Okay. On ce again, I'm Ryan Brinkman, the Automotive Equity Research Analyst here at J.P. Morgan. Thanks for joining us for our next session. A highlight for me, General Motors, very happy to have with us Paul Jacobson, their Executive Vice President and Chief Financial Officer. I'm going to turn it over to Paul for some opening remarks, and then we'll engage in a discussion. Paul?
Well, thanks, Ryan, and thank you all for coming, and for those listening on the webcast. We're about, let's see, about three weeks removed from earnings, and I'm here to say, all is well. It's okay. I know there's a lot of turmoil in the marketplace right now, but as we've said in many of our calls pretty consistently, we are heads down, and we're continuing to sell great products to our customers, who are continuing to demand those products. So as we wrapped up July month, and as we intimated on our June quarter's earnings call, July was very stable for us. We saw ATPs down a little bit. I would say that's likely mostly driven by mix.
As you know, we launched earlier this year our new versions of our smaller SUVs. We've just launched our mid-size SUVs. We have the next update of the full-size SUVs coming very, very soon. So, you know, we've seen a little bit of mix pressure, but we continue to see all our vehicles performing well. In fact, in the midst of relatively stable pricing, we were able to pick up another 80 basis points of share during the month. So while much is made about the industry pricing dynamics, et cetera, I think we've maintained a very consistent approach that is really centered on around our customers and our really stunning portfolio.
I don't think I'm qualified with enough history to say that it's the best ever in GM's history, but it's certainly the best comprehensive portfolio we've had in a long, long time. So, vehicle sales continue to perform well. The customer continues to do strong. We've got our GM Financial partners here with us today, and their business continues to perform well as well. So, much more of the same. We haven't seen any of that deep discounting impacting us in the July month, and here we are now, you know, seven completed days in August. And I guess I'll go ahead and say that August is off to a pretty good start as well. So, a lot more of the same.
We'll talk about it today, but we're continuing to see momentum in the EV space. We've set a record in July month with our Ultium products coming out. We continue to get momentum. I think, despite the fact that we're suffering from some awareness challenges, which our marketing team, as we highlighted on the call, is really focused on building that awareness and getting our vehicles out to dealers so that customers can see them. But so far, 54% of our EV purchasers are new to General Motors, and that's an important statistic that we watch because our premise has been, and remains, that we can actually grow share in EVs and ICE at the same time.
That's why you've seen a pretty strong CAGR on the revenue line for the last three years, double-digit revenue growth from the company, while we've been able to maintain that strong margins. I know many were concerned about margins taking a big dip through this EV transition, but we're very, very focused on margin execution and continuing to perform well. Of course, lastly, I'll just conclude by saying the free cash flow story remains really strong. We had an incredible second quarter, and we're continuing to pour that back into share repurchases at these levels. Note that we're not by any means starving the business. We still believe, you know, $10.5 billion-$11.5 billion of capital investment in the business.
That's in product programs, it's in factories, it's in covering the transition to EVs. And it's a very sustainable level that we feel comfortable with, that we can implement effectively, and that we can afford even if we face a downturn, based on the strength of our operating cash generation. So, lots to like. I know, I know there's a lot of cyclical concerns, a lot of peak pricing concerns, et cetera. We've seen those for the better part of the last two and a half years, and our focus and the team's focus is really on continued execution with the portfolio we have. So, really appreciate you all joining and listening, and, Ryan, I'll turn it back over to you.
Great. Thanks, Paul, for those opening remarks, including the color on 2Q pricing so far. Really, my first couple questions are gonna be on pricing. I thought to ask first on the trend for the overall industry. I'll ask in a moment, you know, GM pricing versus the industry. There's some good news there, but maybe just starting first with the industry as a whole, you know, what do you think accounts for that, you know, greater than expected resiliency in industry pricing that you mentioned? You know, the concerns have been there, but the softening hasn't been like we'd thought.
You know, despite you know the headwinds from higher interest rates and from inventories now essentially having recovered to the levels that they were at prior to the chip shortage, and where do you think that you know they're gonna head next? You did give some indication for the full year for GM, but what about for the industry, including over the longer term?
Well, you know, I think everybody is unique in the industry, and I think we see a lot of divergence across strategies. Some are, you know, sitting on higher inventory levels and have seen discounting. Some have had quality issues that have led to sort of model year transformations. But, you know, I think if you look at our track record through it, we've actually performed quite consistently through it.
I think one of the great things that our team has learned is that, you know, by meeting the customer where they are, by reproducing vehicles that the customer demands, we're actually able to maintain more stability in our pricing, which that consistency, I think, has value to it as well. And we've been able to keep our head down and execute.
So, that was true at the beginning of the year, it was true through the second quarter, and, you know, we expect it to continue to be true, for the rest of this year. You know, people are gonna do what people are gonna do, but, we're just focused on executing our portfolio.
...And so the follow-up really is on that divergence, that you called it, you've outperformed there. Your incentive spending has been consistently less than the industry. You highlighted on the 2Q, you called it, the gap grew in the most recent quarter. It doesn't appear like you traded sales for profits, 'cause your retail share was actually up, right? So just wanted to check on what is allowing for the performance. You talked at the beginning, what you call it, fantastic portfolio or amazing? I forget what you called it, but now, I just want to check, though, that you know, it doesn't maybe relate to some cyclical factors.
For example, you know, picking up share in pickup trucks when Ford has got, you know, one hand tied behind his back with the changeover or maybe the launches that you're doing, you know, maturing on the ramp up. Is it really the competitiveness of the product, you think? Is it the go-to-market strategy, or did you target, you know, certain areas of the market that you anticipated would do better, like with the trucks and more affordable vehicles? What do you think is accounting for it?
Well, I think we've got a very well-orchestrated, sort of cycle of refreshes that are occurring, and as I mentioned in my opening remarks, you know, we did the small SUVs. We've got the midsize with the Traverse and the Acadia that are just getting out now and doing quite well in the early months. And, you know, we'll be rolling forward the next update in the full-size SUV. So our portfolio, I think, has not only kept up, I think it's exceeded the performance of many of our competitors, and we're incredibly proud about that, and that's why we keep our focus on the customer.
You know, the other thing I think is, you know, we through these periods of volatility, we've talked about executing very well on our go-to-market strategy. And in the second quarter or in the month of July, our gap to industry on PIN spend actually gained to 200 basis points, better than industry average. So, not only has it been consistent, we've been doing it while we've been gaining share.
So I know historically in this industry, and I came from another very cyclical industry. Historically, we didn't talk about share gains because it was a bad word, because it usually came at the expense of pricing. And as everybody is scrambling for that share on the marginal dollar, a lot of discounting happens.
We've been able to pick up share while maintaining more consistency in pricing at lower discounts, and in many cases, higher ATPs, and you can't do that without quality. So, you know, in order to break out of a lot of that cyclical construct, we've got to stop treating ourselves as a commodity, which means at the end of the day, we're just pricing to drive volume.
At the end of the day, we've got to make sure that we're pricing for margin and executing for margin, and you can't grow a company by cutting costs. You can only grow by making sure that you create products that the customer wants and that you're able to grow the top line.
We've seen that both through not only the pricing we get for our products, but also share gains. That's what I'm incredibly proud of the team for executing, and one that's a mindset that actually allows us, because of the outperformance that we see financially, to invest more into those products in the future. It's a cycle that repeats and builds upon itself.
I'd love to continue to ask softball questions about the parts of the business that are doing great, but maybe moving next to China, which is a region where GM has struggled to make money recently after, you know, an early period of really, truly tremendous success.
You know, since entering the market in 1997, GM was able to grow its market share almost every year until it peaked in 2017 at 15%, which, along with the booming market, allowed for sales to rise every year for 20 years, from nothing to 4.0 million. And you know, since then, obviously, your share of the market has fallen every year since it peaked recently to just about 7%.
So such that with the market being about flat, you know, the math on that is your sales are down by half. You haven't taken out any capacity so far as I'm aware, maybe some shifts or something, but, you know, maybe start by walking us through some of the factors which have led to the lower share.
You know, some of the factors I imagine are outside your control, like the rise in competitiveness of the domestic Chinese automakers and all of the equity capital that's been, you know, poured into the startups over there. I'm wondering, however, if maybe there were some things, you know, within your control that maybe you just got wrong, you know, and so can now be fixed.
You know, the good news, you know, such as, you know, misjudging, you know, changing powertrain, preferences or, you know, segmentations, that you didn't target or, and, and maybe also talk about some of the, the positive, 'cause some people say, "Just pull out of China." I can imagine, right?
There's so you got a lot of good things going on, and, and, and Dan makes money on, on, on the finance stuff. I think you own, like, less than 50%. But, you know, talk about what's positive, in China, you know, even as the earnings have deteriorated. Like, for example, I imagine you probably have the second largest number of vehicles on the road, right, after Volkswagen, and, so big installed base, you know, good brand recognition.
You do have hits every now and then, like the Wuling Hongguang Mini EV, right, outsold, you know, Tesla for a bit there in 2021. You know, extensive sales and service operation, OnStar finance, the Pan Asia Technical Center. What else would you highlight?
So while I wouldn't use words like amazing and terrific when describing the China portfolio, I don't necessarily accept the notion that we're struggling to make money there. I mean, I think when you look at this year, we knew going into the year that we had a pretty sizable inventory glut that we had produced there that we had to work through, and we were expecting a loss as we kinda trimmed production in Q1 and made sure that we turned through that inventory. So, you know, while that is not performing the way we thought it was going to in this year, I'm not sure that I would say it's been struggling to make money. It's been a historical, amazing investment when you think about the history that we have there.
What makes China work for us is it's always been very self-sustaining. It drives its own capital needs, and it actually returns cash back to us, and that cash isn't what it used to be, but that's okay. I think, you know, what we've been pretty clear about is, you know, I think China can be a good asset for us and, and remains a good asset for us. It needs some restructuring work to get done, to be able to compete in the marketplace, where we see much more customer orientation towards, new energy vehicles, as well as, you know, relatively recent, preferencing to Chinese brands.
So, we've got to remain competitive, and that means that we've got to take a look at the business with our partner to ensure that we can restore it to profitability and that we can restore it to self-sustaining cash flow going forward. And in that vein, I think it can be really good for us. You know, our partners at SGMW, they're doing a great job, as you mentioned, with the Hongguang MINI EV, and they've got more vehicles coming to market to capitalize on that. But they're also a really good asset for us in the export market from China as well. So I think there are a lot of reasons that China is beneficial to us.
You know, as far as the partnership there, and we've been very vocal that, you know, we're in conversations with SAIC, and out of respect for that long partnership that we have, I won't go into the details on that, other than to say both teams are committed to do what needs to be done, to make sure that we're driving profitability and self-sustaining capital generation in the entity.
Even as the profitability had fallen off there in recent years, you continued to receive dividends, and implying that the business is self-funding. You know, you don't consolidate the balance sheet there. I think on a one-time basis, there was some SEC technicality having to do with whether you have control, and you did release the balance sheet one time.
I think it was at the end of 2016 or so, and it showed that there was no debt, and it was cash. I just wanna check in. If they were to need capital to engage in restructuring activities, that would be able to be raised locally, and if you're able to confirm that there is no debt on that operation today or...?
Yeah, I mean, at the end of the day, we're committed to maintaining cash stability there in a point where it's self-sustaining. That means not needing any capital from outside to continue with its vehicle programs and to continue to return cash to the parents. So, you know, that's what we're committed to do, and we'll have more to come as we work through our partner on that, but we're committed to doing it urgently.
Great, thanks. Let's talk about EVs. Historically, you'd been supply limited with regard to the Ultium cells. Maybe talk about the progress that you have made there recently, and what gives you the confidence you can ramp, you know, from 75,000 Ultium wholesales in the first half of the year to, you know, the new sort of implied range on the downside of 125,000. It's still a pretty healthy ramp at the low end.
And then, as much as you've been supply-constrained to date, and so we haven't really worried about, you know, the demand side, you know, of course, there has been a reset of demand expectations, and you've acknowledged that by, like, pushing out the EV truck capacity expansion at Orion, for example, a couple of times. But, you know, what do you think is driving that EV demand expectations reset? Talk about the ways that GM is acting, and when is it that you might go from, say, supply limited on Ultium to, you know, we got to think about being maybe demand limited?
Well, I mean, I think if you follow the comments that we've said, we've been very clear that we're gonna be guided by the consumer in this. So, you know, while we had some challenges last year in module capacity and getting that up and running, you know, I believe we're at a point right now where we are relatively unconstrained on EV production versus where the market is. And, you know, so we started the year with the expectation that we would produce 200,000-300,000 EVs this year. We are well on track to be able to do that.
During the last call, we talked about producing 200-250,000, and that was nothing more than a decision based on the fact that as we went into the year, most analysts were projecting 10% EV penetration. We've been hovering around 7, maybe we get an uptick to 8%, and there are still some people that think we'll be at 10% by the end of the year.
It certainly hasn't grown quite the way it had in years past, so we've been able to temper that production schedule and be able to manage it. The asset that we have right now is, for the first time, really since we've seen the significant growth in EVs, I think we're in a position where we are actually ahead in our capacity.
That's a very favorable position to be in and very consistent with the comments that I've made in the past, which is, I don't wanna be scrambling to plow a lot of capital into the business to catch up to demand that might not be in there in the future. We've been able to catch up.
We've been doing that in a systematic way, but, I'm not sure anybody really thought that there was gonna be a linear progression from today to 2035 or whenever the industry goes to all EV. There are gonna be ebbs and flows, and and we see that. You know, clearly, there was a wave of early adopters that really wanted EVs, and, you know, a competitor met that demand and did it incredibly well.
Many of those customers bought their vehicles 4 or 5 years ago, and now they have a different decision set as they're looking for their next vehicle. It's no longer guarded by one clearly market leader, without a lot of choice in the marketplace. Now, you know, depending on what category you're in, you might have 20 or 30 choices to pick from.
So, you know, we think, and we've seen it, as evidenced by the fact that 54% of our EV buyers to date are new to General Motors, that we can go in and convert some of those early adopters while we're also seeing EV demand continue to grow, even slowly. And that's the source of some of the share gains that we've seen going forward.
So, you know, we're now saying that we can do 200-250. We can produce that many. I'm not worried at all about the ability to produce that many, but we've got to make sure that we watch that. So, you know, we have seen an uptick in EV inventories, and I'm sure that's probably one of the questions that you'll ask is about inventory.
And, you know, we've seen inventory grow by about 40,000 units, and I know that makes for a good headline number in terms of watching inventories grow. But if you break that down, that's about 12 vehicles per dealership. And when you think about the number of models that we have, some of those models might have 2 at a dealership.
This is not like selling ICE vehicles, where I might be buying my third or fourth Tahoe or Escalade. I know what that vehicle is. I'm really comfortable with it. I know what the features are. I can buy one without even looking at it because I, I'm so comfortable with that product. If I'm gonna switch from ICE to EV, I need to go to a dealership, I need to learn about it, I need to study it, I need to see it, I need to drive it, I need to charge it. I need to look at all these different things and experience, which means you got to have them at dealerships.
I think if there's one thing over the last couple of years that I would go back and change, is we spent a lot of money creating a lot of demand and a lot of buzz for our products before they made it to dealers. That created a lot of frustrations for our customers. Now that we have the vehicles out there, we got to get that awareness and that momentum back. Part of that is having vehicles at dealerships. We're gonna be balanced, much the same way that, you know, we've said and honestly remained disciplined, with our ICE inventory strategy, in that 50-60 day range. We've popped a little bit up over the summer. We're at 63 days in ICE at the end of July.
Doesn't bother me a bit in terms of how we're thinking about it. And I think about the step function change from where we were just five years ago in the way we managed inventory to the way we're managing it today. There's clear strides and gains that are leading to better free cash flow generation, and better margin performance across the board.
Now, there's been such an expectations reset with regard to EV penetration over the near term, that I find it hard to believe that the consumer has truly changed his or her mind about how they feel about EVs to that extent. And I wonder, and I'd be curious your thoughts, too, the extent to which maybe what we're seeing is just we were wrong about the what the consumer was all along gonna do.
And I wonder if maybe analysts, investors, maybe even other automakers, could have received some false signals about EV demand by looking at what Tesla did in 2022 after the Russian invasion of Ukraine, nickel and aluminum prices rise. They raised the price of the Model 3 from $36,000 to $46,000 in the U.S.
Despite that, they sold, like, you know, 40% more vehicles in the back half of 2022 than the first half. That's not a function of demand, but of the fact that they were opening new factories in Berlin and Austin. They weren't capacity constrained. And that was an unsustainable level of pricing and sales for them, accomplished via the whittling down of a backlog, which they weren't, you know, updating us on. Right? So, maybe other automakers were looking at, well, looking at that, saying: "Well, imagine how many Mach-Es I can sell at such and such a price, or many Lyriqs," you know, for example.
Just curious if you think maybe there was an irrational exuberance there, even if we are correct about the long term, you know, in terms of what the near-term demand was likely to be.
Well, I don't think I'd ever be so bold as to say that the Wall Street analysts could be wrong or maybe misinterpret data from that standpoint. But look, you know, I think there clearly are advantages to consumers for EVs, but the consumers have to want them, and that's going to take time to win people over.
It's gonna take investment in the charging infrastructure, and you look at the investments that we've made. We're side by side with our customers, but we've got to be ready, and we've got to meet the customers' needs across the board. So we've been focused on that. I've never believed that, you know, to be honest, that Tesla was going to be the be-all, end-all strategy for EVs.
Many investors in this room and listening on the webcast have said, "Well, why don't you pursue the Tesla strategy?" Well, I don't think that's right for us, because we've been successful for 100 years producing vehicles across price points, across multiple brands. It's not like the customer is gonna suddenly change the way they've been buying cars for 100 years. Yeah, there are things that we can do to improve.
There are things that we can learn. Of course, there are lessons that we can learn from that type of success that we've seen, but it doesn't mean that the right answer for today is the right answer for tomorrow, is the right answer for 10 years from now. And you know, I think many of the questions that we get are really short-term oriented.
You know, I wish I could pivot the business on a dime to go 100% EVs and then go back to 100% ICE in a 13-month period. We just don't do that, and we'd destroy a lot of capital doing that. So, you know, as I often tell my children, the right answer is somewhere in between those extremes. And that's the way we're focused on it. So we're not running the business for next quarter or even next year. We're running the business for the next decade and the next generation to make sure that we guide through this transformation with the customer in mind first and foremost... and then margin and cash flow performance through that cycle.
And some quarters are going to be better than others, but I think the consistency that we're maintaining, I think, shows that, shows that focus on that, that, you know, even when, when we see this, and even in your question, you mentioned the word reset of customer expectations. There isn't a reset. There's, there's a slowing trend. And by the way, most of that trend has been driven by fleet, and we know what's going on and what has been going on in the rental space. So there's no surprise there that fleet took a little bit of a shock from going all in to, maybe we should hit the pause button.
The consumer has been much more consistent about that, and we've tried to be consistent in our approach, and we're going to continue to do that because honestly, it's, it's an execution level that, notwithstanding some of the production challenges that we've overcome, financially speaking, I think we're doing quite well through it.
Interesting. Thank you. Maybe switching gears to Cruise, it'd be great to get an update there, including—I'd be interested to learn, you know, what are the conversations with regulators, like now, including how that might impact the path to commercialization? And then with Cruise testers, you know, recently returning to the road in Houston and Dallas, Phoenix, you know, what does that imply about the spending messaging that you gave last around the business update call announcing the ASR?
Should this go back up again, you know, back toward the $3 billion from $2 billion? How long does that take? What does that look like? And then maybe you could also clarify some of the potential misunderstanding around the decision to not continue with the development of the Origin, but instead to focus on the Bolt.
You know, on your earnings call, the impression that I got was that you saw a risk or a likelihood even that the underlying autonomous driving technology was progressing at a faster rate than the regulatory approvals might come in for a vehicle without controls, such as steering wheel, a brake pedal, et cetera. And so the move was actually motivated by real confidence in the underlying core tech, although it was later insinuated by another automaker that same day that that wasn't the case, that the Origin was being abandoned because of a fault in your core tech. What's your take?
I'd heard that, as well, and, you know, I can assure you, having ridden in an Origin, that they work and they work great. The issue with the decision to sort of shelve the Origin is really one born out of how do you - how do you de-risk the strategy of implementation? And as we've said from day one, with the Origin, there were regulatory hurdles that we had to get across. And as we look at the landscape and we look at the environment, both politically and regulatorily, we thought that was going to be a big challenge.
So what we want to do is make sure that as we continue to improve the technology, and we have been doing that, and raising the bar on ourselves, for our own safety standards and not using a human driver, but using a role model driver, for our own safety purposes, we see an opportunity to scale. And then, you know, remember, the other benefit of the Origin was it was going to be a significant driver of lower costs. Well, at the time we designed that, we were working on the old generation Bolt. We didn't have a next generation Bolt even planned. It wasn't part of the portfolio.
So as we redesigned that Bolt, and we're going to introduce it with Ultium and LFP technology and bring that in, and we've said, make it, you know, significantly better profitable performant than the prior generation Bolt. There are many of those cost savings that we can get with the new model Bolt that didn't exist. So as we think about it from a risk portfolio standpoint, we actually think this is a faster, cheaper way to execute the Cruise strategy than where we were before.
Great. Thanks. Maybe switching gears next to GM Financial, which I think it's safe to say has been a real source of strength for the company. This is a business which pre-pandemic was earning $2 billion a year. And while that exploded cyclically higher alongside used vehicle prices during the chip shortage, you know, even today, without any benefit from the lease residual gains that helped in 2021 and 2022, it continues to earn $3 billion, so, you know, 50% more than before the pandemic. And this performance contrasts with some of its closest peers, which also saw earnings surge with used vehicle prices, but today earn no more or even less than they did before the pandemic, such as in the case of Ford Credit, for example.
Seeming to imply a more structural driver to GMF's higher profits. Is that the case? What are those drivers? And, you know, are you maybe now more engaged in more lines of business? Have you structurally taken share from Ally? You know, what is it that causes GMF to be so much more profitable now? And then, you know, how would you rate the sustainability of these drivers? And, you know, what do you think GMF's maybe new normalized earnings power is?
... I see you've reverted back to the softball question, so thank you for that. You know, I would just say two words, Dan Berce. And that's not just 'cause he's sitting here in front of me, but the leadership, that team that we have at GMF is, I believe, the best in the business. And they've proven that consistently. And you know, I don't think it's seemingly outperforming; I think it is outperforming, and that's been a big asset for us. And not just, not just financially, because you know, you know, the reasons you have a captive financer, because you can serve the customers in a much deeper way, that leads to tremendous loyalty.
When you look at their customer satisfaction scores across their portfolio, not just with the retail customers, but also with the dealer network and the floor plan financing they do, they are the best at what they do. And that's evident in the NPS scores, and there's no doubt that that translates to better sales and better revenue performance for us as well. So that integrated approach, I think, is one that works really well, and they do it with a very balanced portfolio. We can't serve the needs of every single one of our customers, but we do the best to meet all of our customers where they are and balance that within a portfolio that we believe can perform more consistently, and we've seen that.
So while we're not immune from some of the normalization back to, you know, kind of pre-COVID levels, et cetera, I feel very comfortable with the portfolio that we have and the ability for them to continue to be a great asset and generate strong cashflow for the company.
Well, it's overall very strong. Just curious if there are anything under the hood that does concern you. I saw a headline that maybe auto loan delinquencies were the highest in 10 years. There is some subprime exposure. I think when you bought AmeriCredit, it was exclusively subprime. Anything that concerns you, what's the very latest with regard to the loan performance?
Well, by the very latest, you mean since 2011? I'm not quite sure 'cause I've been up here. But you know, look, at the end of the day, we meet on this regularly. We're looking at statistics daily, and we're looking at it weekly, and we've been doing that for a couple of years through this cycle because we'd have to answer questions about affordability and monthly payments and credit performance, et cetera, and that portfolio's been remarkably balanced.
So yes, we do have some subprime, and we do have some super prime and really strong credits, but that portfolio is really what makes the difference. And when you look across our customer base and those people who are prime borrowers for new products and new GM products, they continue to perform very well.
So we, we expect some cyclicality in that, but that doesn't mean at the end of the day that, it's gonna necessarily immediately translate to any retail softness across the board. We're ready for it. That's why we've perpetually been putting in this planning assumption of lower pricing. It's, it's meant to really be a proxy for, we've got to build some caution into these expectations because we're returning a lot of cash flow to shareholders, we're investing a lot of capital in the business, and we're continuing to drive the business for margin performance. So we've got to be able to set up a business plan, a cost structure, et cetera, that can weather those storms and buy us time to be able to adjust the business if it's deeper.
That's the way you get out of the cyclicality and the nature of what the business and many industries have been in. If you treat it like a cyclical business, the cycles will come back and get you. So we're trying to maintain that discipline, and many of you have heard me talk about our theories of capital allocation and how we do it. It's not just a question of affordability. We can afford to invest more, but to hire the people, to build the facilities, to put in the infrastructure, to deploy more capital effectively puts a strain on the margins of the business that starts to weather away some of that cushion that you have.
All of this is sort of meticulously managed for us to be able to drive consistency in the performance of the company and to buy ourselves time if we see it cycle, so that we can adjust the business to maintain it in a much more consistent way than we have in the past.
Very helpful. Thank you. And now, I'd like to get your thoughts next on the topic of vehicle affordability and the impact of higher prices on demand going forward. I'll start by observing that US consumers in 2019 purchased 17.0 million vehicles at an average price of $35,000, paying $595 billion. In 2023, they purchased 15.6 million vehicles at an average price of $45,000, paying $700 billion. So they purchased 8% fewer vehicles at 29% higher prices, spending 18% more. Eighteen percent rise is, you know, fairly in keeping with the 20% rise in CPI over that time. You know, more in keeping with the CPI rise than the price of vehicles.
You know, one interpretation of that might be that, you know, because prices for vehicles rose more than for other competing categories of spending, and given the fairly discretionary nature of the purchase, that consumers just feel they cannot afford as many vehicles at this level of price. I'm curious what you think the path forward might look like, whether, when, and how the industry can return to pre-COVID levels of sales, considering where the consumer is at.
Well, I mean, considering that our, you know, compounded annual growth rate on revenues is 12% over the last few years, I think, I think we've been able to sustain the revenue and the performance of the company. We've obviously always got to be relentless and focused on reducing costs and taking costs out of the vehicle, you know, to not only help our own performance, but also help to pass through the customer and give them more value for their money.
And that's really what it's about. So when you look at what vehicle prices have done, you know, we're not a commodity business. There are commodity segments and commoditized segments for sure, but we're not a commodity business. And customers have shown that.
They vote with their wallet, and when you look at the share gains that we've had and the pricing that we've had, I think it gives us confidence in the portfolio that we have, and we're going to continue to refresh and update for our consumers and try to meet them. And that's the way ultimately we're going to win in the end, is by being there for our consumers. So, we're not resting.
We're not taking it for granted by any means. We fight every day to try to make the business more efficient and be able to pass through some of that in terms of amenities for our customers and products that we know they love, and I think that's what's going to win in the end.
Okay, and lastly, I want to ask on capital allocation. Some people would have led with that one, but, you know, investors seem to really like what you're doing here, with GM-
I imagine they do.
With GM shares up 50% since announcing the $10 billion buyback last November, your stock sometimes goes down on beat and raised quarters, but there seems to be positive reactions to each subsequent buyback announcement or increase in authorization, including the $6 billion in June.
So how should investors think about the cadence of repurchases going forward? Is there an expiration on the $6 billion authorization or an intention to complete it by some certain period of time? Or will the pace of buyback be governed more by the pace of free cash flow, with cash staying around your targeted $18 billion and all excess allocated to buyback?
So, you know, I think, it's important that, you know, I state that we subscribe to a very balanced capital allocation framework, and I think, it starts first and foremost with investing in the company and investing in the products. If we don't do that, then at the end of the day, we're just on a doom loop, because we've got to keep our vehicles fresh, and we've got to maintain that investment level through the transition.
So, you know, we're investing $10.5 billion-$11.5 billion in the company this year. That's at near record level. So we're sustaining a very, very strong level of investment in the company and in our future product stream. And that's important because, that's not short term in nature. That's meant to be continuous.
We've got to continue that cycle. Second leg of the stool is maintain a strong balance sheet. We're very comfortable with where our balance sheet sits right now. We have really regular, very open dialogue with the rating agencies and, and keep them abreast of our, our plans and the way we're thinking about it.
And as I've said before, I believe that there can be merits to taking the company's credit rating up over time. There's... And maybe even get it into a single A, rating, which I think, you know, helps the financeability of GMF, and it allows us to do more things. But there's not an urgency to do that because it's not going to translate to immediate cost of capital benefits across the board.
So when you look at where our valuation is, you know, there's some investment we can make in the balance sheet, but there's a lot of cash flow that can be returned back to shareholders. And when you look at our multiple and the magnitude of how undervalued the stock is against the cash flow, I mean, we're generating more than now, you know, with the recent sell-off, more than a 20% free cash flow yield on our stock.
It's an incredible value play right now, and we think that the best way we can serve our investors is retiring shares at these levels. And you're going to continue to see us do that, but only after we invest in the company the way we need to and make sure that that balance sheet is strong.
Let's check to see if there might be any questions in the audience. I see one here, Jim Irwin, toward the front. Can you run him a microphone, please? Sorry, take a minute to get there. Webcast purposes.
Thank you. Paul, I wonder if you could kind of remind us, when you were laying out originally EV volumes of 500,000, kind of U.S., and eventually 1 million units, that gave you a great cover for any regulatory requirements, like the California Air Resources Board, which remains in place. So at what point in the next three years, midterm... You know, right now you're letting consumer demand dictate whether you sell 200,000 or 300,000, and maybe the Equinox is going to drive that up big time next year. But is there a certain volume where if you don't get 400,000 or 500,000-600,000 in the coming three years, we see a big uptick in regulatory fines?
Or what happens on that kind of three-year horizon if the consumer's not ready to go all EVs till, like, 2028 or 2029? Can you kinda calibrate that for us, if that's a big deal or very manageable from your standpoint?
You know, I think it's a great question, and I think it's an emerging topic and one that I think is going to continue to get a lot of questions about it, because this is something that, as an industry, especially as we get out over the next, I would say five to 10 years, we need to be very, very focused on, in partnership with the regulatory bodies as well. You know, I think in the short run, some call it in the next two to three years, I think we've got pretty good plans. If you look at what we've done, we've done it with a mix of EVs, a mix of ICE, a mix of PHEVs, etc.
You know, I think, I think there's risk in the, in the reliance on credit purchases going forward, so it's important that, you know, we continue to lean into EVs. But, you know, there, there becomes a clearing price for that as well, because we've got to be able to do that profitably. And that, that's why you hear us so focused on making sure that we're getting to positive margins in our, in our EV portfolio and why we need to do that. Once we get to positive EBIT margins, we think that there's a lot more flexibility for us, to continue to manage that in a balanced way going forward.
The other element of this is the PHEV, which, you know, is a, is a little bit of a pivot, from, from where we were, but one that I think is really important from a compliance standpoint. If we don't see EV, penetration trending at, at the levels that it needs to be for some of the stringency requirements, that gives consumers a bridge to be able to go from, from ICE through, through PHEVs, which ultimately help us, a little bit more in some of the, in some of the credit and some of the, compliance requirements going forward. So it is something we're watching, but, you know, ultimately it's a balance between less ICE, more EVs, credits, and, and compliance requirements. So that's the portfolio that we're trying to work with.
Right now, I would say the number one priority for us is to get that EV portfolio to profitability, and then, that gives us more room to be able to tackle it in the future.
We could fit maybe one more question? There is one here, Vitaly Stolyar.
Thanks for the caller, Paul. It's good to hear that August started well, and-
Seven days.
Seven days, right. And regarding EVs, it's also great to hear that despite all the noise, GM is doing well in converting some of the non-early adopters and bringing them in, and converting them to actually buyers. The question is about commercial vehicles. So you have a competitor across town in Detroit that keeps talking about commercial vehicles and what a bright spot it is on their P&L. So if you could provide a little bit of color on you know how the commercial vehicles are doing at GM, and what is your strategy to compete with that? Not just vehicles, but also software. And then a little bit of an offshoot from this question is your the BrightDrop program. It seems like you're well positioned there, ground up purposely built EV.
There's only one other competitor that I can think of that can really compete with that. And so, how that... You know, any update on that program as well? Thank you.
Yeah. So, you know, fleet, fleet is an interesting one, and it, and it varies by segment. There's a lot of different customers that qualify as fleet, etc. And, you know, what I would tell you is, you know, when you look at our heavy-duty vehicles, they perform really well, no doubt about it. We have actually willingly reduced some of the share in the fleet standpoint because what we're seeing is a lot of, lot of price competition. And, you know, I've, I've always been wary of going back to the way it was, where fleet was a sort of capacity, outlet, to be able to sell at deeply discounted prices.
You know, when we look at where the demand set is against our balanced production, there are many cases we're actually opting away from fleet to put them into retail because we see better performance there financially, and striking that balance. So fleet is an important part of the business, and the GM Envolve team and what we do through our brands. They do a good job, but we want to maintain balance and not become overly reliant in a highly competitive segment to be able to push more volume and drive that business for volume, rather than drive that business as part of the portfolio of profitability going forward.
So, you know, BrightDrop, I think, it has a lot of potential for us, and what we've seen among those customers is there was a really sort of big lean in from many of those customers probably 18-24 months ago. That's really kinda slowed down, and I honestly, I think a lot of companies are waiting to see how the election's gonna turn out. But, we're there trying to make sure that we're meeting them, not only with the vehicles that we believe are more efficient, and in many of the test cases, the drivers actually prefer driving the BrightDrop vehicles as well, but also make sure that we're gonna be able to partner with our customers on infrastructure.
So it doesn't do any good to buy a fleet of commercial vehicles if we can't help address some of the infrastructure needs, the charging needs, etc. So a lot of conversations ongoing with customers and more to come on the BrightDrop side.
That is all the time we have. Please join me in thanking Paul for all the great color.