Ladies and gentlemen, thank you for standing by, and welcome to the Credit Suisse Fireside Chat with General Motors Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference to your speaker today, Dan Levy from Credit Suisse. Mr.
Levy, you may begin.
Great. Thank you very much. Good afternoon, everyone, and thank you for joining. I'm Dan Levy. I lead Equity Research coverage of the U.
S. Auto sector Credit Suisse. And glad you can join for our virtual fireside chat with General Motors. Very pleased to have with me on the line Mary Barra, GM's Chairman and CEO and Dhivya Suryodhavara, GM's CFO. Promises to be a very timely topical discussion.
We're going to focus on the current state of the re ramp and the recovery as well as GM's efforts in the realms of EV and AV. We hold an outperform rating and a $33 target price on GM and we'd argue that the silver lining to today's disruption is that GM can validate it does in fact have a healthier we think, for better investor appreciation of stock. Please be advised, we we think, for better investor appreciation of stock. Please be advised we have investment disclosures for today's discussion. Please reach out if you'd like a copy.
And with that, Mary and Divya, thank you so much for taking the time to join us. Thank you. Why don't we dive right in? And I think the question that's on the minds of most people is the current state of the North America production restart. Mary, maybe you can just walk us through the current status.
What are we seeing with the supply chain, Mexico, any imported supply from outside North America? And more broadly, is there a particular constraining factor that you'd cite as most critical in returning to run rate production?
Sure. Well, thanks. Well, we did restart operations. There were operations running throughout the whole down period, our warehouses supplying dealers and also our ventilator and our mass production. So that along with the lessons learned from Korea and China and other places around the world, we have a very extensive playbook as it relates to working safely.
And so the factories in North America, including Mexico, restarted under these very extensive safety measures. I think the restart has gone fairly smoothly. I've been to 6 plants in the last 2 weeks. And talking to the workforce, we trained everyone, so they understood the whys behind the safety protocols. And I would say there's good receptivity and it's going well.
We also shared our safety playbook with all of our supply base and they've done a nice job of implementing the protocols as well in that cycle as we go forward to make sure we don't have another situation that causes production in the supply base or in General Motors to have to shut down. And so we started up on one shift. This past week, we added or adding 2nd shifts and in plants that we need to add 3, we will be doing that as well. I would say overall, the supply base, we've been working with them since the moment we shut down and understanding their challenges and issues. I think things are going well.
Clearly, as it has been reported, there's been some challenges in Mexico as everyone is facing because in North America, virtually everyone has a portion of their supply base located in Mexico. And that's mainly due to the COVID situation, which is at a different point in the curve than it is in the United States. And so we've done a lot of work working to communicate with the different governments and the federal government to make sure they understand the safety protocols that we're using, that they have been used through different points in the curve. And many of our suppliers have received the approvals they need from the different government agencies in Mexico to allow them to resume operations. And we are working the timeline of all of the supply base.
So we are cautiously optimistic. And that was the decision that we made. Obviously, starting and adding a second shift is key. I would say overall for the supply base, we have a very robust supplier financial management process in place that helps us work with suppliers to get in front of any issues. So that is underway and continues all the time as well.
So although the situation is fluid, we have a purchasing and supply chain group that deals with many things that affect the supply chain, be it weather, tornadoes, hurricanes, etcetera. And so they stand ready to jump in and I think cautiously optimistic as we restart that we'll continue and keep not only adding 2nd shifts where appropriate, but 3rd shift.
Great. Let's on this topic, just pivot to cash burn for a second. And Dhivya, you provided a really helpful framework on the 1Q call for how to understand cash burn. And I think you highlighted that in an environment $8,000,000 to $10,000,000 SAAR, your cash burn could be $79,000,000,000 2nd quarter SAAR, I think, is shaping up nicely above that environment, maybe $11,000,000 range. But at the same time, production has been slow to re ramp.
How do we think of cash burn in such a framework? Is it possible you could see higher burn if you're doing further unwind of dealer allowances? So how to maybe sensitize that framework you provided given the shift in the environment?
Yes, sure, Dan. So first of all, it is a scenario that we painted to your point to give everyone a sense of what the levers are that do impact cash burn. And the 2 biggest factors as you point out would be the level of the industry as well as production levels and production timing as well, I would say, that impact the level of cash burn we're going to have. And if you think about the drivers that I've mentioned on the earnings call, if you look at cash costs that we're incurring now or the CapEx levels that we alluded to, those appear stable. So those are, I would say, good levels to assume for Q2.
The part that's harder to forecast is going to be what is the ramp as it relates to the rest of the quarter as well as what's the level of SAR? Typically production levels will impact the both accounts payable as well as the other key working capital like AR type items. And the SAR levels will determine the sales allowance unwind. So as we look through the rest of the quarter, it is a fluid situation. But when you model it, if the retail comes in stronger, that means sales allowance unwind will be higher.
If the production levels are lower or if they happen later in the quarter that will impact the AR and AP. So clearly, fluid situation, but I think it's important to your earlier point to step back and look at the underlying business more holistically and the cash flow breakeven that we alluded to and the fundamentals of the business, which we believe remain strong.
Great. And on the current dynamics, it gives you a lot of focus on inventory. And I think the dealer base has done a good job of managing tight inventories, especially in trucks. But could we could see a scenario in which your large pickup inventory is below 40 day supply by the end of June. Is there a day supply or gross stock level that starts to become more of a concern for you?
And should we expect further pullback on incentives as stock gets tighter?
Yes. So inventory is definitely on the tighter side, especially as it relates to trucks. And the way to mitigate it, I would highlight 2 points. As Mary mentioned, as we're ramping back the different facilities, the prioritization will be on the full size truck and SUV plans and getting the vehicles as quickly as possible to the dealer lots. So that remains the priority.
But also from an efficiency standpoint, we had mentioned during the earnings call that the dealers are doing a very nice job of selling deep into the inventory. And just to give you a few examples, we are working on prioritizing faster turning models, the options, the trim mixes and colors that are that tend to turn faster. Another example is for model year 2021 as a reference point, there are orders that we are flagging for dealer review if we think this is not a configuration that might end up getting ordered or it would end up being a faster turning model. So the way to think about all of that is we are even within the level of inventory that we have today, we're becoming more efficient in terms of how to sell them. So building and refilling the pipeline is one line of defense and then selling it efficiently as a second line of defense.
And to your final question on incentives, look, we're going to continue to stay disciplined. You're going to see month to month. We will need to maintain our competitiveness and we will be very thoughtful on the lever of inventory we have and the overall go to market tactics. But we have said that we're going to remain disciplined and we will do that while staying competitive.
Great. And then just on trucks as a whole, Mary, you mentioned obviously you're at 3 ships right now. Just how easily should we think about your ability to transfer resources from other plants to your truck plants to make sure that those that level of 3 shift is sustainable? How much faster do you think trucks can reach run rate production versus other products?
So Dan, just to clarify, we added the 2nd shift this week and so we'll be looking to add the 3rd shift as we go forward. So we're running at 2 shifts right now. We've been working for weeks to make sure the plants are ready to restart with trucks in priority order because of where we're at from an inventory perspective and because of the just the demand for trucks and the importance of trucks from a franchise perspective. So if we've had to shift people back and forth that work was already done. But frankly, people are coming back and we've seen very low number of people who aren't able for any reason to come back.
So we don't really have any issues from that perspective. So then you look at supply and clearly making sure every single supplier can support 3 shifts is what we're very much focused on with an increased focus on Mexico, as I mentioned before. But and if there's an issue as it relates to components that go in multiple plants, clearly, we'll prioritize trucks over some of the other plants. We're not at that point yet, but the team knows all the levers to pull to prioritize trucks as it relates to supply based type issues that we're hoping not to have, but stand ready to pull those, make those priority changes if necessary.
Great. Let's just pivot for a second to China here. And we've seen very strong data coming out of China in April and especially May. Divya, under what conditions would you expect to return to the $200,000,000 quarterly run rate of equity income you've cited in the past?
Yes. So when you look at the China market, clearly the virus situation when it hit, it impacted an already weak industry. And you saw the impact on our Q1 equity income, which was clearly challenged. Since then, as you know, production has resumed, and we're following all the safety protocols that we had put in place and the dealers are starting to see more traffic as well. So February was clearly the peak of the crisis there.
And to your point, industry is starting to pick back up in March and recovering in April May, but it is early days, right? So we need to see how much of this is pent up demand versus more of stable recovery. So that's something we're going to watch. And when there is a sustained recovery, what we'll benefit from is the launches we have talked about together with the cost reduction measures we've put in place and the continued growth of adjacent revenue streams that we had talked about during Capital Markets Day. Those factors would come into play and when the situation resolves itself, we're expecting the return to the $200,000,000 quarterly run rate for equity income, but it is something that we want to wait and watch.
Great. Let's pivot to recovery beyond the sort of very near term items. And I want to go back, Dhivya, you commented on cash. Assuming no more shutdowns going forward, how should we think about timing and magnitude of working capital rebuild? First of all, what would you have we passed what was arguably the trough of cash burn or the worth of cash burn?
And when might we see full rebuild of the $3,000,000,000 to $4,000,000,000 in working capital, the $2,000,000,000 to 3,000,000,000 dollars of dealer allowances, however that's sensitized to the current environment that you cited in your framework?
Yes. So the two factors that we talked about production level and timing and the sell down or rebuild of the dealer inventory is basically what's going to impact those numbers, Dan. And as I mentioned earlier, if the production is weaker in Q2, it's due to a slower ramp. What will basically happen is it shifts the working capital rewind to later and therefore the net unwind that's happening in Q2 would be higher if there is a weaker production. And the way to think about the ultimate rewind even looking beyond Q2 into Q3 and Q4 is as production starts to normalize to pre crisis level, you could almost expect working capital to rewind on a pro rata basis, everything else equal.
And sales allowance, again, pro rata based on level of dealer inventory and the demand, the sell down that you're seeing there. And depending on the timing within the quarter as well, you're going to see quarter to quarter noise and volatility there as well. But the way to think about the rewind is associated with the level of activity and the specific timing within the quarter.
Great. Let's talk about mix and margins for a second. And Divya, I think that the $10,000,000 to $11,000,000 breakeven analysis, SAAR breakeven analysis that you cited, there are some mix probably too early to tell what the normalized mix will be, but it's interesting that incentives as a percent of ATP mix is much stronger. The incentives, while elevated today are much lower today than they were in 2008, 2009. And I think that supports the case for richer mix going forward and better margins.
Does this provide any hope for an improved SAAR breakeven level or that a 10% margin could be achieved in a lower SAAR environment than what we saw in recent years?
Yes. So we've talked about our North American EBIT breakeven for a number of years being in the $10,000,000 to $11,000,000 range. And clearly, as you well know, every downturn is different. And within our modeling for our downturn, we had looked at what happens if there is a mix shift away from trucks or more profitable vehicles, or what if there is a more heightened incentive environment or pricing pressures. And depending on what the specific downturn looks like and you're seeing already proof points that this particular crisis is different from many other crises.
And so depending on how those the specific downturn pans out, each downturn will be different and each variable will impact the breakeven. And as you said, it's early days on figuring out whether the more permanent shift from a truck standpoint or if incentives remain disciplined. Net net, obviously, those factors were to say it is better from a breakeven analysis standpoint. And it's just too early to tell. But I think the way to think about it is we will remain disciplined, as I said, from an incentive perspective and we are continuously looking our breakeven to see what are the cost elements, how can we get more efficient and continue to keep an eye on maintaining or improving the breakeven at all times.
Great.
Let's just talk about GMF for a second. Divya, you've mentioned a target in the past of fully dividending GMF's net income to the auto co sometime over the coming years. How does coronavirus or what the disruption we've seen to GMF impact those plans? Does that still impact?
Yes, I'd say it's very much intact. If you as an example, if you saw what happened in 2018 when we instituted a dividend and had a $400,000,000 dividend to the parent approximately, We said this year, earlier in the year that we were expecting to at least double that. And we're on track now to achieve that level in 2020. And in simple terms, the way to think about GMF is we have been growing the book to get to full captive levels and achieve the penetrations that are appropriate for a full captive over a number of years. And during that time period, what you need to do is to obviously hold on to the equity, at the FIMCO level to support that level of growth.
And now as the metrics are starting to mature and the Finco is starting to like stabilize and the book gets closer and closer to an optimal level, that's the factor that ends up determining how much dividend gets sent back up to the parent and that trajectory remains. And if anything, the crisis has proven the benefit of the Finco and how important it is to our customers and to our dealers during times like this. And you'll see the Finco continuing to grow their book and you will see us once we get there and starting to inch up the dividend to achieve 100% net income to dividend conversion. And so that goal remains unchanged.
Great. Let's just talk for a second about the risk potentially of a second wave of shutdowns. In the event there is a second wave of production shutdowns, Mary, to what extent would that play out differently for you than what we saw over the past few months? Are there less inefficiencies in a potential second wave of shutdowns as you've already lived through the experience over the past few months?
Well, I think there's several things that are going to be a driver if there's a second wave or not. And it's really the next several weeks are going to be critical for us to watch in the United States to see what happens. And then in other regions as the curve starts to go down and how people resume some type of activity. We do and I've had this conversation in several regions. I think the hospitals are much more prepared to have the right personal protective equipment, the right number of beds, the right number of ventilators.
And so I believe the hospital systems are ready if there is a slight rise. I'm hoping the mindset of the U. S. Is also that people will keep social distancing, wear masks as appropriate because we've all learned that that's very, very important as we learn more and more about this virus. So those are all things we're watching.
From a cost perspective, we were quickly able to take out significant costs and we're being very conservative as we start to ramp back up of what costs we turn back on to make sure that we have a lower cost structure through this year. And then I believe we'll come out of this with a lower cost structure that is permanent with everything we've learned of how we can do things better, faster and with less cost. I would also say through the period of the learnings from China, the learnings from Korea and what we've been doing in the United States, we have not had a facility spread case. So we believe very strongly that the environment that we're creating in our operations, people can come and be safe. In fact, I've had several employees tell me they feel safer than they do going to a grocery store.
And so, we think we have the right protocols in place. And so that is something that and that's why we've worked so hard to make sure our entire supply base is following those same protocols because I think that will be a different than kind of the hammer that fell on everyone to shut down that if there's an issue, it can be much more surgical, be addressed and then people can come in and go back to work. So we're watching many things, but I think that the key message is with the amount of costs we took out, we're not going to immediately turn that back on. We're going to stay very conservative and we're also working a number of scenarios to be ready if things are if we do get into a second wave that is more serious, but also not precluding from if there's opportunity as well. So we're trying to make sure we're ready for a wide range of outcomes.
And you mentioned potentially lower costs going forward. What are the types of things that beyond a restart that are more permanently out of the cost structure that you'll just be more vigilant on? Well,
I think there's a number of things as we look at how we can eliminate complexity. We want to make sure we go to market with what customers want to buy, but we think there's still significant work we can do from a complexity reduction perspective from the number of architectures we have to the complexity within a platform. Dhivya mentioned earlier that making sure we have the right configured vehicles and don't create those vehicles that are less desirable. There's been a lot of work going on there. I would also say just a lot of our processes.
We found things when you go through something as severe as this and transition works to home, it really causes you to look at every single thing you're doing and is it really adding to the company every line item. And so that work, again, we have found things that we don't need to do. We have found things that we can do more efficiently. And then the core of taking cost out through the whole value change by having the right level of complexity, I think, will be very, very important. So this also supports our dealers, supports our suppliers, allows them to be more efficient and simplify and streamline, which I think is going to be beneficial.
And then the other thing I would add is I think there we've seen customers become very demand and comfortable with doing most of the vehicle purchase online, having contactless delivery or clean delivery as we call it. And so I think we're going to see permanent changes there, some of which will allow us to take cost out between ourselves and our dealers to better support the customer.
Great. Let's talk about aftersales for a second. And this is a piece of business that I would argue is overlooked by investors. I believe this business is largely the legacy ACDelco and GM Performance Parts businesses. But Mary, can you maybe give us give a brief overview of the business for folks who may be less familiar?
Because I think everyone knows the trucks and everyone knows the different piece, but this one gets maybe overlooked a little bit by investors.
Sure. So our we call it General Motors Customer Care and Aftersales and it's a division of General Motors. It's global that supplies replacement parts for GM vehicle brands and other non GM vehicles through GM's extensive network of dealers and independent aftermarket partners in over 100 countries around the world. The group CCA supports GM vehicle brands from cradle to grave with advanced serviceability that they're involved in the vehicle design phase, the development of the diagnostics and the repair procedures and the ongoing vehicle support to ensure GM vehicles are repaired properly during maintenance, during repair or a collision event. And we also provide an extensive portfolio of performance and functional and appearance accessory for all GM vehicle brands worldwide.
So this is a very important business. It's a business that we have been growing. When you look at our opportunity in China as the car park matures, that's an opportunity clearly with what we're doing with performance and functional appearance accessories. Some of that business was being done by others. We successfully, for instance, with floor mats brought that back in successfully.
So it's a different margin business as well. So this is very critical. We see it has a growth opportunity to it as well.
To help frame, I guess, the size or the financial impact of that business, Divya, I think we've heard in the past that customer care and aftersales generates a profit in the 1,000,000,000 of dollars. Is that still the case today?
Yes, it is a very important part of our profitability and it is cash generative as well. And it's been consistent. And we expect it to be consistent going forward, especially as the car park is aging and it's expanding. There's a few elements of this that are particularly noteworthy. This business tends to be somewhat less cyclical than the rest of the business as well.
So there is a nice kind of natural hedge that it provides. And secondly, you alluded to trucks, the service business for the trucks side of our portfolio, it's particularly attractive and it's almost 2 times that of the passenger cars. So you take a strong truck business and then you layer on top of that the after sales business that makes for a very strong and consistent profitability as well. And finally, to Mary's point, it does allow us to keep the customer within the overall GM family. And from a retention standpoint, from a core vehicle business perspective, it is an important element as well.
So we're not specifically going to comment on profitability, but I think your general direction that it is a significant contributor is fair.
Great. Thank you. Let's pivot to the longer term strategy of the business, AV, EV. And Tivi, I want to start with a question on investment. And I think the message on your recent earnings call is that AV, EV spend is on track.
Post this crisis, is there anything that prevents you from accelerating spend as you've articulated in the past? Or does the crisis just force you to dig deeper on efficiencies in the core business to make sure that that AVE spend is intact? So how to think about that spend going forward?
Sure. I think the way to think about it is the application of our capital allocation framework that we talk about normally. And the first pillar of that is what you're alluding to, which is reinvesting in the business at an appropriate level, at an appropriate rate of return. And if you think about the comments we made on the earnings call that the AV and EV spend remain on track, that's absolutely consistent with our capital allocation program. We designed it to protect our future investments and making sure that we're investing in all the right places.
And we deliberately protected the EV program, the new Altium battery as well as the new launches that we have coming up on the EV side and ensuring we had no impact from a timeline perspective in terms of launch of those vehicles. And prospectively, as we look at our future investments as well, we're going to make sure we make the right kind of investments in EV, AB as well as the core business. And from a Cruise standpoint, you did allude to ABs. Cruise is well capitalized with its own funds that are separate from GM and they're going full speed ahead on their mission. So I would say that we're well Mary,
do Mary, do you does the crisis cause Cruise to expand partnerships beyond Honda? And from an industry perspective, do you think the crisis might drive more consolidation or partnerships in the landscape, in the AV landscape?
Well, as we've seen, we do and Dan mentioned this at Capital Markets Day, we do expect to see field to narrow
excellent relationship with Honda
in many areas. We already have an excellent relationship with Honda in many areas and AV being a very important piece of it. I think with the leading position that we're in from an AV perspective, there's many opportunities with partners, potentially additional OEMs, but also with other companies to leverage the technologies and gain because I think people are recognizing that AV does require significant investment and that's why we're seeing the narrowing. So I think we're well positioned. We're looking at opportunities right now in evaluating many.
I don't have anything to announce today, but our commitment to Cruise remains very strong and obviously, getting the technology to a point where you're safer than a human driver and can take the driver out of the car is what we're 100% focused on and will continue to be.
Great. Pivoting to EV, Divya, could you maybe provide us with some of the financial parameters of the EV sharing, platform sharing agreement with Honda? And more broadly, is it fair to say that partnership, whether it be with Honda or LG, is a central aspect in allowing you to drive EV costs down and providing you with flexibility in your own budgeting?
Sure. As we've spoken about at our EV Day, one of the key elements is going to be scale and driving down the cost of the battery and overall cost of EVs and the partnership with Honda is going to contribute from a scale standpoint. And it's a validation on the overall approach with our Ultium battery. And we're very pleased with the partnership and it's something that we have evolved over years working with them on fuel cells and then on the cruise aspect of it and as well as EV now. And I can't share the specifics on the financial, but a way to think about it is, some of the payments are upfront and some are in the form of royalty in the future.
But I think the key element is that it is a win win opportunity and there's a lot of mutual respect between the teams that it's something we're very happy about.
Great. On capacity expansion, more broadly on capacity expansion and expanding in EV, Mary, it sounds like the construction preparation has started on the joint battery facility with LG. I think that's supposed to have 30 gigawatt hours of capacity initially. If you make some basic assumptions on average battery pack that arguably that capacity only accounts for maybe 40% to 50% of your stated target of 1,000,000 EVs by mid decade. And probably it says that you probably have to do some further capacity expansion in the U.
S. So how should we think of capacity expansion? Is expansion of the Fordstown Ultium battery plant sufficient? Or would you have aspirations to create further facilities? Should we be watching our Twitter accounts on this?
Well, first off, we do have room to expand at Lordstown. So I think that's very important when we can get the synergies and scale there. So we feel confident that we're going to be able to quickly install capacity and scale as customer demand increases and be slightly in front of that to be efficient with the capital. That said, we are also always evaluating other opportunities to increase the supply of sales and we are evaluating several different options. I don't have anything specifically to announce today.
More will come in the future, but we've thought through what we need because we want to have a leadership position in EVs with a wide type portfolio. And so clearly having the right cell capacity is going to be an important part of that.
Great. Before we I want to just wrap up with one final question before we go to just some of the audience questions that I've gotten. And I want to just ask more broadly on the topic of validating the improvements in GM's business model. Mary, I think for the last 10 years GM, you've really made considerable efforts to demonstrate that you're a better company today. We can go down the line between purchase balance sheet and your exit from Europe and North America sedans and doubling down on AV, EV, all of this I think adds up to a GM that's structurally a much better company today than it was 10 years or even 5 years ago.
So coming out of this crisis, what actions have you identified to make sure you are an even healthier business in the future? And for investors, like what are the one key, 1 or 2 accomplishments you'd like the investment community to focus on and made your bid to show that you're really a better company today that people could maybe better appreciate in the future?
Well, I appreciate your comments. And I do believe we entered this crisis better positioned financially because of the many business transformation actions we've taken over the past several years to improve our cost position and to improve our competitiveness. And as we suspended operations, we also moved very quickly to preserve our liquidity and protect the business. I think it's too early to forecast exactly where things will be, but we are going to continue to keep a laser like focus on our cost structure. We're going to be going through the process of 0 based cost costing environment as we go forward.
And that whole mindset has been very healthy. So you'll see us continuing to have that cost focus and to be very cash conscious and be able to seize opportunities when we go forward. And we're also moving quickly to really achieve the 0 crashes, 0 emission, 0 congestion vision that we've established for ourselves. And we're going to continue to innovate and to deliver safe vehicles to be efficient from a connectivity perspective. Services is an opportunity and really be focused on how do we exceed customer expectations, again, across a full range of vehicle segments and brands.
And I think as we deliver on these commitments with our products, as we continue to invest in AV and EV, our goal is to really lead the future of transportation by the transformation that we're making. So our focus has been over the last couple of years and we'll continue to be doing things that create shareholder value, continuing to drive for strong performance. And in areas that we need to address, We're going to continue to do that. So I think when you look at our scale between China, North America, the opportunities that we have to grow in services and our as you talked about earlier in our customer care and after sales, I think we are well positioned to seize those opportunities and be in an even stronger position as we come out of COVID and get to a post COVID world.
Great. I want to wrap up with a few minutes of questions from investors. Let's start with balance sheet. Divya, what are some of the signposts you need to see before you start to repay revolvers? And given what we just saw in terms of, revolver draw and debt raise, Would you in the future carry additional cash so that there is that your liquidity is even stronger in the future beyond the liquidity targets that you've highlighted in the past, I believe $35,000,000,000
Yes. To your first question, I would say, the current situation has validated the importance of a strong investment grade balance sheet. So we remain absolutely committed to that. And as we start to see the recovery here and the production ramp up and the rewind of working capital and just the normalization of operations here, you can start to see the cash starting to get generated and we will build back our cash balance and repay the revolver within that construct that remains the goal. And from a cash balance and the levels of liquidity that we have, a lot of the planning that we had done in developing the right amount of cash to hold as well as the right amount of revolver to have and the debt to have, we believe that we saw those factors get validated as well.
So there's no change to the cash balance as such. We will continue to run it with discipline and from a liquidity standpoint look to reinstate the levels back to where we were prior to the crisis.
Great. On fleets and rental, could you talk to what type of magnitude of decline we're seeing in fleet sales between rental, government and commercial? And post the bankruptcy announcement of Hertz, how much of a risk are you expecting to residual values from fleet disposals in the market?
Divya, do you want to take that one?
Sure. I would say that the fleet business clearly in March, April May has been more significantly impacted. Some of the stats we're talking about from a recovery standpoint pertain to the retail side of things. So there is an impact from a fleet perspective, but the guidance we spoke about from a residual value standpoint of 7% to 10% decline in residual values that we've baked into for 2020, that is factoring in the current dynamics that we're seeing in the used vehicle market. I would say though from the time we announced earnings and we talked about the 7% to 10%, the data points that you've seen since then are alluding to a strength in the used vehicle pricing market, obviously again early days, but we're seeing some strength there as well.
So I'd say the 7% to 10% is something we were closely watching and based on how the dynamics are going to pan out over the next several weeks months, we will revise that as appropriate.
Great. And then let's just wrap up one on Cruise. How does COVID modify the launch strategy? I believe you've said that that's largely intact. And given the pullback by some players in the AV space, do you think this is a competitive advantage?
Do you think there's an opportunity to acquire additional engineering talent in the market, although we know we've been making some cuts on how to think about the competitive environment cruise launch strategy?
Yes. So one, there was a period of time where we didn't have vehicles on the road. We had a limited fleet in Arizona. We do now have vehicles on the road in San Francisco, actually working in partnership with the community to deliver food to those less fortunate. And so and also we were able to ship quite quickly to be doing our development with people working remotely.
So our plan, I would say, is largely on track. And to your point, with others making decisions to delay or focus less, that does give us an opportunity, especially to continue to add those critical technical resources to the company and Cruise is actively adding, they I think they run a new employee as well.
Great. And with that, many more questions, but I think we're out of time. Mary, Divya, thank you very much for your time and for your transparency. Much appreciated.
Thanks for the opportunity. Appreciate it.
Great. Thanks for
having us. Thank you. Okay. Operator, you can now disconnect. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.