Ladies and gentlemen, welcome to the General Motors Company First Quarter 2019 Earnings Conference As a reminder, this conference call is being recorded Tuesday, April 30, 2019. I would now like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations.
Thanks, Dorothy. Good morning and thank you for joining us as we review GM's financial results for the Q1 of 2019. A press release was issued this morning and the conference call materials are available on the GM Investor Relations website. We're also broadcasting this call via webcast. I'm joined today by Miri Barra, GM's Chairman and CEO Dhivya Suryadevara, GM's Executive Vice President and CFO and a number of other executives.
Before we begin, I'd 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, Rocky, and good morning, everyone. Thanks for joining. Our Q1 results are as follows: net revenue of $34,900,000,000 EBIT adjusted of $2,300,000,000 EBIT adjusted margin of 6.6 percent EPS diluted adjusted of $1.41 Our automotive adjusted free cash flow was a negative $3,900,000,000 and our return on invested capital adjusted was 23.8% on a trailing 4 quarter basis. These results are in line with our outlook that we shared earlier this year. Q1 seasonality, full size SUV production downtime and reduced volumes in China impacted actions will help us deliver our full year commitment.
Let's begin with our performance in North America. We generated the highest ever first quarter average transaction prices on the strengths of our trucks, SUVs and crossover segments. Our truck launch strategy is focused on maximizing profitability by first introducing a richer mix of popular high margin models like crew cab followed by regular and double cabs. We are selling every truck we build. This strategy is also helping us grow share among higher priced trucks at the expense of our competitors.
For example, the GMC Sierra has gained 4 percentage points of share this year among models priced over $50,000 In addition, year over year Q1 average transaction prices on our all new light duty crew cabs were nearly $5,800 higher than our outgoing model. Our truck launch continues to be well positioned moving forward. We expect supplies of light duty pickups will reach an optimal mix of cab styles and trims in the second quarter. In the second half of the year, when industry truck sales are typically surging, we will introduce our 2020 Chevrolet Silverado and GMC Sierra heavy duty pickups. These are very popular with commercial customers and they contribute to adjacent sales of our light duty pickups.
As previously announced, to meet expected higher demand, we will increase heavy duty capacity in Flint to build a higher mix of crew cab styles and trims that represent strong profit growth opportunity. In addition, we are on track for our upcoming full size SUV launch with the planned downtime now behind us. We intend to build on our truck leadership. And with that in mind, I want to address media coverage of the various industry partnerships around battery electric vehicles and trucks. As you know, GM has an industry leading truck franchise and industry leading electrification capability.
I assure you we will not seed our leadership on either front. We intend to create an all electric future that includes a complete range of EVs, including full size pickups and we will share additional information when competitively appropriate. Moving on to our crossover and SUV performance. We introduced all new Cadillac XT6, which goes on sale later this year. We are encouraged that 2 thirds of the sales of the segment leading Cadillac XT4 are to brand new customers to the brand.
And the Chevrolet Trax and Equinox set Q1 records, the GMC Acadia achieved its best quarter ever and the Buick Enclave sales are up 28% year over year. Dhivya will share more about our business transformation actions, but I want to update you on our progress toward offering relocation opportunities to employees at our unallocated plants. There are jobs available for all 2,800 impacted hourly employees and more than 1300 have already accepted transfers to plants supporting growth segments like trucks, crossovers and other high demand vehicles. This includes our next generation Corvette where just last week we announced we will add a second shift and 400 jobs at our Bowling Green, Kentucky facility. Moving to our international operations in China, as we shared earlier in the year, we expected lower volumes and equity income in the quarter due to ongoing industry pressures.
We stated in January that we believe the industry would be roughly flat. And this there is uncertainty because of the stimulus discussions with nothing being finalized that we believe is creating more downside than upside risk in the near term. We need to see the final details and how this will translate into demand for autos. But specific to General Motors, we see tailwinds in the second half related to our vehicle launches and we continue to believe we are well positioned for the long term. Our strong brands and partnerships and our favorable mix of new vehicles continues to be a distinct advantage.
The first sedan from our new global family of vehicles, the Chevrolet Onyx went on sale 2 weeks ago. It will be joined later by the Chevrolet Tracker and the Buick Encore, 2 new crossovers from this family. And we expect Cadillac's underlying strength in China to continue. Cadillac is updating its portfolio with a refreshed XT5 in May, an all new XT6 in July and the all new CT5 sedan later this year. In South America, we have been working with stakeholders to generate appropriate returns in a challenging environment.
Recently, we received meaningful concessions from all stakeholders that will enable us to invest nearly $2,700,000,000 over the next 5 years at 2 of our facilities in Brazil. Because we now see a viable path forward, we will build future Chevrolet models at these facilities to strengthen our leading position in Brazil. These investments were contemplated in our overall capital plan. Turning to our future mobility initiatives, this quarter we announced that we will build a second battery electric Chevrolet model along with the Bolt EV at our Orion Assembly facility in Michigan, creating 400 new jobs when launched. On the self driving vehicle front, GM Cruise will hire 1,000 employees this year, doubling its workforce as we work to safely deploy Cruise AV.
So to recap the quarter, we delivered the results we expected given typical seasonality, full size SUV downtime and industry pressures in China. Before I turn it over to Divya, I do want to recognize Barry Engle, Gerald Johnson and Julian Blissett. They all began their new roles as a part of our senior leadership team this month and they are proven leaders that will help continue our transformation and position the company for long term success. Now let me turn it over to Dhivya.
Thanks, Mary, and good morning, everybody. We delivered solid results in the Q1 2019, in line with our expectations as we faced traditional Q1 seasonality, lower volumes in China and downtime as we prepare for the launch of our full size SUVs. The strong performance of our all new Silverado and Sierra pickup trucks and favorable impact from transformation actions offset some of these segments. With that, let's review the results in more detail. As Mary mentioned, we generated Q1 results of $34,900,000,000 in net revenue, dollars 2,300,000,000 in EBIT adjusted, 6.6% margins, $1.41 in EPS diluted adjusted and a negative $3,900,000,000 in adjusted automotive free cash flow.
The $1.41 EPS diluted adjusted includes a $0.31 benefit from Lyft and PSA revaluations. Excluding the impact of these items, the core automotive performance was solid and in line with our expectations. The Q1 cash burn of 3,900,000,000 dollars reflects normal seasonality and it's consistent with the cash flow outlook provided earlier this year. Let's turn to North America. North America delivered EBIT adjusted of $1,900,000,000 6.9 percent margins despite downtime for full size SUVs, lower pension income, increased depreciation and commodity headwinds.
The performance of our all new light duty crew cabs, strong material cost performance and savings from our transformation actions partially offset these headwinds. The launch of our light duty Silverado and Sierra trucks has been exceptionally strong and it contributed favorably to volume, mix and price during the quarter. As Mary mentioned, our launch strategy is focused on maximizing profitability. With our transition from old to new architectures, we released the constraint on crew cab and disciplined incentives remain disciplined. And disciplined incentives remain disciplined.
We're now rolling out additional cab and powertrain variants. We expect share in the lower price segment of the markets to increase as the mix normalizes. We see additional opportunity for upside from the heavy duty later this year as we launch our strongest, most capable heavy duty ever, featuring a powerful all new Allison 10 speed automatic transmission with a Duramax diesel engine for class leading towing capabilities. Our crossovers also performed well in the quarter, gaining market share and were a positive contributor to year over year profitability. Let's move to GM International.
For the Q1, EBIT adjusted in GMI was down $200,000,000 year over year due to lower equity income in China, partially offset by the favorable impact of restructuring actions in Korea. China equity income for the quarter was $400,000,000 down $200,000,000 year over year as a result of lower industry volumes and pricing pressure, partially offset by cost efficiencies. The team in China continues to manage the business with an intense focus on costs and finding other opportunities such as growth in adjacencies to mitigate headwinds. We have been taking actions to right size our inventories in China by reducing production in Q1 by almost 20% year over year. We continue to work on reducing inventory through production actions as well as retail sales increasing in the second half of the year with our 20 new launches in 2019.
In South America, we continue to make progress on the turnaround of our business. We have a great franchise with leading market share and Brazil saw its best Q1 share since 2010. And working with the unions, the state of Sao Paulo, suppliers and dealers in Brazil and in Argentina, we've negotiated a historic agreement that allows us to invest nearly $2,700,000,000 over the next 5 years, while reducing labor costs, indirect taxes and material costs. These negotiations, coupled with continued pricing actions and the introduction of our global family of vehicles will help us move towards generating acceptable returns in this region despite the macro volatility. A few comments on GM Financial, Cruise and our Corp segment.
GM Financial posted an all time record quarterly revenue of $3,600,000,000 in the Q1 and EBT adjusted of $400,000,000 as a result of portfolio growth offset by expected residual value pressures. Cruise costs were $200,000,000 for the quarter and will ramp up through the year as we continue our hiring. We expect to spend approximately $1,000,000,000 in the Cruise segment in 2019, up year over year as we increase our headcount. Corp segment income in the Q1 was $200,000,000 including approximately $100,000,000 favorable impact from PSA warrants and $300,000,000 due to Lyft revaluation after applying a liquidity haircut to reflect our 6 month lockup agreement. We continue to expect the underlying spend in the Corp segment to be about $1,000,000,000 in Q1 sorry, in 2019.
Before I close, I wanted to reiterate our outlook for the calendar year. We continue to expect strong EPS diluted adjusted in 2019 in the range of $6.50 to $7 and adjusted automotive free cash flow in the range of $4,500,000,000 dollars to $6,000,000,000 As I've mentioned before, we will face some headwinds, including moderately lower equity income in China, headwinds from commodities and tariffs to the tune of about $1,000,000,000 and depreciation and pension headwinds of approximately 1,000,000,000 dollars Offsetting these are a number of tailwinds including the full year benefit of our truck launch, a meaningful benefit from Cadillac XT4, Cadillac XT6 and Chevrolet Blazer and the rollout of our global family of vehicles. We also continue to expect transformational cost savings of $2,000,000,000 to $2,500,000,000 through 2019. We have made significant progress to date on the cost savings initiatives. With the savings front end loaded, we expect to achieve a significant portion of the 2019 savings starting in Q2.
Our effective tax rate assumption for the year remains in the 16% to 18% range. We expect to achieve our full year free cash flow outlook through strong EBIT performance, a partial rewind of working capital through the balance of the year as well as dividends from China and GM Financial. This team is committed to improving quality of earnings and free cash flow conversion. Regarding the quarterly cadence in 2019, the Q1 is expected to be the weakest due to seasonality, full size SUV downtime and lower volumes in China. In the Q2, we will take 3 weeks of downtime in preparation for our heavy duty pickup launch, but the full year heavy duty volumes are expected to be flat year over year as we took a similar amount of downtime last year in Q3.
As we take additional inventory actions in China in Q2, we expect equity income to be sequentially weaker. As we cycle past the downtime in North America and actions to address inventory in China, we expect the second half of the year to be meaningfully stronger both from an EBIT as well as free cash flow perspective. In summary, we had solid performance in Q1 and it sets us up well for strong performance for rest of the year. That concludes our opening comments and we'll now move to Q and A portion of the call.
Your first question comes from the line of Rod Lache with Wolfe Research.
Good morning, everybody. Good morning, Rod. I had a couple of questions. One is on China. On your Q4 call, you mentioned that Q1 would be similar to Q4 as you worked on inventory.
It's obviously a little bit better. But now you're talking about that inventory correction continuing into Q2 and it's sequentially weaker. I was hoping you might be able to give us some parameters or brackets around how we should be expecting the year to look and what's the magnitude of these adjustments. If you were not to be correcting inventory? What's sort of the underlying profitability of the business?
Well, Rod, this is Mary. I think you I mean, what I mentioned, it's really key, that we get some stability from all of the stimulus measures because what's happening right now is you see a lot of volatility. There's something talked about. It doesn't get finalized. That's creating a lot of uncertainty for customers.
So, we're looking for that volatility to get resolved and for decisions to be made because we think that's holding back volume. There are some, I'll say, green shoots in China that we're observing. And then the second part is what's GM specific is we have a number of, I think, very important launches coming in the second part of the year and some of them even started in Q2. So it's hard for General Motors to put a bracket around it when it's an industry issue around giving the consumer confidence of what to expect from a stimulus perspective. And if
I could add a data point, Rod. In Q4, typically, we do have higher level of launch costs. So you saw that in Q4 of 2018, we were impacted by about $100,000,000 additional launch costs. So stripping that out in Q1 and we did take production actions of 20% year over year. There is still, as Mary mentioned, work yet to do from an inventory rightsizing perspective.
And we do see a path to making progress there in Q2 this year. And the rest of the year will be driven by launches, as Mary mentioned.
Okay. Excluding the inventory correction, I mean, was there an inventory correction that occurred during Q1? So would the underlying profitability be better excluding that?
We had flat inventory dealer inventory flattish at the end of Q4 of 2018 versus Q1 of 2019. And yes, there were actions that were taken to address it, production actions of the 20% that I mentioned. And because of the volatility that
we've seen in China, there is yet more
work to do beyond what we did in Q1.
Can you just switch to the pickup truck rollout? At one point, you talked about a $2,000,000,000 revenue upside from the new platform. I was wondering if that's still the case. There's obviously been a bit of volatility on your market share performance since you've been transitioning now with pretty low inventory so far on the regular and double cabs. What's the status of that objective?
Yes. So if you think back at the $2,000,000,000 there were a few points we made at that time. Firstly, the crew cab capacity in our K2 was constrained, and we were running at below industry averages from a crew cab perspective. And with the T1 architecture, we were able to release that constraint so that we were able to increase our penetration from a crew cab standpoint by over 10 percentage points. So that was a huge driver as we thought about the revenue opportunity.
We're very much in line from the additional revenue opportunity in crew cab mix. And frankly, you're seeing that flow through in Q4 of '18 and Q1 of 2019 as well as that's helped us offset some of the headwinds that we are seeing. In addition to that, Rod, we do have capacity increases in T1 versus K2 that we had already built in. And from a light duty standpoint, we were able to increase capacity by a few couple of tens of 1,000 units, and that drove tailwinds as well that was factored into the revenue opportunity of $2,000,000,000 So between the crew cab mix and the additional capacity, we are on track for the $2,000,000,000 revenue opportunity.
Great. And just one last quick one. You gave a range of $4,500,000,000 to $6,000,000,000 free cash flow. It's a pretty broad range. Whatever happens in China, obviously, wouldn't affect that this year since the dividends would come in next year from this.
So how do you see that evolving? What are the factors that would drive upside or the high end or the low end of that forecast?
Yes. I'd say 2 things. Obviously, part of that is driven by the fact that we have an EPS range of $6.50 to $7 So there's a natural earnings range that comes with that. And in addition to that, as you well know, Rod, it's a working capital intensive business. And we have $300,000,000,000 of commercial flows in and out happening every single year.
And depending on production timing and downtime actions that we're taking, typically that tends to drive volatility in working capital. So I would say it's earnings driven range plus the working capital seasonality that typically drives the cash flow range.
Okay, great. Thank you.
Your next question comes from the line of Itay Michaeli with Citi.
Great. Thank you. Good morning. Just a quick one on Slide 16 on the GMNA walk. This quarter I noticed that the material major cost offset the majors for pricing.
I think the last few quarters we had positive on that. Can you talk about the different factors there and how you think about that relationship in the next few quarters?
Yes. So the material on majors and the pricing on majors were typically on the light duty truck front. And as you take a step back and look at overall K2 versus overall T1 profitability, we are able to command a lot more price from a light duty T1 perspective compared to K2s. Mary mentioned our crew cab ATPs, for instance, are higher significantly year over year. And obviously, there's content that's added in the vehicle.
But from a life cycle to life cycle average perspective, Itay, that's how I would think about it in sort of quarter to quarter noise. I would say that we're comparable from an EBIT standpoint for these trucks on a like for like truck basis. Obviously, there's upside coming from the mix and the volume that I talked about. But I would say that the data point in 1 quarter is generally not indicative. It will get better between Q2 and Q4.
The way to think about it is higher variable profit perhaps offset by some of D and A leading to flat EBIT between the two trucks on a truck to truck basis through the life cycle of the entire truck.
That's very helpful. Thanks, Divya. And then just second question just on Cruise AV. Just how was progress in the Q1 relative to your expectation and the previous timetable to for crews to try to deploy by the end of the year? Just love to get an update there.
Sure. First, I think we have to step back. We are very pleased with our position and we look at this as the greatest engineering challenge of our lifetime. You look at the societal benefits that will happen when we unlock this, not to mention the multi $1,000,000,000,000 market potential. I think our approach in the way that we are doing this from a fully integrated perspective and really the only one attacking this doing it that way.
And then the continued improvement in our rate of iteration, when I look at it, I wouldn't trade our position with anyone else. We have set aggressive goals for the team to motivate them to work, in a as fast as possible. And I think we've made remarkable progress to date. So we expect to maintain the leadership position we're in now and we will be gated by safety. Safety will be the priority and that's how we're looking at this.
That's very helpful. Thank you very much.
Your next question comes from the line of John Murphy with of America Merrill Lynch.
Good morning, everybody.
Hi, John.
Just a first question on the outlook of 6 $50,000,000 to $70,000,000 because I think there's some confusion in the market. I mean, if we think about that range, it excludes any revaluation from Lyft or the PSA warrants. Is that correct? Meaning on a year over year basis, you would assume those as 0 in that $6.50 to 7 dollars range? Because I think there's some people that we think are looking at this as potential guide down with that $0.31 included.
Is that correct?
That is correct. There is 0 in terms of profits or revaluation tailwinds that we're assuming in our $6.50 to $7 outlook. That's core operating performance, if you will.
Got it. Okay. And then just a second question, and I apologize to ask a simple cadence question. I mean, if you look at the $1.10 operating EPS in the Q1, if you were to normally seasonalize it, it would kind of get you in roughly $5 to $6 range. But if we think about the incremental product that's launching, that will create some upside.
But specifically on the cost saves, the $2,500,000,000 would be about $1.75 a year. If we think 3 quarters of that, that's $1.30 and that kind of gets us into the range quickly. I'm just trying to understand how much of the cost saves you think you'll realize of that $2,500,000,000 on a run rate basis in the second, third and fourth quarter and if there was essentially nothing in the Q1?
Sure. So in the Q1, in our performancetiming, a line item in our bridge, we pointed out that there was $1,000,000,000 favorable. Within that, I would say, John, roughly about $400,000,000 worth of transformational cost savings that flowed through in Q1. To your point, we do anticipate this ramping up more in Q2, Q3 and Q4. So call it $400,000,000 in Q1 and then getting to a the run rate of $2,250,000,000 $2,250,000,000 that I had outlined in January, we remain on track for that.
And since it's front end loaded, the run rate number is pretty close to what you'll end up achieving in the calendar year as well. But taking a step back, though, on your question on earnings cadence, there's a number of factors that are driving H2 performance being stronger than H1 performance. Importantly, if you think about the downtime, we already took 23,000 units for full size SUVs in Q1. And the HD downtime that I talked about in Q2 that we're expecting, You're going to see that reverse itself. Obviously, we're not going to have SUV downtime for the rest of the year.
And once the heavy duty downtime is taken, we're still expecting flat number of units for the whole calendar year, which means H2 truck production will be higher than H1 truck production, and that's what's in our forecast. So that's an important factor as you think about cadence. When you put that together with the transformational cost actions that are ramping up more in Q2, Q3 and Q4 and the launches that I mentioned from an XT6 perspective as well as Blazer, those are all acting as tailwinds. And that's Q1 was very much in plan. And the guidance of $6.50 to $7 bakes in this cadence that I talked about, which is driven by very specific action items that we have laid out that gives us confidence in our ability to achieve that.
Hopefully, that's helpful.
That's very helpful. And then just 2 quick ones, or one that's like you meant not be so quick. But the positioning in HD currently with the current capacity, I mean, just wondering if you could sort of dimension sort of where you think you are in positioning and what the capacity currently is and where that is going in the second half of the year, just maybe in some kind of numbers, whether it be the capacity numbers or ATPs that you think you might be able to achieve or the step up in ATPs, just so we can understand the change in the HD business?
Yes. Between T1 and K2, we added some light duty capacity and some heavy duty capacity. Frankly, we're more From this is comparing T1 to K2. From this is comparing T1 to K2, transaction prices obviously typically when this early in the launch, you will see a lift in transaction prices, and we do expect that. And from the perspective of vehicle itself, as we mentioned, we believe it's going to be exceptionally strong.
And we think there's significant benefit from a transaction price perspective that will just come from the just the quality of the truck.
And just real lastly quickly, GM Financial dividend, what's your expectation for this year? And where do you think that goes?
The current expectation is flat GM Financial dividend year over year. You may recall we got $375,000,000 last year. Baked into our outlook is flat expectations. We're going to have to see from a leverage standpoint and their earning assets and residual values, how they pan out to see if there's any upside to that. But as of now, our outlook is 3.75%.
Great. Thank you very much. Sure.
Your next question comes from the line of Adam Jonas with Morgan Stanley.
Thanks everybody. First question is on trucks. Clearly, very, very strong full size and HD truck environment. I mean, we're hearing from you and many of your competitors that demand has outstripped supply. I guess, looking ahead, do you think as you look on your own supply versus demand footprint and then your competitors, how much better can this get?
It strikes many on this call that maybe this is peak truck. I don't know if you subscribe to that and whether you're you can kind of hold a peak truck or whether you genuinely think no, there is significant room for this industry to go in terms of pushing the mix and ATPs further moving into 2020?
Yes. Adam, it's Sylvia. I will take a shot at that. You have heard us talk about how we believe that the truck market is quite different when you look at that versus the overall SAAR. We have cited reasons like how the installed base is growing, the average age of the truck is growing at a faster pace than the average age of the overall light vehicle market.
We do see a distinct data point in our use cases where customers are using it for commercial as well as personal purposes. And the fundamentals point to continuing strength from a truck perspective. The penetration is at about 13% of the overall industry and you've seen that sort of flat over the last several years. And we are overall bullish because of the fundamentals that I mentioned from a truck standpoint. And within that, you've heard us talk about our own positioning as well.
And we're with the new launches, we're very bullish on our T1 franchise.
Okay. Sounds like not peak truck. The second question on cost savings. So if we're in an environment where global production is plateauing, China isn't the gift that keeps on giving anymore. Let's say just for the sake of discussion that truck mix can grind higher, but it's pretty awesome.
So maybe to get a real delta in profit, you got to attack costs. And you've been very proactive at attacking structural costs, the measures that you announced late last year. My question is, isn't there can you share some examples and maybe some opportunity you have to attack content costs and your purchase bill of materials? It strikes me, again, talking to your competitors as well that electronics costs for example and electromechanical costs around internal combustion architectures that may at the margin be antiquated which is this huge burden. I mean, you talked to some of the folks in Germany that it's 40% of their costs are electronics.
I'm not saying you're that high, but can you can that stop? Can you start to attack that through design and your new electric architecture to the point where you can get savings from your suppliers to pitch in instead of you doing all the hard work in the factories and taking all the tweets storm? Thanks.
Yes. Adam, I think it's a really important point and it's something we're focused on in every single region around the globe, be it some of the work that we did in the first quarter in South America where the suppliers came to the party, and but also we're working with them to make sure that we actually take cost out, drive efficiencies, so those cost downs are permanent. It's a culture in China with their efficiency up cost down and you'll see that is something that they are continuing to work on and material cost contenting, complexity reductions are all pieces of that. We also have very specific initiatives in the United States. Looking at how do we take out costs today and do that with our suppliers instead of to our suppliers, driving efficiency.
I'm really encouraged by the fact if you look at General Motors has really over the last several years and with the work of Steve Keefer and his team built a very strong relationship with our suppliers and looking at innovations, getting them involved early in the design phase so we get their best ideas is something we are definitely driving as well as a very focused effort on complexity reduction and focus on what customers want because it's a constant battle because you want to give the customer exactly what they want, but you want to do it in the most efficient way. So those are initiatives that are running across the company. We have assigned projects, Vice President is responsible for it and they report out on a regular basis. So completely agree and we're attacking it with quite a bit of energy.
I'm sure you will, Mary. Thanks, everybody.
Your next question comes from the line of Joseph Spak with RBC Capital Markets.
Thanks. Good morning everyone. Divya, thanks for the color on the transformation savings in the quarter. I just want to be clear, is that excludes some of the savings also that you recognize in that billing that you recognize in from Korea that's recognized in GMI?
That's right. The $400,000,000 that I referenced, which is embedded in our $1,000,000,000 does exclude the Korea restructuring. So the apples to apples, Joe, that I would think about is, of the 4 point 5 $1,000,000,000 that we said we were going to achieve by the end of 2020 and the $2,000,000,000 to $2,500,000,000 that we have laid out for this year, the portion that we have achieved in Q1 is at $400,000,000
Okay. And then if we just look at the GM and A results where it was I think that figure was $700,000,000 So basically that $400,000,000 of that $700,000,000 is the transformation in savings and that ramps as we go through the year?
Yes. There's a after $400,000,000 GM and A ends up take getting most of the savings. There's some that accrue to the other regions as well. And the other half of that, I would say, roughly is timing related. Obviously, you're comparing 1 quarter and another quarter, neither of which are run rate quarters.
So there's some noise in
there. And sorry if I missed this, but any change to the commodity outlook for the year?
We had said earlier this year that we would see $1,000,000,000 headwind from commodities and tariffs. There's been a few items that are tailwinds, Joe, as it relates to steel and aluminum backing up a little bit as well as delay in some of the 301 tariffs. There's also some headwinds from a palladium standpoint. And obviously, we're to see how the overall tariff environment plays out. We're still baking in the $1,000,000,000 And as the environment changes, we will update you guys on
Okay. And then just quickly back to China. If we just compare versus the Q4, wholesales were down like 25%, but the net income margin and JV income was up. And you mentioned some of the work and I think you also mentioned maybe some benefit from some of the adjacencies. But any more detail you can provide as to sort of what really sort of drove that income higher despite sort of the big sequential decline?
Well, I'd say there's Q4 did have the launch cost that I mentioned of about $100,000,000 And we've taken actions to right size inventory, nothing specific to add. The adjacencies are helping as well as the cost actions that Mary mentioned. We are intensely focused on cost from a China standpoint, and there's been an even more increased effort given the market environment that's happening in China. So other than that, I would just say continuing to work on inventory and into Q2, and you'll see that impact playing out in Q2 as well.
Okay. Thank you. Your next question comes from the line of David Tamberrino with Goldman Sachs.
Yes, great. Let's head back to North America and talk about pickup trucks. Within that segment right now, it's just tactically, it seems like there's a lot of donors. You're refreshing donors. You're refreshing your heavy duty for the back half, but they are as well.
And then you'll have a 3rd competitor with a mid cycle refresh coming. Just trying to wrap our heads around where the market share return is going to come for GM And how do you think about your competing within that market that certainly seems to have a little bit more supply?
Yes. Well, I'd just say from a share standpoint, it's look, we're still in the early innings from a launch perspective. And if you look at what we actually have already rolled out, it's crew cabs. And as we go through the rest of Q2, we're going to see the work trucks coming in, we're going to see regular cabs, diesel, as I pointed out, as well as HD. And as Mary mentioned, we're seeing share gains in the areas where we've already rolled out.
Crew cabs are up 20% year over year. Sierra has taken 4 percentage points of share. And I think you got to see the mix normalized before you can get insight from the noise that you're seeing during the transition.
Okay. So the point being that as you get through 2Q and maybe finish the quarter, you'll have more normalized double cabs, regular cabs and then your HD launching, which is where you'll see the share gains in the back half?
Yes. I think that's a fair assumption. And obviously, early days yet in April, but we are still seeing as we're rolling out the other variants, tailwinds from a share perspective.
Okay. This is
helpful.
Overall, David, we are seeing growth even in as we go into the start of the second quarter. So we're confident in the truck. And as Dhivya said, when we get the whole mix out there and are competing across all segments, we expect to have our rightful share.
Understood. And then on the GMF perspective, the residual values, did those come in weaker than you expected? I think you had maybe down 4% or 5% assumed for the year. Is that still the case? Are you seeing something a little worse, a little better?
Transitional values for Q1 were down about 2 percent, and we're still anticipating 4% to 5% decline in residual values year over year. And if you actually look at the Q1 performance, it was in line with our expectations. You had some puts and takes. In Q1 of 2018, it's important to note, we had some one time items from a GMF standpoint. So it's not an apples to apples comparison.
And if you look at our earning asset growth as well as our revenue growth in GMF, That's per plan. And against that, you have the residual value pressures and the credit pressures that I talked about. As well as that, it's important to note our funding plan tends to be lumpy. We go out in the market, raise unsecured and then the asset growth catches up to that. We did fund early on in this year and we are ahead in our unsecured plan, which is also causing some headwinds from a interest to net interest margin perspective.
So you roll all that together, we see a flat year over year 2018 versus 2019, and you will see this normalize in the other quarters.
Okay. I got it. So even though the residual values will get worse anticipated to get worse throughout the year, you prefunded that interest cost headwind will be somewhat negated as you grow your balance sheet?
Yes.
Okay. And then lastly, I know you got asked about it earlier from a Cruise perspective, but is there any update on timing, update on thinking as to when we can expect maybe a little bit more of an unveil or further update, because I don't think we've had one for maybe 1.5 years now since that November Investor Day on
Yes. I think you'll see updates later this year. And just from an overall, again, we are very pleased and with where we're at from a continuing rate of progress. I think many under estimate how important it is to do the deep integration that you're doing. Let me remind everybody that we have changed 40% of the components in the vehicle, understanding what it takes to have true safety systems in the vehicle when you don't have a driver, along with the fact that we're doing our testing in one of the complex environments, in the United States.
And so when you put that together, that's what gives us confidence that we've got a very strong position. We also have a very strong safety record. I mean, I think you look at one example is we have Super Cruise and Super Cruise is a technology that is being recognized externally winning a lot of awards from customer feedback once they have it. They're disappointed if they don't because it's such a great feature. And we look and we develop and we monitor to our safety standards and that's what we're going to do.
As soon as we're able to launch without the driver, we will. But I also want to remind everybody, that's just the start. There is still much more to do to take costs down from all the technologies that is in the vehicle to advance the capability of the vehicle, so it can continue to be launched in other markets to create that multi $1,000,000,000,000 market potential. So safety will gate us. We see a huge opportunity.
We think the path that we're on and the way in which we're developing this technology is critical.
Appreciate all the detail. Thank you, Mary. Look forward to the update.
Your next question comes from the line of Ryan Brinkman with JPMorgan.
Hi, good morning. Thanks for taking my question. Is there an update you can provide on the GM International restructuring front? When the transformation actions were announced in November, it was relayed 7 plants would close, 5 being in North America, which were disclosed at the time, but 2 being I think unnamed international facilities. You've taken definitive action in Korea.
China isn't the place we've really thought about you looking to reduce capacity. So should we think about South America as the next focus of your footprint actions? And how would you say you're progressing with regards to your restructuring actions in South America? And any updated thoughts on when consolidated IO might be able to reach breakeven?
So, I don't have any more details to provide. I would tell you though the plans from a GM International transformation are well underway. We just don't have anything to announce at that time, but everything is still on track.
Okay. Thanks. And then looking at Slide 16 in the appendix, can you talk about some of the factors that roll up into performance slash timing driver that was the $700,000,000 tailwind? How should we think about the proportion of that cost tailwind that relates to structural factors like the transformation or maybe more transient timing related factors?
I would say about half half. If you look at it, this was GM North America, right? From a company perspective, Ryan, we had $1,000,000,000 in performance and timing. I would say roughly $200,000,000 of that is commercial and technical savings that we typically achieve every year from a material cost standpoint. And so that you can't think of that as transient.
I would say that's continuing. Of the remaining $800,000,000 or so from a company perspective, I'd say half and half timing and half transformational actions, benefits starting to flow through. The $700,000,000 you're seeing in North America, you could take a bulk of what I just explained for the total company and the same dynamic is rolling through to North America.
Okay. And then just lastly, there's been a lot of pickup truck launch questions already, but maybe from a different perspective. There was increased media and investor attention during the quarter relative to your market share in full size trucks, with some observing that emphasizing profitability over volume, it served GM North America profit very well so far. But just question if maybe the pricing has been perhaps too disciplined. Can you parse out some of the nuance of this launch in terms of how you're thinking about volume relative to price and if there's any sort of counterpoints you would make on the market share front relative to
availability of trim
levels, etcetera? Yes. I think it is
transition. We're in launch and the launch is going extremely well. As we said before, we've started with a richer mix and we're seeing the performance already in crew cabs. And so I think you can't look at the Q1 and think that that's the performance that's going to be for the year. As Dhivya mentioned, we'll round out the entire lineup that will give us opportunities as we go through the year, not to mention the opportunities in heavy duty trucks, the opportunities in additional volumes.
So, we will be appropriately disciplined and respond to the market appropriately, but we think we've got a really, really strong truck. We're just in the middle of launching all phases of it. And we're on track to our plan and we but we do understand where we should be from a positioning from an overall market share perspective and we're focused on that as well. But we're going to do it in a disciplined fashion. And I think the way we've launched this has been very well thought through to maximize profits and make sure we have the representation that we should in the very highly profitable end of the truck mix.
I see. Thank you.
Your next question comes from the line of Brian Johnson with Barclays Capital.
Hi. I have two questions, kind of a housekeeping one, again, on pickups for Dhivya, then a broader question for Mary. Back to the question of the $400,000,000 pricing versus forms and materials cost, is crew cab and the higher crew cab, do you put that in the mix water fall or into the pricing waterfall?
Well, it's really both. To the extent that we have the mix the percentage mix of crew cabs being higher year over year, you will see a benefit in the mix bucket, Brian. The reason you're not seeing that this time is it was offset by the full size SUV downtime that we took as well, which is negative to mix. So mix is actually flat, but in reality, it's a positive number that's being offset by the downtime dynamic that's happening. And the price aspect as well to the extent that there is an increase in price, you see that in the price bucket and you look at that in
a question for Mary. I mean, we've talked over the years about the cultural change you've driven at GM and the greater focus on cost accountability, making sure you're in the right product and geographies to drive profit. But one thing I do hear from investors is if they look at GN Design, broadly speaking, both the vehicles, the interiors, the advertising, it just doesn't, in some people's view, have the kind of pizzazz as you might see. I don't always like going back to Tesla, but it's not lost on some of us that one of your design alums created their vehicle lineup. So just how are you thinking about the state of design overall at GM?
Is it an important differentiator? Or do you think it's more important to get capable vehicles out there and kind of play more of the profit and the cost gain? And if it is more important, what would you what are you trying to do to kind of move it to the next level?
I think it's incredibly important. You have to do everything to win in this market and design is a very important piece of it. I think we have a very disciplined process where we clinic data and understand the customers in segment and what they're looking for, how they view products. Full size truck is different than a Cadillac, is different than a compact SUV like the Chevrolet Equinox. And so we have a very rigorous process on how we develop trucks and really focus on putting the customer at the center as we do those designs.
But all aspects are critically important. I think if you you mentioned advertising as well. I think Cadillac is a really good example as you've seen the shift that we've made and Steve Carlisle can do a better job of telling you, but the list that we've had with Cruise with the Ride campaign has been very, very successful. And I would also say when you look at brand building, there's been tremendous improvement across all of our brands in strengthening, from the key brand metrics. So we're focused on having beautifully designed products that people want and desire and kind of got to have to having the right contenting, so we can have the right package and efficiency and affordability for the customer and win in the marketplace and then having advertising that breaks through.
But sometimes the advertising that breaks through and is most effective with the customers isn't the one that wins all the awards.
And just back to the design process, I mean, you talked about discipline and focus groups, but how do you create enough room for sort of off the wall creativity and things, the classic Apple things people didn't know they wanted until they saw it?
Well, I think, not on the design phase, but on the technology phase, Super Cruise is exactly that. And that's the feedback we're getting from customers. But as it relates to design, one of the interesting things, Brian, that we do is as we start a new product and there's advanced design where almost any designer in the company can even there's a team responsible for certain brands, certain products, but we allow every designer in the company to provide input. So that's the way we work there. I would say another great example of innovation coming from every member of the GM team is the Multipro tailgate that's part of GMC truck.
And that came through the creativity and innovation from our workforce in our manufacturing shops. So we have an innovation process where everybody can participate. I think I've talked about in the past, we also have our own version of what I'd call the Shark Tank with Synapse where we have organized competitions that people from all over the company, not necessarily in their area of work, bring in creative ideas and then chief engineers and designers are kind of the panel and their commitment when they approve an idea is to actually put it into production. So we're working hard capitalize on the incredible talent and innovation of the entire General Motors team. I've given you just a couple of examples and both, how it can happen and then processes we put in place to enable it and encourage it.
Okay. Thanks.
Your last question comes from the line of Colin Langan with UBS.
Great. Thanks for taking my question and squeezing me in. Maybe just the first, can we just recap the cadence guidance? I just want to make sure all my facts are right. The second half will be stronger than the first half.
Q1 is the weakest. So I am why that means Q2 will be slightly better excluding the mark to market on lift and PSA. And I'm not sure, did you give a number of the downtime of the heavy duty? I know in Q1, it was about 25,000 SUVs. Is there a number for Q2 that I missed?
Yes. So for your first question, from a cadence standpoint, Q1 is the weakest. Q2 will be better than Q1, but H2 both Q3 and Q4 stronger than Q1 and Q2, primarily driven by downtime. As you saw, we took 23,000 units in Q1 for full size SUVs. And as you think about the second quarter from an HD standpoint, we're probably going to have roughly 25,000 units down as well.
But that will be offset by fact that you have absence of downtime in full size SUVs as well as absence of downtime in our light duties, which we did take a week of downtime in light duties in our Silao plant in Q1. So putting all of that together, I'd say, Colin, Q1 weakest, Q2 better than that and H2 driven by volumes that I talked about before as well as the cost transformation actions, both Q3 and Q4 stronger than Q1 and Q2.
Got it. And just two last quick ones. How should we think about restructuring cash impact? Will we see that later in the year? And also what is your current guidance for the market in China?
I don't know if I missed that. I think originally you had said it would be about flat. I mean is that still what you're saying?
Yes. So from a cash perspective, we're anticipating roughly $2,000,000,000 of total cash spend, and a bulk of that will be incurred in 2019. There's about $1,500,000,000 left to be paid yet this year, and there's a tail going into 2020 as well. And from a China outlook standpoint, Mary addressed it. Obviously, lots of volatility given what's going on, and we're going to have to see how the stimulus and other measures play out.
Okay. All right. Thanks for taking my
Thank you. I'd now like to turn the call over to Mary Barra for her closing remarks.
Well, thanks everybody. I really appreciate your participation this morning on the call. I want to close by reiterating our confidence in our full year outlook of earnings per share of $6.50 to $7 and free cash flow between $4,500,000,000 $6,000,000,000 I think we have a track record of delivering on our commitments despite the industry macro challenges. And as Dhivya has said, this quarter was in line with our expectations. As we move forward, we're going to continue to seize every opportunity to manage what is in our control.
The United States, that means we're going to focus on flawlessly launching the next phase, the heavy duty full size trucks, our crossovers and our Cadillac vehicles. We're going to work to realize the 2019 transformational cost savings that we outlined last November that are on track and we're going to capitalize on the healthy economy in this country. Globally, we're launching an aggressive new vehicle lineup in China and we've secured the necessary concessions to further strengthen our Chevrolet franchise in Brazil. So while we've done much of the foundational work to right size the business and our portfolio, we know this transformation is far from over. And we also understand what's at stake and more importantly, the tremendous opportunity that is ahead of us.
And I really believe we have the leadership team, we have the vision, the discipline, the technology and the commitment and culture to create this win and to create value for our shareholders. And that's what we focus on doing every day. So thank you very much. I appreciate your attention.