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. If you require any further assistance, please press star zero. 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. 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 at 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 Suryadevara , GM's CFO. Promises to be a very timely topic of 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 business model today than it had in the past, making it well-positioned for the future, and this supports the case, 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. With that, Mary and Dhivya, thank you so much for taking the time to join us.
Thank you.
Thank you. Why don't we dive right in? I think that the question that's on the minds of most people is the current state of the North America production restart. Mary, maybe you could 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 broad 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 mask production. 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. 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 six plants in the last two 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 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. We started up on one shift this past week. We're adding second shifts, and in plants that we need to add three, 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 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.
It's mainly due to the COVID situation, which is at a different point in the curve than it is in the United States. 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. Many of our suppliers have received the approvals they need from the different government agencies in Mexico to allow them to resume operations. We are working the timeline across all of the supply base. We are cautiously optimistic. 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. That is underway and continues all the time as well. 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, et cetera. They stand ready to jump in, and I think cautiously optimistic as we restart that we'll continue and keep not only adding second shifts where appropriate, but third shifts.
Great. Let's, on this topic, just pivot to cash burn for a second. Dhivya, you provided a really helpful framework on the Q1 call for how to understand cash burn, I think you highlighted that an environment of 8-10 million SAAR , your cash burn could be $7 billion-$9 billion. Second quarter SAAR, I think, is shaping up nicely above that environment, maybe 11 million range. 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? How to maybe sensitize that framework you provided, given the shift in the environment.
Yeah. Sure, Dan. 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. The two biggest factors, as you point out, would be the level of 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. 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. 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 SAAR.
Typically, production levels will impact both accounts payable as well as the other key working capital, like AR type items. The SAAR levels will determine the sales allowance unwind. 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. Clearly, a 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. On the current dynamics, Dhivya, a lot of the focus on inventory, and I think the dealer base has done a good job of managing tight inventories, especially in trucks. 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? Should we expect further pullback on incentives as stock gets tighter?
Yeah. Inventory is definitely on the tighter side, especially as it relates to trucks. The way to mitigate it, I would highlight two 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. That remains the priority. 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. Just to give you a few examples, we are working on prioritizing faster turning models, the options, the trim mixes, and colors 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. 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. Building and refilling the pipeline is one line of defense, and then selling it efficiently is a second line of defense. 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'll be very thoughtful on the level of inventory we have and the overall go-to-market tactics.
We have said that we're going to remain disciplined, and we will do that while staying competitive.
Great. Just on trucks as a whole, Mary, you mentioned obviously you're at three shifts 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 that level of three shifts is sustainable. How much faster do you think trucks can reach run rate production versus other products?
Dan, just to clarify, we added the second shift this week, and so we'll be looking to add the third shift as we go forward. We're running at two 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 just the demand for trucks and the importance of trucks from a franchise perspective. If we'd had to shift people back and forth, that work was already done. Frankly, people are coming back, and we've seen very low, a number of people who aren't able for any reason to come back. We don't really have any issues from that perspective.
You look at supply, and clearly, making sure every single supplier can support three shifts is what we're very much focused on with an increased focus on Mexico, as I mentioned before. 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 base 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. We've seen very strong data coming out of China in April and especially May. Dhivya, under what conditions would you expect a return to the $200 million quarterly run rate of equity income you've cited in the past?
Yeah. When you look at the China market, clearly the virus situation, when it hit, it impacted an already weak industry. You saw the impact on our Q1 equity income, which was clearly challenged. Since then, as you know, production has resumed. We're following all the safety protocols that we had put in place, and the dealers are starting to see more traffic as well. February was clearly the peak of the crisis there. To your point, industry is starting to pick back up in March and recovering in April and May, but it is early days, right? We need to see how much of this is pent-up demand versus more of a stable recovery. That's something we're going to watch.
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. When the situation resolves itself, we're expecting the return to the $200 million quarterly run rate for equity income. It is something that we want to wait and watch.
Great. Let's pivot to recovery beyond the sort of very near-term items. 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, have we passed what was arguably the trough of cash burn or the worst of cash burn? When might we see full rebuild of the $3 billion-$4 billion in working capital, the $2 billion-$3 billion of dealer allowances, however that's sensitized to the current environment that you cited in your framework?
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. 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's a weaker production. 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. Sales allowance, again, pro rata based on level of dealer inventory and the demand, the sell-down that you're seeing there.
Depending on the timing within the quarter as well, you're going to see quarter-to-quarter noise and volatility there as well. 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. Dhivya, I think that the $10 million-$11 million break-even analysis, SAAR break-even analysis that you cited, there are some mix assumptions. We appreciate it's probably too early to tell what the normalized mix will be, but it's interesting that incentives as a percentage of ATP mix is much stronger. The incentives, while elevated today, are much lower today than they were in 2008, 2009. I think that supports the case for richer mix going forward and better margins. Does this provide any hope for an improved SAAR break-even level? Or that a 10% margin could be achieved in a lower SAAR environment than what we saw in recent years?
Yeah. We've talked about our North American EBIT break-even for a number of years being in the $10 million-$11 million range. Clearly, as you well know, every downturn is different. 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. 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. Depending on how the specific downturn pans out, each downturn will be different and each variable will impact the break-even. 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, if those factors were to stay, it is better from a break-even analysis standpoint. 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 break-even to see what are the cost elements, how can we get more efficient, and continue to keep an eye on maintaining or improving the break-even at all times.
Great. Let's just talk about GMF for a second. Dhivya, you've mentioned a target in the past of fully dividending GMF's net income to the AutoCo sometime over the coming years. How does coronavirus, well, the disruption we've seen to GMF impact those plans? Is that still intact?
Yeah. 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 million dividend to the parent approximately. We said this year, earlier in the year, that we were expecting to at least double that. We're on track now to achieve that level in 2020. 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. During that time period, what you need to do is to obviously hold onto the equity at the FinCo level to support that level of growth.
Now, as the metrics are starting to mature and the FinCo is starting to 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. That trajectory remains. 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. You'll see the FinCo continuing to grow their book, and you will see us, once we get there, starting to inch up the dividend to achieve 100% net income to dividend conversion. 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 U.S. to see what happens. 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 within several regions, I think the hospitals are much more prepared, have the right personal protective equipment, the right number of beds, the right number of ventilators, 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 important as we learn more and more about this virus.
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. 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. 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 at than they do going to a grocery store. We think we have the right protocols in place. 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 different than kind of the hammer that fell on everyone to shut down. If there's an issue, it can be much more surgical, be addressed, and then people can come in and go back to work. 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 we do get into a second wave that is more serious, but also not precluding from if there's opportunity as well. We're trying to make sure we're ready for a wide range of outcomes.
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.
That work, again, we have found things that we don't need to do. We have found things that we can do more efficiently. The core of taking cost out through the whole value chain by having the right level of complexity, I think will be very important. 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. The other thing I would add is I think we've seen customers become very comfortable with doing most of the vehicle purchase online, having contactless delivery or clean delivery, as we call it. 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. 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. Mary, can you maybe give a brief overview of the business for folks who may be less familiar? I think everyone knows the trucks and everyone knows the different pieces, but this one gets maybe overlooked a little bit by investors.
Sure. 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. We also provide an extensive portfolio of performance and functional and appearance accessories for all GM vehicle brands worldwide. 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 parc matures, that's an opportunity. Clearly, with what we're doing with performance and functional and appearance accessories, some of that business was being done by others. We've successfully, for instance, with floor mats, brought that back in successfully. It's a different margin business as well. 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, Dhivya, I think we've heard in the past that Customer Care and Aftersales generates a profit in the billions of dollars. Is that still the case today?
Yeah, it is a very important part of our profitability, and it is cash generative as well. 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. There's a nice kind of natural hedge that it provides. Secondly, you alluded to trucks. The service business for the trucks side of our portfolio is particularly attractive, and it's almost two times that of the passenger cars. You take a strong truck business and then you layer on top of that the aftersales business, it makes for a very strong and consistent profitability as well.
Finally, to Mary's point, it does allow us to keep the customer within the overall GM family. From a retention standpoint, from a core vehicle business perspective, it is an important element as well. 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. Dhivya, I want to start with a question on investment. 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? Does the crisis just force you to dig deeper on efficiencies in the core business to make sure that that AV/EV spend is intact? How to think of 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. 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. If you think about the comments that 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 in making sure that we're investing in all the right places. We deliberately protected the EV program, the new Ultium 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.
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, AV, as well as the core business. From a Cruise standpoint, you did allude to AVs. Cruise is well capitalized with its own funds that are separate from GM, and they're going full speed ahead on their mission. I would say that we're well positioned between EV, AV, and the core business as we think about future programs.
Great. Let's talk about AV specifically. Mary, does the crisis cause Cruise to expand partnerships beyond Honda? From an industry perspective, do you think the crisis might drive more consolidation or partnerships in the AV landscape?
Well, as we've seen, we do, and Dan mentioned this at Capital Markets Day, we do expect to see a field to narrow in the autonomous vehicle space. We think Cruise is very well-positioned as that happens. 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. I think we're well-positioned. We're looking at opportunities right now and 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. Just pivoting to EV. Dhivya, could you maybe provide us with some of the financial parameters of the EV sharing, platform sharing agreement with Honda? 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. 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. 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. I can't share those 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.
I think the key element is that it is a win-win opportunity, and there's a lot of mutual respect between the teams, and 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, arguably that capacity only accounts for maybe 40%-50% of your stated target of a million EVs by mid-decade. It probably says that you probably have to do some further capacity expansion in the U.S. How should we think of capacity expansion? Is expansion of the Lordstown 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. We can get the synergies and scale there. 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 cells, 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. Clearly, having the right cell capacity is going to be an important part of that.
Great. I want to just wrap up with one final question before we go to just some of the audience questions that I've gotten. 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 fortress balance sheet and your exit from Europe and North America sedans and doubling down on AV, EV. All this, I think, adds up to a GM that's structurally a much better company today than it was 10 years or even five years ago. Coming out of this crisis, what actions have you identified to make sure you are an even healthier business in the future?
For investors, what are the one or two accomplishments you'd like the investment community to focus on to make 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. 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 zero-based costing environment as we go forward. That whole mindset, it has been very healthy.
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. We're also moving quickly to really achieve the zero crashes, zero emissions, zero congestion vision that we've established for ourselves. We're going to continue to innovate, 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. 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.
Our focus has been over the last couple of years, and will continue to be, doing things that create shareholder value, continuing to drive for strong performance in areas that we need to address. We're going to continue to do that. 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 Aftersales, 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. Dhivya, what are some of the signposts you need to see before you start to repay revolvers? Given what we just saw in terms of revolver draw and debt raise, would you, in the future, carry additional cash so that your liquidity is even stronger in the future beyond the liquidity targets that you've highlighted in the past, I believe $35 billion?
Yeah. To your first question, I would say the current situation has validated the importance of a strong investment-grade balance sheet. We remain absolutely committed to that. 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. 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.
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 fleet and rental, could you talk to what type of magnitude of decline we're seeing in fleet sales between rental, government, and commercial? Post the bankruptcy announcement of Hertz, how much of a risk are you expecting to residual values from fleet disposals in the market?
Dhivya, do you want to take that one?
Sure. I would say that the fleet business, clearly in March, April, and 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. There is an impact from a fleet perspective. The guidance we spoke about from a residual values standpoint of 7%-10% decline in residual values that we have 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%-10%, the data points that we'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.
I'd say the 7% to 10% is something we are closely watching, and based on how the dynamics are going to pan out over the next several weeks and months, we will revise that as appropriate.
Great. 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. 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 you've been making some cuts. How to think about the competitive environment in Cruise launch strategy.
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. Also, we were able to shift quite quickly to be doing our development with people working remotely. Our plan, I would say, is largely on track. 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. Cruise is actively adding, I think they run a new employee orientation every other week. We are definitely continuing to add through this period and now are in a position to be able to test as well.
Great. With that, many more questions, but I think we're out of time. Mary, Dhivya, thank you very much for your time and for your transparency. Much appreciated.
Thanks for the opportunity. Appreciate it.
Great.
Thanks for having us, Dan.
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.