Ladies and gentlemen, welcome to the General Motors Company second quarter 2019 earnings conference call. During the opening remarks, all participants will be in a listen-only mode. After the opening remarks, we will conduct a question-and-answer session. To ask a question, press star one on your telephone keypad. To withdraw your question, press the pound key. As a reminder, this call is being recorded Thursday, August 1st, 2019. I would now like to turn the conference over to Rocky Gupta, Treasurer and Vice President of Investor Relations.
Thanks, Stephanie. Good morning, everyone, and thank you for joining us as we review GM's financial results for the second quarter 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 Mary Barra, GM's Chairman and Chief Executive Officer, Dhivya Suryadevara, GM's Executive Vice President and Chief Financial Officer, and a number of other executives. Before we begin, I would like to direct your attention to the forward-looking statements on the first page of the chart set. The content of our calls will be governed by this language. I will now turn the call over to Mary Barra.
Thanks, Rocky, good morning, everybody. Thanks for joining the call. We achieved solid results in our second quarter on the strength of our performance in North America. Overall, we delivered net revenue of $36.1 billion, EBIT adjusted of $3 billion, EBIT adjusted margin of 8.4%, EPS diluted adjusted of $1.64, automotive adjusted free cash flow of $2.5 billion, and a ROIC adjusted of 22.7% on a trailing four-quarter basis. Strong consumer demand for full-size trucks, crossovers, and SUVs, along with our business transformation actions, drove the company's profitability. This helped offset the FX of planned heavy-duty downtime ahead of our launch and industry weakness in China. We expect our launch strength to continue in the second half of the year as our heavy-duty truck availability improves and as we launch new crossovers and entries from our new global family of vehicles.
Looking at North America, our year-over-year results improved, thanks in part to growing truck sales and share, and second quarter records for average transaction prices and crossover deliveries. Later this quarter, we'll begin delivering the 2020 Silverado with an optional all-new Duramax turbo diesel engine that delivers best-in-class highway fuel economy of up to 33 mi per gallon. GM's clear leadership in the large SUV segment continued, with deliveries of current generation models up 16% year-over-year, with lower incentives than those of our competitors. We also performed well in our crossover segments, contributing to profitability. We unveiled the highly anticipated mid-engine 2020 Corvette Stingray two weeks ago in California to a global audience of nearly 300,000. We plan to increase production of this iconic sports car and begin shipping the all-new models to dealers by the end of the year.
Looking at Cadillac, the brand sold more than 111,000 vehicles worldwide during the quarter. The XT5 continues to be the brand's best-selling model globally. The new XT6 seven-passenger crossover is now on sale in North America and China, further strengthening Cadillac's position in the high-growth luxury SUV segment. In the U.S., the XT6 is off to a strong start ahead of its official launch. Dealers and media have given us very good feedback, and the XT6 brings new interest to the brand. Cadillac is also expanding the functionality and range of its Super Cruise hands-free driver assistance technology in the U.S. and Canada. We are adding 70,000 mi of compatible divided highways. By year-end, CT6 owners will be able to operate Super Cruise on 200,000 mi of highways.
More than 85% of current CT6 owners said that for future vehicle consideration, they would prefer or only consider a vehicle equipped with Super Cruise. Dhivya will provide additional details on our business transformation action shortly, but I would like to update you on the progress toward offering relocation opportunities to hourly employees at U.S. plants that have unallocated products. There is a job for every impacted employee. To date, about 1,700 of the 2,800 employees have accepted transfers to plants supporting growth segments, and we are working actively to place more employees into open positions. As we look at our international operations, in China, the continued economic slowdown has resulted in a softer industry. GM China headwinds in the quarter include lower volumes, significant pricing pressure, regulatory changes, slower sales of our outgoing models, and shifting customer preferences.
Even as we launch new vehicles in Q3 and Q4, we see many of these dynamics continuing. We expect equity income in the second half of the year will be generally in line with the first half. In South America, we continue to work with our stakeholders to turn around the business and capitalize on Chevrolet's 18 years of sales leadership in the region. In addition to the actions we're taking to strengthen our core business, we are also making important strides toward our vision of an all-electric self-driving future. We recently revealed a new digital vehicle platform that will fully integrate our electric propulsion systems, cybersecurity protections, advanced active safety systems, and Super Cruise technology. This platform also enables more systems in the vehicle to receive over-the-air software updates, including telematics, chassis controls, and more. This will deliver value and convenience to our customers.
Following its debut on the Cadillac CT5 and the 2020 Chevrolet Corvette Stingray, it will expand to most of our global lineup by 2023. We are also working to drive greater customer acceptance of EVs by addressing their concerns about range and charging availability. In addition to earlier infrastructure announcements we've made, we've partnered with Qmerit, an online platform that links EV owners with GM-approved installers of home charging systems. Turning to Cruise. In May, Cruise secured an equity investment of $1.1 billion from a group of institutional investors, including funds and accounts in T. Rowe Price, and existing partners SoftBank and Honda, and a $700 million investment from General Motors. These additional investments now value Cruise at $19 billion. We have said from the beginning that the benefit of self-driving vehicles will only be realized by deploying safely and at massive scale.
For the past four years, Cruise has been creating the necessary building blocks to do just that. It has expanded its workforce, raised billions in capital, achieved deep integration with General Motors, and focused on testing and development in one of the most complex urban environments. It recently took steps toward large-scale deployment of an all-electric autonomous vehicles in San Francisco, where driving conditions are 40x more challenging than in a suburban setting. In the second half of this year, Cruise will significantly accelerate testing and safety validation of its fleet and increase the number of miles driven. Cruise will also increase its community engagement and continue to scale electric vehicle infrastructure build-out. In addition, hundreds of talented Cruise, General Motors, and Honda engineers are developing a next-generation, purpose-built AV that leverages our leadership in hardware and software integration and related safety validation.
It has become clear that to successfully deploy at scale, we need to not only win the tech race, but we need to build trust with consumers. That is exactly what we intend to do. To recap, we delivered a solid quarter as we begin to demonstrate the earnings power of our full size truck business and our ongoing transformation. We are committed to our full-year outlook that includes earnings per share of $6.50- $7 and automotive free cash flow of $4.5 billion-$6 billion. Dhivya Suryadevara will now give you more details. Then we'll take your questions.
Thanks, Mary, and good morning, everybody. We generated Q2 results of $36.1 billion in net revenue, $3 billion in EBIT adjusted, 8.4% margins, $1.64 in EPS diluted adjusted, and $2.5 billion in adjusted automotive free cash flow. The $1.64 EPS diluted adjusted includes a $0.01 loss from our Lyft and PSA revaluations. Let's North America. North America delivered EBIT adjusted of $3 billion in Q2 and 10.7% margins, driven by our light-duty truck performance, crossover performance, and the impact of our cost actions. This was partially offset by planned downtime for heavy-duty pickup trucks, lower pension income, and increased depreciation. The light-duty truck performance contributed favorably to volume, mix, and price during the quarter.
As Mary mentioned, we're in the early stages of demonstrating the earnings power of our leading truck franchise and see additional opportunity for upside as we complete the launch of the heavy-duty trucks and looking into next year, the launch of the full-size SUVs. The heavy-duty trucks will follow a similar cadence as the light-duty truck launch, focusing first on the crew cabs, followed by the double, and then the regular cab models. Retail sales of the new Chevrolet Silverado and GMC Sierra light-duty crew cabs were up double digits for the second straight quarter as we continue to ship additional models to dealers. The retail market share of our light-duty pickup trucks improved nearly three percentage points from Q1 to 36.5%, the highest in the industry.
We've done this with a very thoughtful launch strategy and a disciplined use of incentives, with share growth concentrated in the over $50,000 average transaction price segment. We have leading retail share in the crew cab segment. As we continue the light-duty truck rollout in Q3 and Q4, we expect share in the high value and high volumes of the market to increase. We also see opportunity for share improvement as we tap into profitable fleet business and launch diesel models later this year. Switching to crossovers. Our crossovers performed well in the quarter, with U.S. deliveries growing 17% year-over-year, a Q2 record. We're gaining market share in the crossover segment and are seeing positive contribution to year-over-year profitability. We will keep expanding our crossover portfolio with the 2020 Encore GX and 2021 Trailblazer, which we revealed in May.
Cost pressures from increased depreciation and lower pension income were more than offset by our transformational cost savings. Let's move to GM International. For the second quarter, EBIT adjusted in GMI was down $200 million year-over-year, driven by lower equity income in China, partially offset by the favorable impact from restructuring actions in Korea and continued business improvement actions in South America. In China, Q2 equity income was down $400 million year-over-year from record Q2 2018 levels. Industry in China deteriorated further in Q2, and the market experienced significant pricing pressures, including pricing disruptions from the early transition from China 5 to China 6 emissions requirements in many provinces. We reduced dealer inventory by 10% in Q2, with wholesale volume and production down approximately 25% year-over-year, which more than offset reduction in retail sales by approximately 12% year-over-year.
These headwinds were partially offset by continued material and other cost performance. In the second half of the year, we expect these ongoing headwinds to be partially offset by vehicle launches. As a result, we expect equity income in the second half of the year to be generally in line with first half of 2019. In South America, we continue to make progress on the turnaround of our business, despite the volatility in the region. We're starting to see cost savings as a result of business improvement actions that we're undertaking together with other stakeholders. We have a strong franchise in South America with leading market share, strong dealer network, and efficient manufacturing operations. We expect to see improvement as we progress through the remainder of the year as a launch for our global family of vehicles ramps, and we deliver a stronger, more competitive portfolio of vehicles.
A few comments on GM Financial, Cruise, and our Corp segment. GM Financial posted record quarterly revenue of $3.6 billion in the second quarter, and EBT adjusted of $500 million, primarily as a result of portfolio growth. Cruise costs were $300 million for the quarter, on track with the approximately $1 billion communicated previously for the full year as we increase our headcount. Corp segment costs in the second quarter were $200 million, unfavorable $200 million year-over-year, due to approximately $170 million gain from our Lyft and PSA investments in the second quarter of last year, and a loss of approximately $30 million in the second quarter of this year. We continue to expect the underlying spend in the Corp segment to be about $1 billion in 2019.
We have made significant progress on our transformational cost savings initiatives, achieving $1.1 billion in year-to-date savings, $700 million of which was in the second quarter. Before I close, I want to reiterate our outlook for the calendar year. At the beginning of the year, we outlined a number of puts and takes in our outlook, including headwinds from downtime, depreciation, pension, commodities, and weakness in China. On the tailwind side, we discussed the full-year benefit of our truck launch, $2 billion-$2.5 billion of transformational cost savings in 2019, growth in adjacencies, and a meaningful benefit from crossovers and the rollout of our global family of vehicles. Since January, we have experienced continued weakness in China and volatility in South America, which is offset by favorability to our previously communicated $1 billion headwind year-over-year from commodity and tariffs.
We are reiterating our outlook with EPS adjusted in the range of $6.50- $7, and adjusted automotive free cash flow in the range of $4.5 billion-$6 billion. As I have mentioned before, this outlook assumes zero performance from our investments in Lyft or PSA, and any impact from these investments is not included in our guidance. Regarding cadence in 2019, we expect the second half of the year to be meaningfully stronger from both an EBIT and free cash flow perspective due to a number of launches in the second half, as well as cycling past the downtime in North America. We had solid performance in Q2, and this sets us up well for strong performance in the second half. This concludes the opening comments, and we'll now move to the Q&A portion of the call.
Thank you. To ask a question, press star, then one on your telephone keypad. To withdraw your question, press the pound key. We'll pause for just a moment to compile the Q&A roster. Your first question from the line of Rod Lache, Wolfe Research.
Good morning, everybody.
Good morning.
I had a few questions about the guidance. First of all, the full-year guidance for free cash flow is $4.5 billion-$6 billion. It was a first-half burn of $1.4 billion, so that implies $5.9 billion-$7.4 billion in the back half. If we're doing our math right, that's excluding working capital, maybe $3 billion-$4.5 billion. Wanted to know if that sounds about right to you, and my associated question is can we extrapolate from that kind of a free cash flow run rate ex working capital, which would imply $6 billion-$9 billion annualized free cash flow at this point, or is there some kind of seasonality or something else that we should be taking into account when we do that math?
Yeah. Thanks, Rod. I think directionally, you're correct. As you think about the second half of the year from a free cash flow perspective, the strength is going to be driven by EBIT improvement as well as the working capital rewind that we're going to experience as we cycle past the downtime. Extrapolating I don't want to provide guidance beyond 2019, but I'll give you the puts and takes. We are going to continue to see benefits from our truck launch. We're going to see the remaining cost savings flow through into 2020. As you may recall, we also talked about our capital spend, a tailwind from that in 2020 as well, partially offset by lower China equity income dividends flowing into 2020.
I'd caution you, though, extrapolating off of the second half, there are some timing items like the working capital that you mentioned, as well as first half versus second half. Some payments are lumped in the first half of the year, and you can't really do a times two in the second half. Directionally looking at the puts and takes, I'd say you're correct.
Okay, great.
Rod, I'd say also, Rod, you heard us say in the beginning of the year, we have an intense focus on cash flow and cash conversion. As we go beyond 2019 into 2020, you're going to continue to see us reiterate that as we go forward here.
Yeah. It sounds like generally those payments are lumped into the first half, which that's helpful to get some color on how to think about that. Is it reasonable to assume that CapEx comes towards the low end of your guidance? You did comment in your release about the timing of China dividends being a little bit unusual this year. What's included in the back half from China?
We would say the remaining dividends that we have not yet received from China will flow through. It's more evenly distributed this year between first and second half than it has been last year. From a next year perspective, timings, there's, as you know, in the first quarter of the year, we tend to, from a seasonal perspective, pay out a number of payments as well as the accounts receivable and accounts payable rewind typically happens at that time. I'd say those two are the primary adjustments that I would think about. China dividend, you can expect a, again, similar kind of a cadence in 2020, probably as you will in 2019.
Okay.
From a CapEx standpoint, I'd say we gave the range of eight to nine. We would continue to do that. Obviously, there's timing among quarters, and I wouldn't read too much into that at this point in middle of the year.
Okay. Just lastly, your expectations for China. Can you just broadly talk about what the inventory situation is for you? You're talking about back half being flat with the first half, but the first half, at least the second quarter included a significant inventory correction. What's the underlying business look like for you, and what are some of the puts and takes there?
Yeah, sure. We did unwind 70,000 units or so of inventory. About 10% of our inventory did unwind in the second quarter. As Mary mentioned in her comments, as we think about the industry, obviously, we've just cycled past the China 5 and China 6 transition. There is likely to have been some pull ahead, and we got to watch that. We just don't know yet. From a pricing standpoint, again, driven by this transition, we experienced more pricing pressures in Q2. That's something to keep an eye on. As we look into the second half of the year, a slightly weaker industry and uncertain price environment, but really offset by the launches that we have. Significant launches in the sweet spot of the segments with 2/3 of our launches coming from crossovers. All the positives from a launch perspective, we continue to expect.
We're keeping an eye on macro.
Great. Thank you.
Our next question comes from the line of Ryan Brinkman with JP Morgan.
Hi. Thanks for taking my question. Congrats on the quarter.
Thank you.
Clearly some moderation in your China profit outlook was expected given the softer volumes in the first half. Just curious though, if you are now calling for a sequential deterioration in the industry in the back half versus the front half, as previously you were looking forward to some company-specific catalyst for higher profits in the back half, including a freshened lineup, introduction of the Global Emerging Markets platform, et cetera. I would think too, maybe you could cycle past some of the inventory drawdown in 2Q ahead of China 6. So visibility in the market there is low, I know. But if there were flat industry sales in 2H versus 1H, do you think in that environment you could manage to a higher China profit in the back half?
I think that's one element, but with the intense pricing pressure, as Dhivya said, we don't know with the intense pricing we saw to move the China 5, how is that going to carry through. Then from a GM specific, these launches are very important because we are seeing the customer preference shifting as well as we have some older models in really popular segments. I think, Ryan, it's just too hard to say with all the volatility that we're facing right now. I will tell you the team is very focused, and we have a China team that is very good at looking at every single cost opportunity. We saw that performance in the first half. We'll continue to look for that and to increase that.
Then also, we're working very closely with our partner to seize opportunities as there possibly are ups or downs in the marketplace. It's too hard to predict.
Okay, thanks. Just lastly from me, clearly the earnings power of the new full-size truck platform was on display in 2Q, but it wasn't on full display, right? Because there was still lost production during the quarter and the change over to the heavy-duty versions. The SUVs haven't launched. To help us sort of better understand what magnitude of the earnings potential of this program was on display in the quarter, can you kind of sketch out what has launched, what has yet to launch, SUVs, high-efficiency diesels, the even bigger pickups with Navistar, et cetera, and the relative profit potential of those various pieces?
Yeah, Ryan, I'd say if you think about the first half, we started out with crew cabs, as we talked about. Towards the second quarter and really going into third quarter and fourth quarter is when you're going to see the rest of the light duties start to normalize, the remaining variants, whether it's regular or double. Diesel is an important factor that Mary pointed out. We're excited about that, and that's going to be coming up next in the Q3 timeframe, followed by heavy duties. If you think about the first half of the year, we took downtime of about 25,000 or so units in heavy duties, which to your point, was an offset against the light-duty earnings power that we saw. You are not going to see that in the second half of the year.
In fact, with the additional capacity that we have added for both light-duty and heavy-duty, you're going to start to see tailwinds from volume because we have been constrained on these as we've been in the past few quarters and years here. Plus side would be the remaining light-duty variants including diesel, the heavy-duty going into next year, obviously the SUVs. Absence of downtime as well as obviously the price and mix benefits that you'll start to see in HD and other variants that we have so far seen in crew cab.
Very helpful. Thank you.
Our next question comes to the line of John Murphy with Bank of America .
Hi, good morning, everybody. Just really wanted to make sure I followed up and got that correctly, Dhivya, on the truck side. Basically, in the first half, we had the HD downtime and the SUV downtime. The HD pickups will benefit us sometime in the third quarter, mostly in the fourth quarter. The SUV bounces back in the intro is in the first or second quarter of next year. Because it looks like, with this truck swing, it's something well north of a $ 0.5 billion per quarter once this all gets worked out.
Yeah, I'd say the cadence that you've roughly gotten is right. We have not talked about the SUV timing specifically. It'll be early next year. I think directionally you're correct in terms of the tailwinds that we will start to see in the second half of the year. First, you'll see that in light duty's remaining variants. Then go into heavy duty, probably in the Q4 timeframe. Obviously into next year, then you'll see the SUVs. I'd say you're directionally correct.
Okay. Is there any reason that we should think that second quarter is not a good quarter to walk off of when we think about those improvements? It seems like this was just a very good operational quarter, and then you'll get the benefit of those going forward. Is there anything unusual that we should think about that wouldn't make this a good base case to work off of?
No, I'd say it's a pretty good base case. Obviously, you've got to adjust for the heavy-duty downtime that we took in the second quarter that you can't extrapolate that into the rest of the year. Cost savings, as you know, we achieved the $700 million, so that's also on a kind of a run rate that you can continue to expect for the rest of the year. We will probably see some tailwinds as well coming from the XT6 launch, which we're just starting to see, and probably second half of the year will be more of a tailwind than we've seen in crossovers because of that. I'd say otherwise Q2 is a good baseline.
Okay, helpful. Second question. When we think about GM Financial, obviously it's performing very well. We keep kind of following up on this question, when do you see it sort of at a maturation point where it can start taking some capital back up to the parent company?
Yeah. I'd say that last year, you may recall, we took about $375 million of dividends from GMF. They're still growing their earning assets, and we're close to about $100 billion of earning assets. When we think about steady state for GMF, we're thinking somewhere in the $125 billion-$130 billion range for earning assets. It's going to take a couple of years for that to take hold, and the penetrations we were running at in the 45%-50% range, which is something we would like to see continue. Capital, as the leverage ratio continues to grind down with the equity building up and earning assets leveling off, we're going to see that dividend increase over a period of time. Eventually, you're going to see the entire net income from GMF come back to the parent.
Got it. Just lastly on suppliers. We've heard a lot of noise about some slight incremental pricing pressure coming into the supply base. I'm just curious, as you look into your relationship with suppliers, is there any stress building in the supply base? Sort of conversely, is there any more opportunity to work more collaboratively with them and get more pricing out of the system?
We've worked over the last couple of years to build a really strong relationship with our suppliers and focusing on innovation. When we focus on price and cost, it's doing it together and looking how can we work together to take cost out that benefits both General Motors and the supplier. We're going to continue to do that and look for those opportunities, and build on that. I don't see any major change coming. I think what you'll see us working even more closely together.
Mary, I apologize. If I could sneak one more in. It sounds like you got 1,700 of the 2,800 United Auto Workers folks relocated. I'm just curious when you think outside of the headcount of the UAW, if you could just talk about your hiring in the U.S., maybe more broadly in the growth in the employment base, so we could just understand sort of your position in the employment picture for the U.S.
Are you talking about from a represented workforce or from a salaried workforce?
More from a total workforce, because it sounds like you're about almost 2/3 of the way of relocating these workers. I'm just curious in total.
So, on this, I believe [crosstalk].
Particularly thinking about Cruise.
I didn't hear your last comment. I'm sorry.
I'm sorry. Particularly thinking about the growth in Cruise as well, right?
Sure.
Real headcount growth in certain areas.
I think you have to look at it in three buckets. As we said, we have jobs for every single hourly employee in the U.S. that was impacted by the transformation, and we'll continue to do those placements, and then look at what is natural retirement. I predict by the time we get through this, we'll be hiring for the needs that we have across the U.S. That's from a represented perspective. On the salaried workforce in general, we very carefully planned the transformation activities, not only reducing our overall salaried headcount, but also making sure we had resources with the right skill sets. That went very well. We are hiring now to replace attrition, but maintaining the lower cost level that we've worked so hard to get at Q4 and Q1 of this year.
As it specifically relates to Cruise, we have about 1,500 employees there now, and we are working hard to hire and get to the level of about 2,000 by year-end. The hiring is going very well there.
Great. Thank you very much.
Our next question comes from the line of Joseph Spak with RBC Capital Markets.
Thanks. Good morning. Wanted to get back into the pickup truck market dynamics. I know there's a lot of noise out there, as you just laid out, you still have a lot more product to go. You've added some capacity. I know you're not giving 2020 guidance, at a high level, is there any reason to believe that if the market holds up, that the volume on the pickup should be materially different than what you expect this year? Is there anything internally at GM, maybe a quick refresh of a product or something that would reinvigorate some downtime?
We're not anticipating any specific downtime related to a changeover or anything, Joseph. I'd say probably can extrapolate normal run rates excluding downtime and plus the capacity we've added.
We've been in a ramp-up type mode, and obviously, you'll get to a full line rate as you cycle past the downtime. In a similar macro environment, and we think that, again, the truck market, with its percentage penetration of the industry, continues to be healthy, and we would expect, I think you're directionally right for the volume.
Okay. Secondly, on GMI ex China, I know it's still a challenge, and you sort of mentioned this, there's some, I guess, encouragement underneath. It looks like it was $200 million better year-over-year. I'm assuming FX was still probably a headwind within that. How do we think about the opportunity in, I guess, really Brazil and South Korea as we go forward?
If you just kind of cycle through from a Korea perspective, we accomplished what we set out in the restructuring, and now we continue to see that business unit perform. We still have a few markets in GMI that we're evaluating to look at how do we create a successful foundation to build on in a few of the GMI markets. In South America, we have a very strong franchise there. It definitely is being impacted by FX and the macro situation. We continue to work with all of our stakeholders, though, to take cost out, and that team has demonstrated a great ability to do that. We continue to find our plan for that region to take into account. We think that there's going to just be a continued volatility.
I think important to note in many of these regions, though, is we are just in the process of doing the first global family of vehicles that will be rolling out not only in China but also South America then flow to some of these other markets. I think we're going to have a very strong portfolio and vehicles in the market to take advantage as South America recovers or to continue to outperform even if we keep in this market. There's great focus on all of these markets. We are seeing improvement year-over-year, we'll continue until we get this region to be contributing and covering its cost of capital.
Just to follow up, would you classify the potential improvement in South America more driven by the fixed cost reduction from working with those stakeholders or the launch of the GEM platforms, which, as you've indicated in the past, should be more profitable than the outgoing?
I think it's both. All of them are significant in helping us achieve where we need to go in South America.
Okay. Thank you.
Our next question is on the line of Itay Michaeli with Citigroup.
Great, thank you. Good morning and congrats.
Thank you.
Thank you.
Just going back to the pickup discussion, just curious how the Silverado mid trims, like the Luxury Touring trims, are performing kind of versus your expectations in the market. We are seeing some signs that the inventory there has been rising on those particular trims. I know Silverado is coming off later in the year, but just curious how you're performing thus far in the middle trims of the LTs.
Yeah, I'd say, Itay, as you know, we started out the launch focusing on the crew cabs, we've been building inventory in the mid-levels, really now in the second quarter of the year. It's also important to note we're normalizing our propulsion mix there as well. During launch, obviously, it's hard to extrapolate out of one data point on what the inventory picture needs to be because we're still rolling all these out, and there will be balancing that happens in the rest of the year as well. As I said, once we're rolling out these other variants, you will see the inventory picture starting to normalize, and we have a plan looking at the end of the year to get our inventory to exactly where we want our target levels to be.
Got it. That's very helpful. Switching back to China, and apologies if I missed this, but can you share any year-end inventory targets that you have, as well as just how this year's events might be influencing your longer-term view of profitability in China?
When we look at the inventory, we are working to be disciplined with the inventory levels, but also be prepared for the opportunities with that volatility. At the most senior levels, discussions with our partner, we're watching it very closely and giving direction to the team. We're going to manage it to get to the right level as we go forward. I'm not going to share a specific target. When you look at it over a longer term, we have a very strong franchise in China. We have three strong global brands with Cadillac, Buick, and Chevrolet, as well as the two domestic brands with Wuling and Baojun. We think it's a very strong franchise. We think over the long term, there are significant opportunities for growth.
Also, China's a very important part of our electrification strategy of seizing the opportunity in such a large market to get the scale from an EV perspective that allows us to be better positioned, I believe, in other markets like North America as we launch EVs. Over the longer term, we still see a very strong opportunity, especially with our global brands.
That's helpful. Just a quick one last question, Mary. Just given the feedback you cited earlier on the Super Cruise system, any change in plans on number of vehicles or how quickly you might roll out the Super Cruise system or how you might go to market with the next generation Ultra Cruise system?
I would just appreciate the question, and we're really excited about Super Cruise. In my career, rarely do you see a feature and technology that has such a strong support from the customer of saying, "I would strongly prefer this technology to be on my next car, or I won't buy a car without it." That, I think, is a really good endorsement of the way the technology works and the benefit and value it provides to the customer. We are in the process of rolling it out across all Cadillacs, and then we'll look for the right opportunities as we roll it out across more segments and brands in our portfolio. We'll do that as quickly as we can, but making sure that we're focused on the safety and quality of it as we do that.
As you mentioned, with Ultra Cruise, this is a technology you saw us continue to improve it with the number of places you can use it. We're going to continue to add capability, and we're very excited about it and the roadmap that we have. We'll be rolling it out as quickly as we can, with, again, having a strong focus on safety.
That's very helpful. Thanks so much.
Our next question comes from the line of Brian Johnson with Barclays.
Yes. Good morning. I want to talk a little bit about the GMNA earnings walk on the supplement slide. Can you kind of break that $700 million of performance timing? Timing would seem to imply that some of those reverse, so maybe what was that? As we think about would commodities be in performance, or would that be the material headwind, maybe less of a headwind? How do we kind of take the $4.5 billion or so restructuring cost saves and kind of look for it in this performance timing talk about that?
Yeah, sure. If you're starting with the four and a half, I'll do the total company walk for you, Brian, because there's North America versus total company. The four and a half, as you know, pertain to the total company. In the total company walk, as you can see in the cost bucket, we had performance and timing of $900 million positive, close to $1 billion. The $700 million that I referenced from the transformation cost savings is in the $900 million. There's about $100 million-ish of timing and another $100 million of commercial and technical savings that are coming from our regular material cost initiatives. Think of timing as about $100 million, and as you go into the second half of the year, this is the bucket. The cost bucket is where you will see the performance show up.
Obviously, it'll be offset by the pension and depreciation and amortization headwinds that we've talked about, but that's the geography of it. From a material cost standpoint, it will be in the materials line item within the cost bucket as well.
Okay, second question, as we go into second half North America and the lower trim levels of the light-duty truck get rolled out, how should we be thinking about the mix price walks in the second half?
Yeah, I'd say overall second half volume will be up versus first half because of the factors that I mentioned on heavy-duty being up, SUV being up, and light-duty as well, slightly up. Volume will be up. Therefore, there's an offsetting factor to your point. It'll be the other mixes rolling out. The heavy-duty negative mix element that you saw in the first half of the year will not repeat, and it'll actually be a positive that'll offset some of that. Obviously, the SUV aspect as well, you saw it down in the first half, and you're not going to see that Vol/Mix together will be where the bulk of the improvement from H1 versus H2 is going to be.
Just final question. Can you put into context the Cruise announcements, which you billed as positive in terms of testing and increasing the fleet size? Much of the tech press kind of said, indicated that robotaxis, whether it's you, Waymo, some of the startups, are still a number of years out. Maybe kind of update us on, yes, we know the safety is a getting factor, but just how you're thinking about timing.
Well, I think, anytime you're working on something that's never been done before, brand new technology, a timeline is likely to move around a little bit. We have line of sight and what we need to accomplish, both from the technology development. We have a very robust milestones that we have to achieve, and we're working hard to make sure we have the right regulatory environment as well. I'm not going to put a specific time out there. I just would say we have line of sight, and I think the significant work that we're doing to get deeper validation, more miles that we'll achieve in the second half of this year while working on improving public receptivity are going to be very important to allow us to have a large-scale deployment. That would be the comments I make regarding Cruise.
I'm very pleased with the progress the team is making, continues to make. They're pushing very hard, and this focus on not only the technology, but the environment and the customer, I think is very appropriate.
Okay, thanks.
Our next question comes from the line of Colin Langan with UBS.
Oh, great. Thanks for taking my question, and congrats on a good quarter.
Thank you.
Can we go back to pickups? You've lost a lot of, I know you've highlighted you gained retail share, but you have lost share overall in the segment year to date. What is the outlook for the second half? Is guidance predicated on holding your share from where it is now, and the benefit is just the plant being fully up and running, or do you expect it to regain share in the second?
We do see a growth in share in the lower end of the Average Transaction Price segment, Colin. I'd say that if you look at the increased share that we've had, it's been in the $45,000-$50,000 and $50,000+ type segments, obviously the more profitable segments. We expect to hold that because we were underrepresented in these segments with our K2XX product. What we're really doing is fixing that underrepresentation, if you will, as we go into T1XX. You expect normalization in the lower ATP segments. Obviously as heavy-duty rolls out, that will be the other positive as well, and diesels coming in. We do expect to increase share in the second half of the year between all the other cab variants as well as HD.
How about on the commercial side? Because on pickup, I know retail is obviously always more profitable, but in pickups, I imagine the business is still quite lucrative. Do you have plans to try to recapture some of that share, or is it just not worth chasing?
Yeah, no, we do believe that we will grow in that segment as well. As you point out, fleet in pickup trucks continues to be profitable. Not as much as retail, but profitable. We will absolutely continue to grow in that market as well. With all the capacity issues we've had and with the launch changeover and so on and so forth, that is something that has been, again, underrepresented in the first half of the year, and that's something we will correct in the second half.
Lastly, any color, I think you mentioned in your comments that the original guidance had about $1 billion of FX and commodity. Obviously, within this quarter, steel prices and other key commodities have really fallen pretty dramatically, Q2. Does that actually result in a tailwind through the rest of the year? Is that one of the factors helping offset the weakness in China?
Yeah, that's correct. You may remember, Colin, January of this year, we said a billion-dollar headwind in commodities. We did not talk about FX in that context. Commodities and tariffs year-over-year. As we sit here today, to your point, we have seen moderation in steel and aluminum prices specifically. There's a couple of commodities that are still elevated, but on balance, we think that the headwind is probably closer to half of what we originally expected, and that's serving to offset some of the international volatility that we're seeing, and that's to your point, how the guidance comes about.
Got it. All right. Thank you very much.
Thank you.
Our next question comes from the line of David Tamberrino with Goldman Sachs.
Yeah, great. Can we just get into very specifically your carryover pricing was, I think, more positive than most folks would have thought in the quarter. I didn't know if there are any specific products that you could call out, both in North America as well as in GMI, because I think that was $100 million favorable in both, whereas historically, that's typically a headwind year-over-year. I wanted to understand that dynamic on carryover.
Yeah, good question, David. In the international side, a lot of that is catch-up effects pricing that you see in Brazil and in Argentina. As you know, we try to price out in Argentina all of our effects headwinds and Brazil in line with the inflation there. That's the international piece. In the United States, as you see our carryover, a lot of it was driven by positivity in our car segment. As you know, we have significantly ramped down our overall car portfolio. It used to be a headwind from a carryover pricing perspective in 2018. As we have lower inventory there, we're able to maintain a price discipline there as well. That's, I'd say, the primary factor. Cadillac is continuing to do really well.
The residual value improvements that we're seeing in Cadillac are flowing through to the crossovers that we currently have on the road as well. Those are the two big factors I'd point out.
Okay. On the GMI side, it sounds like that could continue into the back half. For North America, is that something that should continue, even though you've got to wind down passenger cars? Looking at 3Q of 2018, you had a very strong pricing quarter, just trying to understand the dynamics there.
Yeah, I'd say we'd probably continue to see the car discipline as the inventory there winds down over time. Crossovers should be pretty strong as well. There's obviously a bifurcation between small and compact crossover versus a mid-size crossover. On the mid-size, we will see a continued positive, but pressures on the compact and smaller side. I'd say on balance, probably to your point, it's a harder comp versus last year. Maybe a little bit more of a headwind from a carryover perspective, but the car and crossover specific segments should continue to hold up.
Okay. Mary, you had a couple of questions earlier on Cruise. I want to dive a little bit more into that. It's gated by safety and regulation. What impediments are you running into from a technical and regulatory perspective, one that kind of helped drive this, I won't call it a pushout, but a little bit delayed timing from the 2019 commercial deployment. Secondly, what's the plan to improve the public receptivity for a large-scale deployment? Is it something like what Waymo's done in Phoenix so far with a technician still in the vehicle behind it and getting folks used to the technology, or should I be investing in something else?
Well, I think when we talk about deploying, our deployment will be when we can have the vehicle operate safely without a safety trainer in the vehicle. That's point one. I think to build the trust that we're looking for, a lot of it is communications. We have a very well-thought-out marketing plan that will be targeted to the first city that we plan to deploy in, which is San Francisco. Very focused for people who see the vehicles on the road today to understand them better, to be able to articulate the safety in the vehicle, what we're doing to create this safe environment, and that we can really improve road safety because of the discipline that an AV follows all the road laws and doesn't also drive under the influence of anything.
You're going to see us have a marketing campaign to engage the city so they understand what's happening and they're more, I think, receptive to what's coming. From a technical perspective, I would say just, again, as you are developing new technology and you have milestones that you need to meet to ensure that the AV is going to be safer than a human driver, you have to keep making those. Clearly, some of the enablers will be as we continue on our hiring, getting the best engineers working for Cruise on this. I think what also has happened is everybody understands just how complex this is to do well and to truly have the vehicle that can operate safely. We're on that journey.
The rate of iteration continues to be very strong, and we'll do the testing and the validation to achieve our milestones. We'll, in parallel, be working on continuing to gain regulatory approval. I wouldn't say there's impediments there. It's just work that still needs to be done. I think NHTSA understands the importance of this technology from a safety perspective, and so I think there's a line of sight to be able to get the regulatory approval. Then building that trust with the consumer is going to be important. Those are the three paths that we're on in parallel, and we're going to continue to work all three aggressively.
Understood. Just as a follow-up on the technical side, is everything underneath your control or are you reliant upon any step change in technology from a supplier at this point in order to improve that?
Everything's under our control.
Okay. Thank you, Mary. Thank you, Dhivya.
Thank you, Dave.
Our next question is on the line of Dan Levy with Credit Suisse.
Hi, good morning, and thank you for taking the questions. I want to start with just a couple quick financial questions and then a strategic question. Just first on the raw mat side, I know you talked to some of those pressures being mitigated. If I go back to, call it last year, you had, I believe, in North America, something like a $1.4 billion in commodity headwinds, and now here we are with steel back at where it was in 2017. I know that your raw mat headwinds, there's other stuff in there, whether it's aluminum or precious metals, et cetera, and that stuff has changed differently. Why wouldn't most of that headwind, that $1.4 billion headwind from 2018, reverse given where steel prices is over time? I know there's timing around the contracts.
Yeah, I think we are starting to see the tailwinds in a lot of the commodities that you're talking about, Dan. I'd say steel, we're starting to see pretty significant tailwinds and aluminum as well. There's a few other commodities that I referenced earlier, particularly palladium, which is at a level that remains significantly elevated versus even what we saw in January. Against a relatively smaller purchase value, it's quite a significant headwind. Over time, you will see things flow through, and obviously there's still uncertainty around tariffs as well, and we therefore felt it's prudent to get it to a closer to half type of a number. We had $1 billion earlier, and we're getting it now down to $500. We will keep watching it and flowing that through as we see the improvements come through.
We also have the lagged effect that we experience since these don't get indexed right away. They get indexed a little later. You'll see the improvement come through if the market continues to hold up.
On that lagged effect, what's the typical timing? Let's say steel sort of stays flat where it is right now. How long would it take to fully sort of offset those headwinds? Is it like 18 months?
We have indexed contracts for a portion of it, and we have negotiated contracts for the rest of it, and the timing is all over the place. From an index perspective, you will see a lag of about three months and having that come through. From a negotiated perspective, our contracts roll out a third, a third, a third type on a yearly basis. Some of this might be a bit more nuanced and negotiated. Not one metric that you can apply across the board.
Got it. Thank you. Just as far as the UAW negotiations go, I apologize if I missed it earlier, but have you signaled into sort of what a good placeholder bonus amount to assume in the fourth quarter? I know Ford has signaled something. I don't know if that's something you've noted.
No, we haven't. We're approaching negotiations, looking forward to having productive discussions. There are numerous topics that affect our employees and our business that we need to discuss and talk about, which we'll do, and we're looking to do that constructively. Making sure we can address business challenges in a way that allows us to really build a stronger future for our employees, for our customers, and for the company, which will benefit our shareholders. That's our approach to UAW negotiations, and we have not signaled any specific financial aspect to that.
Got it. Just want to ask a strategic question. We look around in the EV landscape, and we've obviously seen some collaboration amongst automakers trying to spread the investment. You've taken a slightly different approach so far. It's been a bit more go-it-alone approach. I guess my question is, and you don't have the same considerations in that you don't have to deal with this Europe issue, so you're not being forced into this as much. Would you ever consider allowing other automakers to use your Battery Electric Vehicle platform, sort of what VW is doing with MEB? Would that help with scale? Would that help with profitability?
Well, Dan, I would say what we are doing is we have an arrangement with Honda. Honda has already partnered with us on the cell technology and some of the electric vehicle components. I think we were actually one of the first, I think, if not the first to do that. As we move forward, we are open to working with other OEs on leveraging it even further. We're already doing that with Honda, and it definitely provides savings from an engineering perspective, and has scale benefits as well.
Scale is a crucial part to reaching breakeven, I assume, on EVs.
Scale, as I said, one of many, but scale does, especially if you get to a certain level to drive the right scale as you look at the cell and battery manufacturer, for sure.
Got it. Thank you very much.
Sure.
Our next question comes from the line of Emmanuel Rosner with Deutsche Bank.
Good morning, everybody.
Good morning.
First question around the reiterated guidance. It's obviously a lot of moving pieces, and this industry is quite volatile, but it's also a fairly wide range, despite pretty decent line of sight that you seem to have on some of the GMNA dynamics in the second half. Can you maybe just remind us what the variance factors are between sort of the high end and the low end as it relates to earnings, and even more so as it relates to free cash flow?
I would say, I think through the call, we've highlighted the fact that there's definitely some tailwinds. There's also some headwinds. I think what at General Motors we try to do is we stated the guidance at the beginning of the year. Gigi and I both remain very confident that we're going to be able to meet our commitment, we're confident in our full-year guidance. It's a very dynamic environment when you look at trade and you look at China, you look at macro conditions in some of our GMI markets. You look at the positives that we have with the full-size truck franchise, and how we're moving that forward just really early days in the launch. Also, the strength of our crossovers and the growth that we have in Cadillac.
There's definitely tailwinds, there's definitely headwinds, what we're saying is we are committed, we have definitely a line of sight, we'll work through the variability that we see or the volatility in the second half of this year to be able to deliver and maintain our guidance.
Okay. That's helpful. I guess turning to your restructuring program, it's nice to see that you're on track for the $2 billion-$2.5 billion benefit this year. There's obviously a whole other chunk of $2 billion-$2.5 billion expected to come next year. Can you maybe point us to specific incremental actions that would deliver these additional savings as we get into next year as a way to get comfort around them?
Well, I think when we laid it out, some of them are just timing of when the cost comes out, but we have very detailed plans. The fact that when we announced it, we said this is how much we'll be in 2019 and the balance in 2020, and we're on track to achieve that. It's just we're systematically executing these plans. One of the very first that accomplished was the salaried headcount right-sizing that we did in Q4 and Q1 of this year. Every single element, and it was a third, a third, a third between engineering, between manufacturing, and between SG&A. Those are all on track, and I think I'd ask that you look at what we've been able to deliver so far, and that should give you confidence that we're on track to do that for 2020 as well.
Okay. Just finally, a big driver of your China outlook seems to be product launches, especially in the profitable, attractive segment. Can you maybe just remind us specific examples of what's coming out and to the extent that it will be helpful for the 2020 outlook as well?
Well, we definitely have our GEM products that are coming out that are going to be very important. We have some crossover vehicles. Cadillac, the XT6 we think is going to be very significant. We also have some Wuling products in important crossover-type segments. The CT5 that will be launched there. If you look at it, there is many SUVs, crossovers, luxury vehicles coming out across all of our brands in Q3 and Q4 that I think will position us well. What we have seen, and why these launches are so important, as I mentioned, because we are seeing customer preferences shift to more SUV crossover. Because of the competitive nature, having an all-new model will be very significant in the marketplace.
Great. Thank you.
Our last question comes from the line of Chris McNally with Evercore ISI.
Thanks, guys. I'm probably going to revisit a little bit of some of the questions already asked, but maybe just try it at a different angle. When we look at the second half, I think everyone's thinking that's a relatively clean view of you don't have the downtime. Raw materials are probably more right-sized. When we think next year, in terms of just the walk, you obviously have cost cuts, but just any headwinds that you can call out. You talked about production and the mix, but does some of the UAW cost, do they flow through from Q4 to next year? Any inflationary pressures? Like, is D&A going to be a significant headwind again next year? Then any launch costs, whether that's content or incentives you could call out, just things that sort of bring the walk down for 2020, even qualitatively, would be very helpful.
Yeah. Obviously, as Mary mentioned, it's hard to predict what the environment in 2020 is going to look like sitting here in the middle of 2019. I think you've captured the product-related tailwinds really well. D&A and pension income are two items that we have always said are going to be secularly normalizing to a higher level for D&A and a lower level for pension. That's one item that we have actually attributed. If you remember our cash conversion, one of the factors on how it's going to normalize is the fact that these items will continue to get to their more of a natural steady-state levels. Other than that, it would be speculation if I were to be thinking of any other items.
I think we'll continue executing, and the cost savings that Mary mentioned as well is going to be an enabler as we look into 2020.
That's great. Then maybe I can just hop to a little bit more of a secular question. It's probably not as sexy as autonomous, when we think about advanced driver assistance systems, particularly in North America, not Europe, it's not mandated. If we look at the sort of the Detroit three, you've been sort of slow on the rollout of what's some pretty attractive technology. It's not that it's not available, it's essentially customers are still paying for it versus it being standard. Could you just maybe talk about the rollout of some of the low-end stuff, not Super Cruise, I'm just basically thinking automatic emergency braking. Is there a chance that becomes a standard offering product similar to the way Toyota and some of the Japanese have rolled it out?
We're committed to have ADAS across the entire portfolio. It's a segment-by-segment question that we look at to see what makes sense, because we also want to If you have so much safety technology at a vehicle that the customer can't afford it, then they don't get the opportunity to achieve that. We're trying to be very customer-focused segment by segment. We clearly have the technology, and pretty comprehensive safety technology when you walk around the vehicle. We have done some, I think, really good work to make sure if it's not standard, it's available in a first package as opposed to a last package, being receptive to what, and really giving the customer choice. We're going to continue to do that, develop the technology, have it available across the portfolio. In some cases, it'll be standard.
We're going to continue to really work on gain. I know you said not necessarily Super Cruise, I think the game-changing nature of Super Cruise also, I think is very important that we're committed to and growing the feature and functionality of it.
Okay, thank you. Much appreciated.
Thank you. I'd now like to turn the call over to Mary Barra for her closing remarks.
Well, we appreciate that everybody participated in the call this morning. As I said just a few minutes ago, as we continue in the second half of the year, I remain confident in our full-year guidance. It's based on where we're at in the truck launch and the opportunities that lie ahead, especially with heavy-duty models yet this year, and then the strength of our crossovers as well. We're also on track, as I mentioned, to deliver the cost savings associated with the business transformation and with a good chunk of it already behind us, and we continue to execute well-defined plans.
As we step back, we recognize that there are challenges, but as we look at it, the reward for overcoming these challenges and being very disciplined is that we get the privilege of working on the future of transportation, of being able to lead the industry as we look at EV and AV, and giving customers more accessibility and more choice. We are committed and fully working to win the race and make sure that we do create a stronger future for General Motors that will benefit our employees, our customers, and our shareholders. That's the dedication of the entire GM team. Thank you all very much for participating. We hope you have a good day.
Ladies and gentlemen, that concludes the conference call for today. Thanks for joining.