all-time lows. Is that a figure you want to keep leverage low, kind of as we head into kind of uncharted EV territory, or if there's opportunities for acquisitions, or do you think there's some flex on the leverage where you could bring it up a little bit and still maintain the rating?
Well, you know, I think our colleagues at S&P and Moody's and all the rating agencies, we've got a great relationship with them. You know, one thing that we've said very, very consistently is we want to be a strong investment-grade company. We need that for the stability of the captive, because the captive brings a lot of value to us and requires pretty consistent access to the capital markets to run efficiently. You know, I don't think about it in terms of doing a step function change and levering up the company. I think we're in good shape. Like I said, you know, I could, I could make a case for making our ratings a little bit higher, but I wouldn't make an urgent case to do that.
Right.
You know, to the extremes of saying, "You know, I'm going to ignore a historically low multiple on the stock while we're continuing to buy it back, and make sure we're accruing value back to shareholders that way.
Makes sense. Thank you.
Maybe we could switch gears to Cruise. I mean, just curious, as you think about that business, I mean, spending has been pulled back, management team has been changed over. Great technology. There was an unfortunate event and some maybe mismanagement by, you know, the local or sort of the Cruise management, and that's been, you know, dealt with. You know, it's really great technology and has huge opportunity for you.
I mean, you know, we, you know, in some of our estimates that you guys could do $1 billion by May, you know, in EBIT by major city, you know, in the U.S. That's our estimate, not yours. But I'm not going to push you on that, but because that's, you know, you know, it's conjecture on our part. You know, where does that stand, and where does the CapEx allocation of that stand? I mean, and that really is one of these things that is very different, you know, within GM than any other automaker. On the planet at the moment. So just, you know, give us a, you know, an update on cap allocation, spending that's going on there, and the potential that you guys foresee in that business, because it's huge?
Yeah. So we still see a lot of promise in that business. Nothing, nothing has changed around the technology. I would say that we've been heavy into, you know, studying exactly what happened, making sure that we did our own independent review of, of the situation, and that work's largely concluded, and we've talked about that. And you've seen a step function change in terms of how we're interacting with the regulators, and, you know, we've, we've intentionally slowed it down because we've got to get to the point where we build credibility back with the public, and, and where that is. And we've mentioned a slower ramp than what we were planning, so being focused and narrow, and then once you prove it out, going wider versus going wide where we were.
And that's allowed us to really scale back on a lot of operational administrative resources around, building out the commercial, the real estate, finance, things like that, while still continuing to lean heavily into the engineering side of it. Because, you know, the other review we did was on the technology. Technology's really good.... and it's, and it's in good shape. So we're working to marry that out, and then the last leg of that stool is the strategic review, which we're, we're making really good progress on, on what does this look like going forward?
So, you know, I think we know that, we've got to keep spending more discipline than where we were, which is consistent with having a narrower, launch, launch view. But I would say we're making good progress on that, and we'll have more to say about it. But we wanna maintain both the urgency of getting the technology, because we do think that it is really strong, and we've built a good lead over many of the others that are out there. But you know, we've also got to be capital disciplined and find the right way to be strategic about it. So that work's ongoing.
Yeah, I mean, and is there any potential, and we're not suggesting, you know, a float or anything like that, but of bringing other strategic partners for capital investment and other ways to, you know, to help fund that or defray some of the, you know, the capital and spending there? Or is it, you know, is it the partners that you have right now? I mean, some of the stuff with Honda has been pulled back. You know, I mean, there might be, you know, opportunities to partner and bring other capital and other strategic partners in.
Yeah, we're really looking at everything, and that's the point of the strategic review.
Okay.
Is what's the optimal way to do this? Because there's, you know, obviously been a lot of capital available for AI. And, you know, this is one of the most complex AI implementations that's out there. So, you know, we're looking at that. We're looking at, you know, how do we protect and preserve the IP that we've created? How do we create a great work environment for our people? And how do we get the brand back out there where it needs to be and get it back out on the road? So that's all the work that's ongoing now, and we'll have more to report later.
Okay. We've got two more to sneak in here. You've talked about $2 billion in net cost reduction through the program. I was wondering if you can give us an update on progress on that, main components. And then one thing that, you know, that you mentioned before is that the pension is well funded. You have somewhat of an older workforce. You know, is there an opportunity to run aggressive buyouts and accelerate attrition and retirements to maybe even up that, you know, that number a bit over time?
And, you know, the great thing about that is then you get to pay them out of the pension assets, and they fall out of OpEx, and there, you know, there's a real... You know, I think there's a real opportunity there over time. So maybe you can talk about your current plans and maybe stuff like that, which might be-
Well, to be clear, the dollars are the same.
The dollar-
Regardless of what-
The dollars are the same, but it helps, you know, it can help-
Yeah.
It helps earnings and cash flow in the core company, right?
Yes.
Cause you have a lot of capital-
Yeah
Over in that pension plan, right?
So if you look at, you know, the two biggest components of the $2 billion cost program, we did the voluntary severance program last year.
Yep.
Right? So we still have a little bit of annualization coming in this year, but that's largely baked, and, you know, that's how we got to, you know, more than $500 million last year. That's about half of it. That's about $1 billion on a run rate basis, and I think the team's been pretty disciplined about bringing headcount back in. We've used that as somewhat of an opportunity to refresh and, and, and reskill, but mostly it's just been be more efficient and, and, and operate with fewer people. And I think the company's adjusted well, and we've got to remain disciplined on that. The second big chunk has been on the marketing budget, and Norm de Greve and the marketing team have done a really good job about optimizing some of the marketing spend.
So we're down about $500 million on that. That's been good because at the same time, our share's gone up, our pricing has held in, which tells you that the team's been doing a really fine job of targeting that marketing spend differently, and making sure that it's effective. So we've saved on engineering. We've talked about simplicity and reducing complexity in the business. We're taking out buildable combinations. That's gonna have even more downline benefits because the less complexity you have in the process, the less inventory, the less real estate, the less handling you've got throughout the entire system. So those savings are continuing to ripple through, and will ultimately lower our maintenance, our manufacturing cost per unit. And that's what we need to keep doing while we're also focused on making sure that we're driving operating leverage in the fixed side of the business.
Got it. We have three minutes left. I just want to use this time. If you think about, you know, the stock, I mean, we obviously have buy, you know, think the stock has tremendous upside. But there's, you know, sort of a massive chasm of the bulls and the bears in the market. I mean, you obviously see your stock as a huge opportunity. You're buying it back, like crazy, which I think is, you know, responsibly and-
I wouldn't say crazy, but you would.
But in a way that is, you know, that does, you know, indicate sort of a lot of belief in the value of the company, which I agree with. What would you say to the folks out there that, you know, are thinking your stock is a mid-$30 to $40 stock, and are just not, you know, believers at the moment? I mean, where do you think the big disconnect is the market? Once again, it provides an opportunity for capital allocation, you know, and accretive share buyback. So, you know, in some ways, you could argue it's not the worst thing in the short run. Like, what would your message be to the, you know, the folks that are incredibly bearish, and where do you think the biggest disconnect between reality and their view is?
Well, you know, I think a couple of things. Number one, I think we really leaned hard a few years ago into the growth narrative. And I did that, too, and I'm guilty of that as well. And I think there's a really good growth component to our story because, you know, most people that you know, in even some of your colleagues out on The Street have written that this is EV at low margin at the expense of ICE at high margin, and it's just a cannibalization game. And what we've said before is we can grow ICE while we're growing EVs, and we've actually done that.
So when you see the double-digit revenue growth, I think there are many elements of the growth narrative that have taken hold and held on. And, you know, we're much closer to $200 billion revenue company than we were three years ago. And that's a good thing, and we've done it while margins have held in as well. So, you know, I think in that process, and this is where, you know, I admit you know, some challenges as well. I think we alienated some of the value investors. We talked about capital investment. Capital allocation wasn't as consistently deployed, and I think, you know, we're sort of re-embracing some of that value roots.
When you look at where the multiple sits, not only against our historical but against the other OEMs that are out there, clearly there's been a disconnect, and I think that's something that you can solve with consistency. So when you hear us talk about margin performance, when you hear us talk about incentives, when you hear us talk about free cash flow, know that those are the big drivers of what we're aiming for, and I feel good that we're gonna be able to get that credibility back.
Great. We completely agree, and you know, think there's a lot of upside in the stock. So we really appreciate you being here. We appreciate everything you do at GM, and keep up the, you know, the very efficient capital allocation. We appreciate it, Paul.
Thanks for having us.
Thanks so much for coming.
Thanks, everybody, for being here.