Earnings Call: Q2 2014

Jul 24, 2014

Summary

Q2 revenue rose to $39.6 billion, while recalls and special charges drove a $500 million operating loss. Adjusted EBIT was $1.4 billion, and H2 earnings were expected to exceed H1 excluding recalls.

Ladies and gentlemen, thank you very much for standing by, and welcome to the General Motors Company second quarter 2014 earnings conference call. During this presentation, all participants are in listen-only mode. Afterwards, we will conduct a question-and-answer session for analysts only. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded on Thursday, July 24, 2014. It's now my pleasure to turn the conference over to Randy Arickx, Executive Director of Communications and Investor Relations. Please go ahead, sir. Thanks, operator. Good morning, and thank you for joining us as we review the GM financial results for the second quarter of 2014. A press release was issued this morning, and the conference call materials are available on the investor relations website. We are also broadcasting this call via the internet. Before we begin, I would like to direct your attention to the legend regarding forward-looking statements on the first page of the chart set. The content of our call will be governed by this language. This morning, Mary Barra, General Motors' Chief Executive Officer, will provide opening remarks, followed by a review of the financial results with Chuck Stevens, Executive VP and CFO. After the presentation portion of the call, we'll open a line for questions from the analyst community. Mary Barra will then conclude the call with some closing comments. In the room today, we also have Tom Timko, Vice President, Controller, and Chief Accounting Officer, and Niharika Ramdev, Vice President, Finance, and Treasurer, to assist in answering your questions. Now, I'll turn the call over to Mary Barra. Thanks, Randy, and thanks to everybody for joining this call. On our last earnings call in April, I spoke about GM's resiliency during a very challenging first quarter. As you all know, the ignition switch recall and difficult market conditions in some parts of the world put tremendous pressure on our bottom line. Nevertheless, we remain profitable. Just as important, we also continued our steady investment in new products, and we returned more than $480 million in capital to common stockholders through our first-quarter dividend. Years of hard work to improve our vehicles, our operations, and the customer experience made this possible. As expected, the same issues continued into the second quarter, but once again, we had strong operating performance, and we earned a profit on both an EBIT adjusted and a net income basis, and we stayed on our plan. I'll speak to all these points starting on slide 2, which presents a summary of our second quarter results. Then I'll review the highlights that speak to the heart of our business, which is to build great products, satisfy customers, and do it very profitably. At the top of slide 2, you can see that we delivered 2.5 million units in the quarter. As we announced last week, this was our highest second quarter volume since 2005. Sales in North America and China, the two largest and most profitable markets in the world, were up 6% and 8% respectively. However, this was offset to a large degree by declines in markets like Russia and Venezuela, where the industry is weak, as well as the strategic decision we made to wind down Chevrolet Europe. This also had an impact on market share. Our global market share in the quarter was down 0.3 of a point. However, market share in the U.S. was equal to a year ago. On a revenue basis, we improved our results by more than $570 million, thanks in large measure to improvements at GM Financial. Turning to the bottom line, net income to common stockholders was $200 million or $0.11 per share. Combined, the recall-related charges and special items we cited in our press release reduced net income by $0.91 per share in the quarter. Absent these items, net income would have been about $1.7 billion in the quarter. Looking next at cash. Net cash from our automotive operations activities was $3.6 billion, and the year-over-year decline reflects recall activity as well as changes in working capital due to timing. What's not shown on the slide, our automotive available liquidity improved by $4 billion from a year ago. Finally, on an EBIT adjusted basis, GM earned $1.4 billion, and our adjusted automotive free cash flow was $1.9 billion. Absent recall and restructuring expenses, EBIT adjusted in the quarter would have been improved slightly from a year ago. For the first half of the year, adjusted automotive free cash flow was nearly $1 billion better than a year ago. Chuck Stevens will break all this down for you in just a few minutes. Let's look at slide 3, which presents several highlights from the quarter, starting with GM North America, where our core operating performance was exceptionally strong. In fact, our EBIT adjusted margins, excluding recalls, climbed above 9%. This marks the fourth consecutive quarter of year-over-year margin growth excluding recalls. In China, we reported record sales, and our margins improved by 0.6 of a point from a year ago. In Europe, the wind down of Chevrolet Europe is ahead of schedule, and costs are below expectations. Meanwhile, the recovery of the Opel/Vauxhall brand continues. Opel/Vauxhall sales increased 3% in the quarter and 4% in the first half. Our share was up in 11 European markets in the first half, including Germany, which share rose 0.3 of a point to 7%. in June alone, our share in Germany reached 7.6%, which is almost up a full point versus a year ago. New products have made a big difference. For example, the Mokka was the best-selling SUV in the first six months of the year in Germany. All of this keeps us on track to be profitable mid-decade. We are also targeting European market share of 8% and EBIT adjusted margins in the 5% range by 2022. GM South America, meanwhile, continues to be very challenging, with volumes under pressure across the region. Our core underlying performance in the region is improving. Finally, GM Financial continues to execute its growth strategy in order to support increased GM vehicle sales. For example, the acquisition of the Ally Financial European and Latin American businesses in 2013, as well as GMF's growth in the North America lease market helped increase their share of GM financing activity from 13% to 20% compared to a year ago. This trend should continue as GMF expands their prime retail loan program in the United States starting in the second half. The next step for GMF is to complete the acquisition of Ally's joint venture in China, which we expect to close, subject to certain regulatory and other approvals, late 2014 or as soon as possible thereafter. Let's turn now to slide 4, which discusses our recall activity in the quarter. Let me begin by stating that my total focus is to make GM the best automotive company for our customers as it relates to safety, quality, reliability, and overall value. We are not going to be satisfied by simply solving our current problems. We are completely aimed at being industry leaders. By now, all of you are familiar with the findings of the Valukas report, which was presented to our board of directors in June and then shared with NHTSA and other government agencies. I have fully embraced the report and pledged to act on all of the recommendations. Importantly, a great many were acted on before the report was even released. Actions that we have taken include elevating safety decision-making to the highest levels of the company, creating a new position, the vice president of global safety, that's Jeff Boyer, and he has full access to me and has regular reporting out to our senior leadership team as well as the board. We also reorganized vehicle engineering and created the new product integrity organization, which I am confident will improve quality, safety, and the functional performance of our vehicles through better design, execution, and systems integration. We also removed 15 employees from the company, some for misconduct or incompetence, others because they simply didn't take responsibility or act with a sense of urgency. We instituted the Speak Up for Safety program to encourage and recognize employees when they report potential safety issues and do it quickly. We've already received more than 280 suggestions. We've now added 60 safety investigators to identify and address issues much more quickly. We've aligned the legal staff to help assure transparency and information-sharing among the staffs and other business units across the entire company. Overall, we are dramatically enhancing our approach to safety. You can see it in the aggressive stance we are taking on recalls and the redoubling of our efforts. This year, we have looked at vehicles going back to the 1990s, and the results were 60 individual recalls in the United States covering 29 million vehicles in North America. About two-thirds of the recalled vehicles are no longer in production, and more than 12 million of the vehicles will be fixed by simply replacing or modifying the key. In addition, some of the recalls were quite small. We had 13 recalls of less than 1,000 vehicles and five with less than 100. The financial impact of this activity in the second quarter is outlined on the slide. A recall-related charge of $1.2 billion in this quarter. This work is now substantially complete, and I believe we have now addressed the major outstanding issues. But if we see new data, we will address it. Today, we are bringing greater rigor, discipline, and urgency to our analysis and decision-making process with regard to safety and our recalls. We are mining every source of data available to us from the factory floor to warranty information, to customer calls, to social media, to legal claims, all sources of information. We are not waiting to see if a trend develops. We want our customers to know that if we identify an issue that could possibly affect their safety, we will act quickly. With respect to the ignition switch recall itself, as I have said before, we are taking responsibility for what happened, and we are treating the people who suffered physical injury or lost a loved one with compassion, decency, and fairness. As you know, the compensation program that independent program administrator Ken Feinberg has developed will begin accepting claims on August 1. The creation of the program has resulted in a $400 million pre-tax special item in this quarter, as you can see on the slide. Also, vehicle repairs are well underway. More than 550,000 vehicles have been repaired, and we are on track to have enough kits to repair the majority of the recalled vehicles by early October. As parts availability has improved and the pace of repairs has accelerated, we have seen a corresponding decline in the demand for rental cars. This was expected. Okay, let's turn back to earnings, and I'll now ask Chuck to walk you through a detailed review of the quarter, and then Chuck and I will take your questions. Chuck? Thanks, Mary. On slide five, we again remind you of the results for the quarter. Net revenue for the period was $39.6 billion. The nearly $600 million increase from the prior year is primarily attributable to favorable mix of $1.2 billion, favorable price of $1.1 billion, increased revenue from GM Financial of $400 million, partially offset by a negative $1.8 billion associated with lower wholesale volumes and unfavorable foreign exchange of $400 million, primarily due to the weakening of the Brazilian real and the Argentine peso against the U.S. dollar. Our operating income was a loss of $500 million, primarily attributable to $1.2 billion in recall-related expenses and $1.3 billion in special charges, which I will cover in more detail later. Net income to common stockholders declined $1 billion to $200 million, and our diluted earnings per share came in at $0.11, again, influenced by recall-related expense and special charges. As Mary indicated, net income was $1.7 billion, excluding recalls and special charges. Automotive net cash from operating activities was $3.6 billion, a $900 million decrease from the same period in 2013. For our non-GAAP measures, EBIT adjusted was $1.4 billion in the second quarter, including $1.2 billion of recall-related expenses and $200 million of restructuring. EBIT adjusted margin was 3.4%, down from a year ago, again adversely impacted by a negative 2.9% due to recalls. Adjusted automotive free cash flow decreased $600 million to $1.9 billion for the second quarter. However, this is nearly $1 billion higher for the first half of the year compared to the first half of 2013, including $300 million of recall-related cash costs. On slide 6, we disclose the special items that impacted earnings per share. Net income to common stockholders was $200 million, and our diluted earnings per share were $0.11. Included in our special items for the quarter is a $900 million non-cash pre-tax charge related to a change in how we estimate costs for recall campaigns in GM North America. This reduced net income by approximately $500 million in the quarter, and I will go into more detail regarding this change on the next chart. Additionally, as previously announced, GM will implement a compensation program for those who have lost loved ones or suffered from physical injuries as the result of an ignition switch failure related to the 2.6 million vehicles recalled earlier this year. A special charge of $400 million pre-tax was taken for the GM ignition switch compensation program, which reduced net income by $200 million on an after-tax basis. There is no cap on this program, but this charge is the company's best estimate of the amounts that may be paid to claimants. Due to the unique nature of the program, this estimate contains significant uncertainty, and it is possible the total cost could increase by approximately $200 million. The impact of these special items had a $0.47 unfavorable impact on diluted earnings per share in the period. On slide 7, we give you an update on our GMNA recall expense. We have substantially completed our efforts to address outstanding recall issues and also enhanced the analytical data available, which contributed to better overall estimating capabilities. In addition, we have made several significant organizational changes, such as the creation of a new global product integrity organization and the appointment of a new global vice president of vehicle safety, responsible for the safety development of our vehicle systems, as Mary mentioned earlier. As a result, beginning in Q3, GMNA will accrue estimated recall expense at the time of vehicle sale, which will be a similar method with how we currently accrue for policy and warranty and will be in line with other manufacturers. Going forward, we expect future recall expense to normalize at levels higher, but not materially so, than levels prior to the first half of 2014. Additionally, we expect to identify issues sooner, which may result in the frequency of announced recalls increasing, but the number of vehicles per recall and the cost per recall event would be down. As a result of changing how we estimate recall campaigns in North America, we took a $900 million non-cash pre-tax special charge during the quarter. This is our best estimate of the remaining recall expense we expect for the next 10 years for 30 million GM vehicles on the road today. On slide 8, we show our consolidated EBIT adjusted for the prior five quarters. At the bottom of the slide, we list the revenue and margins for the same periods. Our operating income margin for the second quarter of 2014 was a negative 1.2%, down significantly from the prior period as a result of recall-related expenses and the special items I reviewed earlier. Our EBIT adjusted margin decreased 2.4 percentage points to 3.4%. Our consolidated wholesale vehicle sales were 1.5 million vehicles in the second quarter, approximately an 8% decrease from the prior year, and our global market share decreased 0.3 percentage points to 11.3%. On slide 9, we explain the $900 million decrease in year-over-year consolidated EBIT adjusted. Volume was $300 million unfavorable, due primarily to lower wholesale volumes in GMIO and GMSA as a result of the wind-down of the Chevrolet brand from Europe and the challenging market conditions in South America. This was partially offset by higher wholesale volumes in GM North America. Mix was $200 million favorable, primarily attributable to North America. Price was $1.1 billion favorable, due primarily to recently launched vehicles in North America, like the new full-size SUVs, full-size trucks, and vehicles such as the Corvette Stingray, as well as pricing performance in GM South America. Costs were $1.6 billion unfavorable, including the impact of the $1.2 billion in recall-related costs in the quarter, $900 million in material costs associated with recently launched products, incremental restructuring expense of $200 million, partially offset by $500 million in fixed and variable cost improvement. Other was $300 million unfavorable, primarily related to foreign exchange. Slide 10 gives our year-over-year EBIT adjusted performance by segment. GMNA decreased $600 million to $1.4 billion, including $1 billion in recall-related expense. GME decreased $200 million to a loss of $300 million for the quarter, primarily driven by $200 million in incremental restructuring expenses. The performance in GMIO improved $100 million to $300 million, and in South America, EBIT adjusted decreased $100 million on a rounded basis to a loss of $100 million for the quarter. GM Financial continued to deliver solid results with $300 million in earnings before taxes adjusted for the period. Our corporate sector was a $200 million loss, including $100 million in recall-related legal expenses, for a total EBIT adjusted of $1.4 billion in Q2. We now move on to our segment results with the key performance indicators for GM North America on slide 11. For the second quarter of 2014, our total U.S. market share was 17.9%, flat versus the same period a year ago, but up 90 basis points from the first quarter. Our retail incentive levels on an absolute basis were higher than the prior year period and slightly higher than the prior quarter. Our incentives for the quarter were 10.6% of average transaction price. This puts us at 108% of the industry average. Slide 12 shows GMNA's EBIT adjusted for the most recent five quarters. At the bottom of the slide, revenue in this segment of the business was $25.7 billion, up $2.2 billion from the same quarter in 2013. GMNA's EBIT-adjusted margin was 5.4% for the second quarter, which included the negative impact of 3.8 percentage points associated with recall-related expenses. Excluding the impact of recalls, GMNA's margin is above 9% for the quarter and is up over 115 basis points in the first six months of the year compared to the first six months of 2013. In fact, excluding the impact of recalls, GMNA EBIT adjusted margin has been up for four straight quarters on a year-over-year basis. Our U.S. dealer inventory increased to 799,000 vehicles, up from a year ago, but down approximately 17,000 units from the first quarter. This is equivalent of 72 days supply at the end of June, down from 83 days supply at the end of Q1 and up slightly from 70 days supply a year ago. GMNA's wholesale vehicle sales were 830,000 units, 21,000 units higher than the prior year. North American market share came in at 17.2%, which was a 0.1 percentage point decline from the prior year period, but higher than the prior three quarters. On slide 13, we provide the explanation of the $600 million year-over-year decrease in GMNA's EBIT adjusted. Volume was $200 million favorable due to the 21,000 unit increase in wholesale volumes, driven by a growing industry and our successful products such as the full-size pickup trucks. Mix was $200 million favorable due to our full-size trucks and products such as the Corvette Stingray. Price was $800 million favorable on the strength of our full-size trucks and all-new full-size SUVs. Cost was $1.6 billion unfavorable, primarily due to the $1 billion of recall-related expenses and material costs associated with new launches, partially offset by fixed cost savings and material performance on carryover products. Other was $100 million unfavorable due to foreign exchange. On slide 14, GME recorded an EBIT adjusted loss of $300 million for the second quarter, a $200 million decrease from the prior year. Revenue increased 6.6% to $6 billion for the quarter, and EBIT adjusted margin in the segment decreased 3.1 percentage points to a negative 5.1%, primarily attributable to incremental restructuring expenses. GME's wholesale vehicle sales for the quarter were 305,000 units, up slightly from the prior year. Our European market share was 6.8%, down 0.9 percentage points from the prior year, primarily related to the wind down of the Chevrolet brand. As mentioned earlier, the Opel/Vauxhall brand increased sales nearly 4% in the first half of this year, and market share increased eight basis points year to date. After adjusting for incremental restructuring expense and despite challenges in Russia, GM Europe is near break even and well on its way towards profitability by mid-decade. On slide 15, we provide the major component of GME's $200 million decrease in EBIT adjusted. Volume was flat as improving Western European markets were offset by conditions in Russia. Mix was also flat on a year-over-year basis. Price was flat as competitive pressure in the industry was partially offset by price recovery for foreign exchange. Cost was $100 million unfavorable, primarily due to $200 million in incremental restructuring costs, partially offset by material and fixed cost savings. Other was $100 million unfavorable due to foreign exchange. This totals to GME's EBIT-adjusted loss of $300 million for the second quarter of 2014. We now move on to GMIO's profitability for the prior five quarters on slide 16. EBIT adjusted was $300 million, including $500 million in equity income from our joint ventures. At the bottom of the slide, GMIO's revenue from consolidated operations was $3.6 billion. The $1.2 billion decline from Q2 2013 is primarily due to lower wholesale volumes in the Middle East and Chevrolet brand vehicles in Europe. Consolidated operations EBIT adjusted margin was a negative 5.7%, down significantly from the prior year, primarily related to reduced volumes in the region. Our net income margin from our China JVs remains strong at 10%, up 0.6 percentage points year-over-year. The region's wholesale vehicle sales were 157,000 for its consolidated operations and 830,000 for our China JVs, which was up 7.5% from the prior period in China. Our market share in Asia Pacific, Middle East, and Africa region was 9.7%, flat from a year ago. Our market share in China was 14.4% for the first six months of the year, relatively flat compared to the first six months of last year, as we work to keep pace with the quickly growing industry. On slide 17, we provide the major components of GMIO's year-over-year performance. Volume was $300 million unfavorable due to 83,000 unit decline in wholesale volumes in our consolidated operations. Mix was flat on a year-over-year basis. Price was $100 million favorable, primarily in our Middle East operations. Cost was a $200 million tailwind associated with the wind-down of the Chevrolet brand from Europe and lower cost in Australia, India, and Middle East markets, partially offset by incremental recall and restructuring expenses. Other was $100 million favorable due to improved equity income from our strong China operations. Going forward, we continue to expect our China business to remain strong. With regard to consolidated operations, we should see the benefit of important launches of the new full-size pickup trucks and full-size SUVs in the Middle East. Slide 18 provides a look at GMSA's performance in recent quarters. Revenue decreased $1.1 billion to $3.2 billion, primarily due to lower wholesale volumes and foreign exchange, partially offset by favorable pricing and mix. The EBIT adjusted margin in the segment was a negative 2.5%, 3.8 percentage points lower than the prior year. GMSA's wholesale vehicle sales were 211,000 units, 67,000 lower than the second quarter of 2013, and South American market share declined to 16.7% in the quarter. On slide 19, we look at the change in year-over-year EBIT adjusted, a decrease of $100 million. Volume decreased $200 million, primarily due to lower wholesale volumes in Brazil, Argentina, and Venezuela. Mix was flat. Price was $200 million favorable due to actions we've taken in Argentina and Brazil to partially offset foreign exchange in those markets. Cost was flat as incremental restructuring expense was offset by fixed cost savings. Other had a $200 million adverse impact, primarily due to unfavorable foreign exchange in Brazil and Argentina. This totals to an EBIT adjusted loss of $100 million in GMSA in the second quarter. Slide 20 provides a walk of adjusted automotive free cash flow for the second quarter. As a reminder, our net income to common stockholders was $200 million. After adjusting for non-controlling interests in Series A preferred dividends and deducting GM Financial earnings, our automotive income was $100 million. We had $800 million in non-cash special items, and our depreciation and amortization was a $1.6 billion expense. Working capital was a $600 million use of cash, the variance from prior years primarily due to production timing. Pension and OPEB cash payments exceeded expenses by $200 million in the quarter. Other was $1.9 billion, primarily attributable to recall charges during the quarter, dividends from China joint ventures, and timing of sales incentive accruals versus payments. This totals to automotive net cash provided by operating activities of $3.6 billion. We had $1.7 billion of capital expenditures in the quarter, giving us an adjusted automotive free cash flow of $1.9 billion. On slide 21, we provide a summary of our key automotive balance sheet items. We finished the second quarter with $28.4 billion in cash and current marketable securities and $10.4 billion in available credit facilities for a total available liquidity of $38.8 billion. Our book value of debt was $7.5 billion, and our Series A preferred stock obligation was $3.1 billion. Our U.S. qualified and non-qualified pension plans were underfunded by $7 billion, and our non-U.S. pensions were underfunded by $12.3 billion. Our unfunded OPEB liability was $6.3 billion in the second quarter. Slide 22 provides a brief summary of our auto financing activities. GM Financial has already released their results and will hold their earnings conference call at noon. Our U.S. subprime penetration in the second quarter was 8.1%, down 0.4 percentage points from the prior year. Our U.S. lease penetration increased 4.3 percentage points to 24.2% in Q2 as we continue to leverage our financing relationships and improve residual values to drive toward industry competitive levels in key segments. Lease penetration in Canada was at 27.5%, up significantly from last year, but more in line with industry. GM new vehicles as a percentage of GM Financial originations rose to 75%, and GM Financial's percentage of GM's U.S. consumer subprime financing and leasing was 30% in the quarter. GM Financial's annualized net credit losses remain low at 1.4%, and their earnings before tax adjusted were $258 million for the second quarter, reflecting both continued strong performance of their North American business and international operations. Finally, on slide 23, we highlight a few areas of focus for the second half of the year. Customer care remains our top priority as a company. We will continue to work with our suppliers, our dealers, and others to repair recalled vehicles as quickly as we can and to continue to focus on improving our processes around our vehicle safety and our commitment to our customers. We have some important launches in the second half of this year in many of our regions. We will continue to focus on the important work of delivering flawless vehicle launches and introductions in these important markets. With the successful new vehicle launches we've had thus far, we continue to generate strong results in the U.S. and China, and we remain on track to be profitable in Europe by mid-decade. We are confident we are currently on or ahead of plan to deliver the results we promised earlier this year, excluding the effects of recalls. Finally, Mary will have more to say about our second half focus in her closing remarks. But I want you to know that we are committed as a company to continue driving the strong underlying core operating performance we delivered in the first half of this year across all regions and despite the challenges we face. Now, Mary and I will take your questions, after which Mary will have some closing remarks. Patty? Thank you, sir. Please note, the question and answer session is for analysts only. Now, if you would like to register for a question, please press the 1 followed by the 4 on your touchtone phone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, press the 1 followed by the 3. If you are using a speakerphone, please lift your handset before entering your request. One moment please for the first question. Our first question comes from the line of Rod Lache from Deutsche Bank. Please proceed, sir. Good morning, everybody. Hi, Rod. Can you help us, first of all, with that slide 13, that $1.6 billion cost number? Yeah. You did say that about $1 billion of that was recall. Would it be reasonable to say that maybe $900 million was content? Last quarter was around $1 billion, and that you had maybe $300 million of positive structural cost items. Is that a good estimation of that breakdown? Yeah. That's close, Rod. Out of the $1.6 billion, as we indicated, roughly $1 billion related to recall activity. Material on majors was $1.1 billion unfavorable, partially offset by GPS carryover material performance of a couple of hundred million dollars, and the balance was fixed costs. Okay. If that's right, material $1.1 billion and maybe it's like $900 million net of some cost savings on older items, how do we put that into context against the pricing that you had in the quarter, which was $800 million? It would look like the contribution would be somewhat negative, and it's kind of early days when you compare the pricing versus the material right now. A lot of these products are pretty new. Is there anything to kind of read into that? Pricing on majors for North America in the quarter was $1.4 billion against that material cost. Material on majors for North America specifically, Rod, was $1.1 billion. Roughly accretive to earnings, $300 million. I mentioned material performance on carryover favorable, $200 million. Carryover pricing was unfavorable in the quarter on a year-over-year basis, about $600 million. Mm-hmm. Okay. This is arguably the peak of the company's product cycle, and the combination of new products versus carryover products doesn't appear to be favorable at this point. Is that something that we should be thinking about in the context of the longer-term margin target? I know you're doing north of 9% right now, but the longer-term margin target for North America being closer to 10%. Yeah. I would say we are still confident and convicted around our glide path to 10% EBIT margins, Rod. I would suggest that we still have a significant portion of the launch cadence out in front of us. As we've indicated before, we will be launching products in the 2014 to 2017 timeframe at twice the pace of the previous four years. I think that there's continued opportunity from a pricing on new content. As I've discussed before, the carryover pricing dynamic versus where we were sitting a year ago is becoming a bit more challenging, and that's why we need to focus on cost and efficiency, which is really the second leg of our glide path to 10% EBIT margins. Mm-hmm. Just lastly, if I can sneak another couple of things in. Can you just clarify your wholesale of 830,000 units looks like it was maybe 60,000 units lower than production. Is that just rental car accounting? Do you have any just broad color on the outlook for the back half for South America or the consolidated GMIO business? Yeah. For the first question, Rod, absolutely right. That's just rental car, the difference between in-service versus auction. So over the next 9 to 12 months, that will bleed out. That's the biggest difference between production and wholesales. Relative to South America, continues to be a very challenging environment. Brazil and Argentina the industry continues to weaken. But in the context of overall results, we continue to execute to our plan to drive efficiency in those operations. I would expect, absent some change, to see slightly improved performance in the second half of the year. Our consolidated operations, as we've talked before, we've got a number of important product launches in the second half of the year, primarily led by full-size pickups and full-size SUVs in the Middle East. I would expect to see some marginal improvement from a consolidated operations run rate as we get into the second half of the year. While we are at it, from a company standpoint, as we have discussed before, we believe the second half of the year is going to be stronger than the first half of the year, ex recalls. We are still confident that we are on or ahead of plan for the year. Okay. Thank you. Thank you, sir. Our next question comes from the line of Itay Michaeli from Citi. Please proceed with your question. Great. Thanks. Good morning. Chuck, hoping you can maybe talk about the second half outlook in North America. It sounds like you still are confident in the second half of the year. What are some of the big buckets we should be thinking about there, both in terms of, and particularly a focus on kind of pricing versus material cost equation in the second half of the year? Yeah, I would say that our expectations for North America is that we will grow margins in the second half of the year versus the first half, ex recalls, and also grow margins versus the second half of last year. The big drivers behind that will be continuing the full-size SUV launch and getting that up to running, eliminating some of the constraints that we've had from a production perspective. We'll have the ATS Coupe launch later this year from a Cadillac perspective. Mid-size trucks later in the year, I don't think that's going to be a big driver of earnings. Generally, 60% of the truck industry is in the second half of the year versus the first half of the year, so we expect continued strength from a volume and mix perspective as well. That's very helpful. Then two quick follow-ups. First, it does sound like you raised your outlook for the mid-decade in Europe from break even to profitable, and maybe a subtle change, but maybe talk a little about what may have driven that. Then secondly, just a quick housekeeping. What's sort of the cash recall cost that we should be expecting over the next several quarters? Okay. Yeah. Speaking to Europe first, I think it's a combination of a number of things. First, we continue to get traction in the core markets, Germany, the U.K. with Opel and with Vauxhall. The brand strength continues to improve. The wind down of Chevrolet Europe is ahead of plan and going much smoother than we expected. About 80% of the dealers that are in wind downs have signed up with Opel as well. So that's going extremely well. The industry is performing a little bit better than we expected. The other thing that's driving that with that strength is we're going into the heart of the product launch cadence with the Corsa later this year and the Astra next year. On the recall cash component of that, our expectations, Itay, is that 60%-70% of the $2.5 billion that we've booked thus far will result in a cash impact in the second half of the year with the balance rolling out into Q1, Q2 next year. That's our latest thinking on that. Great. That's very helpful. Thanks, everyone. Yep. Thank you. Our next question comes from the line of Brian Johnson from Barclays. Please proceed with your question. Yeah, good morning. Have a housekeeping question and then a more strategic question. On the housekeeping question, just following up on the wholesale versus retail sales. If we just kind of look at it from retail sales at the dealer level and inventory build, it looks like that number from what you put out there was about 910,000 this quarter, yet you only had 830,000 wholesale units. That's a difference of about 77,000. If I look over the last four quarters at that delta, it's never got above 26,000 units. Is there something different going on with either the volume of rental programs, how much they want to do as program versus risk cars? Is there anything with GM Financial's leasing business that's going to affect recognition of a wholesale sale? Then kind of how does that play out going forward? Or are you- Yeah, I think- a commercial program business outside of daily rental? Yeah, I think your question was around the difference between production and wholesales this time versus- No, actually the difference between dealer sales and dealer inventory build and wholesale sales. Okay. Well, as- Walk me in a different way than from production. Yeah. As vehicles are sold to daily rental, while the revenue and associated costs are reversed and then amortized over the anticipated life of that buyback agreement, the deliveries are counted in the quarter when they are delivered to the rental. That would answer the first question. Relative to the dynamic with daily rental, the first half of the year is the typical seasonal pattern. If you look over the last few years, there is always a fairly significant difference between production and wholesales, especially in the second quarter. I would also say the dynamic within daily rental, to your other comment, has changed a bit. We are taking advantage of our strong residual values, used car values, and putting more in repurchase so that we can control that and control that inventory as it comes out. Our overall fleet penetration is relatively flat year-over-year from a total sales perspective, so there is no dynamic there that is an anomaly. It is just timing and more repurchase versus risk unit. Okay, because as I look at some of at least our estimates, about a big chunk of your results versus our models seem to be 30,000 wholesale units. What I am hearing is you are doing more program business with rental car companies, and that is going to affect the timing therefore of the wholesale sales. Correct. On a more strategic, in China, I think this is the second quarter in a row we have seen a year-over-year gain in earnings. Margins are holding up. I do know you sent a new Executive to China last year. Maybe from the point of view of Mary, what do you think is driving this improvement in the equity income from China? In particular, maybe it is a Dan Ammann question as well, is there a mandate now to actually not just hold market share in China, but to grow equity income and profits? There is definitely a mandate to do that. There continues to be huge growth potential when you look across the globe. I know people talk about China slowing, but it still is a huge opportunity from a growth perspective. If you look at some of what is fueling that is the SUV that we have recently launched. But there is still much more work to do, and opportunity when you look across the Chevrolet portfolio, the Buick portfolio, which continues to be strong, and then the Cadillac portfolio that is doing well as well. We are really investing in not only building the brands, but then also my first trip there at the beginning of the year, and I think it was reinforcing messages of the past. As the market grows, we need to participate in that growth, in cases in a disproportionate fashion to make sure that we are seizing the opportunity. I think the team has really come together and looked for every opportunity. We continue to have our plans to increase capacity and continue to build the brand. I expect that trend to continue. Was there one thing specific that maybe added to the bottom line there? Or it is just a bunch of actions? I think it's a number of actions. I think it was, again, somewhat product driven, somewhat driven by the focus of the team and the clear expectations laid out, and the work that we need to do and convey as it relates to the brands. I think Cadillac is also significant as well. Now you're guiding the margins lower in the second half, 9%-10% versus 11%. Is that just seasonality or product program launches? Should we be thinking about the 10-ish percent margin going forward on a full year basis? Yeah. 10% is ballpark the right number to think about on a full year basis. There's seasonality in China, typically Q1 stronger than Q2. We're holding to 10% EBIT margins on a go-forward basis. As we've indicated, we expect the growth of Cadillac and launch of a number of SUVs to be a tailwind from a margin perspective. As you know, the market in China from a pricing perspective on carryover is challenging. Roughly 3% per year net price deterioration. So we will hold our margins by improving mix and continuing to drive cost efficiency to offset those price headwinds. That's the broad strokes of the plan, Brian. Okay, thanks. Yep. Thank you, sir. Continuing on, our next question comes from the line of Colin Langan with UBS. Please proceed. Oh, great. Thanks for taking my questions. You said the cadence of earnings is the same, but it does look like restructuring is a little bit more even through the year. How should we think about the restructuring? Is the $1.1 billion for the year still good, or is it actually coming in a bit lower than you were thinking? Yeah, Colin, to your first comment, I think what we said was in the second half, we expect earnings to be better than the first half, so not equal on a cadence perspective. From restructuring, we talked about the $1.1 billion for the year. I would say in the first half of the year, we're generally on track on a run rate basis to that $1.1 billion. The biggest driver of that is the restructuring events in Germany, and that is pretty flat quarter to quarter. So I don't think that there's a material difference in the second half versus the first half on restructuring. How should we think about the restructuring potential in GMIO? Obviously, with the end of Chevy in Europe, what are the plans for that plant that was supplying those Chevy products? We continue to look at optimizing our footprint in Korea associated with the volume downtake. I would say for the year, restructuring our costs in IO are in the range of $100 million-$150 million. It's really largely dependent on voluntary separation programs. We work through that, and we'll continue to work through that over the next number of years. Australia, as we indicated before, we will continue to work through that restructuring between now and 2017, and that'll be part of the run rate that I talked about before, where we would expect in the range of $400 million-$500 million a year of restructuring on an ongoing basis. Okay. Just one last one. Can you clarify when you've talked in the past about mid-decade, that doesn't mean 2015, is that correct? When we think about both Europe getting back to profitability and the North America 10% margins, or is that the right way to think about it, as somewhere in that range is the way to think of it? Yeah, the way to think about it is mid-decade. I'm not going to get any more specific than that, Colin, except to say this. We are on track and executing to the North American plan. If you look at the last four quarters on a year-over-year basis, our margins are up, excluding recalls, 150 basis points. Clearly, we feel more optimistic and forward-leaning in Europe because we've changed our guidance from break even mid-decade to profit by mid-decade. We continue to work it extremely hard, but I would say for both of those commitments, we are on track. Okay. All right. Thank you very much. Thank you, sir. Continuing on, our next question comes from the line of John Murphy from Bank of America Merrill Lynch. Please proceed. Good morning. I just wanted to follow up on the product cadence and the cadence of earnings that you're expecting in the second half of this year, particularly in North America. Chuck specifically, and Mary, it seems like there is an over-focus in the market that it's a one-and-done product cadence with the K2XX Silverado and SUV launches. There's a lot more to the product launches as far as I can tell. I'm just curious if you can maybe either confirm or comment on the product launches going forward. It seems like the HD launches will benefit the second half of this year and the first half of next year. Then over the next two years, you have the launches of the small crossovers, the large crossovers, and some mid-size sedans here in North America that should be real positive as the market remains tight. I'm just curious if you can comment on that statement and really this concern that you're a one-and-done product cycle here, because it just seems very misguided right now. Yeah. A couple points on that. First, you're absolutely correct, especially even as you look at our full-size trucks. There's more coming as we continue to look through the lifetime of the K2XX. I'm not going to get out in front and announce things. I'm going to stick to our announcement cadence. But there's definitely more substantial things coming to enhance the K2XX over its life cycle. Also, I think the importance of the mid-size trucks that come out later this year, and then as Chuck has said, there's clearly a strong cadence of products coming out over the next couple of years that I think they've had the ability to have the complete focus of our work on material costs for those products and optimization of, you'll say, revenue and the cost aspects of it. So, you're correct. It's not just a one and done. There's significant more coming, not only for the K2XX, which we understand is very significant, the heavy duty, et cetera, but other products as well. Okay. Then just a second question, Mary, on following up on all the recall activity and the remeasurements you seem to be doing and everything you've been digging up. There's always been a question with GM's IT systems and your ability to really measure and metricize and respond to things like these recalls. I'm just curious if you're going through this process, if there's anything you really think you might need to revamp more on a structural basis on the IT systems in GM so you can understand better and more quickly what's necessarily going on in the company. I'm not sure I completely understand your question, but as it specifically relates to recalls, I think there's the ease of which data is available, but I'm not going to pin it on IT systems. It's clearly the strong process that we need to have within the company that's process-driven, people-driven. I think we've addressed that completely with the creation of the Jeff Boyer organization and the way that's structured, the way that operates across the company. I would also say the way that we really, in that area, are comprehensively looking at data to understand what the customer is seeing or experiencing, whether it comes directly from customer calls, emails, our customer engagement center, warranty information, legal claims. Also, we have a team that just mines data off the internet to make sure we understand as customers raise issues. So that is comprehensive when we're doing that. Now there's an opportunity to do that better, and our IT team is working hand in hand with Jeff because we feel, and actually we've brought in outside expertise as well to make sure we've got the right tools to more quickly be able to mine data and spot trends or see connect points. So there's an IT aspect of it, and we're well underway doing that, and we'll continue to just advance that. But I think the most important point to make sure that we're looking across and understand what's happening with our vehicles is the way we've completely changed the organization, changed the process they follow, and made it very clear to the entire organization what the expectations are. Thanks. If I could, John, just to speak a bit to the financial systems in IT, I think you've seen this. There has been a significant improvement in that over the last two or three years along with the finance transformation and IT transformation, and obviously more work to go. But starting with country of sale reporting, product line profitability, we're launching globally profitability on a VIN-level basis. We're building an enterprise data warehouse with a business intelligence group. So there's a lot of work that's been going on, and will continue to go on from specifically a financial perspective so that we can get the right data, analyze it quickly, and react. I think that we're well along the way on that. We're looking forward to the VIN-level profitability, if you'll disclose it to us. We won't. One last question on subprime, particularly because GM Financial has a big exposure there. There's obviously a great debate in the markets right now of subprime being overheated for auto lending. It doesn't necessarily appear that way to us. I'm just curious if you can comment on your exposure to subprime, what you think of it right now, and is it more of an issue or an opportunity? Yeah, that's a good question. It's been interesting. Our share of subprime actually has come down because for a while there was a competitive move into subprime, so it was being reasonably well-served. It looked like in the second quarter that there was a back off from that a little bit, perhaps because of the exposures. Let's just say this, AmeriCredit, now GM Financial, are experts in subprime. They never lost money during the downturn in 2008, 2009. They know how to manage and score these customers, and I think that they manage an appropriate level of risk associated with subprime. As they expand their overall product offering. So, we feel that that's a very well-managed segment of their business. Okay. Thank you very much. Yep. Thank you, sir. Our next question comes from the line of Patrick Archambault from Goldman Sachs. Please proceed, sir. Oh, yeah. Thank you. Good morning. I guess a couple from me. Just first, I think there was some production constraints, I think referenced towards the beginning of the call when we were discussing the cadence and margins in the overall North America performance. Maybe we could get into that. Obviously, just the newer truck models and SUV models that are kind of rolling off, how far are you away from the true run rate of production and as we think about how do we think about that and how meaningful it is in subsequent quarters? Yeah. I would say it's not an overall system production constraint, more specific mix. We talked about this before. The higher penetration trim levels, the crew cab versus double cab versus regular cab mix have performed much better than we expected. We've been working hard in the first half of the year with suppliers, with engineering to address these bottlenecks. What we currently have right now from a full-size SUV perspective are some constraints on Escalade, up-level Escalade, and Denali, the Yukon Denali. We're going to continue to work through that. We have the expectation that we will be able to free up some of those trim constraints as we go into the second half of the year. It's not like an overall capacity, but more specific up-level trim constraint that we've had, and I think that's going to be net a positive benefit in the second half versus the first half. Got it. Okay. That's helpful clarification. My follow-up was just on Brazil and Latin America specifically. I know you did address it a little bit, but I wasn't sure if some of the color you provided was GMIO. Maybe, at the risk of repeating some of that, can we talk about what the anticipation is for the back half? I'd also be curious, specifically, are there concerns about inventory levels there? It's one of the things that we've been hearing about that with sort of the general buyer strike going on ahead of the elections. People are just stuck with a lot of stock that they need to get rid of in the second half. Thank you. Yeah. Let's talk about Brazil, South America. Clearly the first half of the year impacted by Venezuela. Fundamentally, no production, and we're carrying all the fixed costs associated with that. I'm not getting overly optimistic, but there has been some positive movement recently relative to currency releases. It looks like we will be able to put some level of production in the second half of the year in Venezuela. That would be one of the drivers of the second half versus the first half performance. The big question mark for us right now is how does Brazil and Argentina, how do those industries perform going forward? Whether there's just a hangover from the World Cup and things are going to normalize. It appears that the government is trying to be supportive of the industry by holding off on raising IPI tax. We're optimistic that there is some upside in the second half in Brazil and Argentina. I think the key thing is that we continue to execute the plan that we laid out and drive efficiency and fixed costs. We continue to do restructuring there and take people out of the system and optimize manufacturing. We're continuing to drive localization and improve logistics. Relative to your question on inventory specifically, we saw that coming, and part of the challenge in the second quarter on the South American earnings specific to Brazil is we took a lot of production out in the second quarter in advance of the World Cup because fundamentally the country shut down. We tried to get out in front of that inventory issue in the second quarter. Okay, great. Thank you very much. Thank you. Continuing on, our next question comes from the line of Ryan Brinkman from J.P. Morgan. Please proceed. Hi, good morning. Thanks for taking my questions. I think that the North America margin of 9.2% ex recall likely tracked below some of the higher-end expectations. At the same time, I think investors believe that you would be cyclically helped by product cadence in 2014 to such an extent that your margin ex recall would likely decline next year. You've said before, though, that you think that in the march toward reaching by mid-decade a run rate of margin that approximates 10% over the course of a business cycle, that the intention would be to turn higher and higher margins each year till you get to that goal. My question is, if investors are modestly disappointed today with the current GMNA margin because they think it's benefiting from a peaking product cadence, what can you tell them that would give them the confidence in the mid-decade target that you repeated today you have conviction in? It seems like in Mary's response earlier to a similar question, she somewhat disputed the fact that product cadence is currently peaking. What other margin drivers are there out there that are going to help you? If you could please just kind of walk us through those multi-year drivers and trajectory of margin in a way that would make us excited. Yes. Thanks, Ryan. First, I would say, look at the track record of execution going back to 2012 through today, and we've been pretty clear that our objective was to grow from 7% to 7.5% EBIT margins by 300 basis points, and it was going to be over a multi-year period, tranched in 100 basis points, roughly, over a three-year timeframe, more or less. To date, for the last 12 months, we've grown margins in North America 150 basis points on a year-over-year basis ex recalls. So we're executing to the plan. As Mary indicated, and I've talked about before, our launch cycle, our launch cadence over the next four years is going to be at twice the pace it was in the previous four years. It's not a one and done with the full-size trucks. As we talked about the glide path, the first tranche of the margin expansion was going to be driven to a large extent by launches. The second tranche, really around cost and efficiency, primarily manufacturing footprint, the SG&A initiatives we have with global business services, IT transformation, and material costs and logistics optimization. Those are all in execution mode. The final driver of margin expansion was really around fully leveraging the business, and that was the expansion of GM Financial. That was growing our customer care and after-sales business by expanding our reach in the after-sales market beyond traditional dealer parts with F&I products, GAP, extended warranty. That was really by fully leveraging global connected customer and our capability with 4G LTE and our ability to manage the customer. So this has been a laid-out plan since 2012. We're executing to it, and we're one-third of the way through it, and we've put the numbers on the board thus far that we talked about, and that's why we're confident that we're going to continue to execute to that plan. Okay, great. Thanks. Just my second final question. It looks like you're making progress on reducing your losses in consolidated international operations. I thought maybe the moves that you were making there relative to Chevrolet Europe would benefit earnings for GM Europe, but pressure consolidated IO as you take out production before you take out capacity. I know that consolidated IO is more than Korea, so there's a lot of moving pieces, but it would seem that the stopping of the export of Chevrolet vehicles might actually have improved profitability, suggesting that the variable contribution on those vehicles might have even been negative. Can we look forward to maybe another leg in improved profitability for consolidated IO as you go ahead and now take out that capacity that's no longer needed to support those vehicles that were previously exported? Well, first, Chevrolet Europe results were reported in, and are continued to be reported in the IO sector. By itself, as we wind down Chevrolet, you would expect that to be ultimately a net positive. As a matter of fact, in the second quarter, part of the fixed cost improvement that we saw in IO was driven by reduced fixed costs related to Chevrolet Europe. At the same time, we created a fairly significant capacity issue for ourselves in Korea that we need to deal with. We took roughly 200,000 units of Chevrolet Europe volume out. That created an underutilized footprint, and we're working to address that. That's got a bit longer tail on it to get fully addressed. We're going to have to manage through that as we go forward. For me, from an international operations perspective, the key that's going to significantly change the dynamic from an earnings trajectory perspective is going to be product. We are working very hard on an emerging market portfolio. That's first and foremost. Then get the business model, the infrastructure right around that portfolio, and then make sure that at the market, dealer network, the brands are ready and built to the level so that we can fully optimize that. So that's kind of the strategic footprint for IO. If I can just add to that, I think there, again, with the improvements that we've made from a financial data availability to manage the business across the country, or across the globe, country by country as we look at the consolidated international operations, we're really looking at what does it take to win in those markets, to be in the core of the market, as Chuck Stevens said, to have the right product cadence and then the right systems and business plan around it. I think if you look at several of the last few months of personnel announcements we've made, there's also a new leadership team across the board that fully understands their responsibility to look at it holistically, but make sure in each of those countries, we have a winning plan centered around product, but broader across the business. We're watching that closely, working with that team. Great. Thank you both for all the color. Thanks, Ryan. Thank you. Our last question comes from the line of Adam Jonas from Morgan Stanley. Please proceed with your question. Hey, thanks, everybody. My first question was just on the logic of including the majority of the recall costs in adjusted EBIT, which traditionally was a metric to kind of demonstrate underlying profitability. I know the intentions are honorable, and you've explained it that unlike other companies and maybe even yourself in the past, you want to not hide these things and have them up front and in the adjusted number. I would imagine recalling 29 million recalls is pretty extraordinary. The reason why I'm asking is because a lot of investors are owning your stock on the expectation of, let's say, real underlying EBIT improvement. You maybe unintentionally put yourself in a situation where just holding the underlying profit stable, you could have a 40% or 50% increase in EBIT next year just on not recalling the vehicles again. Yes. I am just- Can I? Yeah. I am sorry, Adam, go ahead and finish. I just wanted to know the thought process and logic there, because it could create some different, let's say, management expectations versus investor expectations. Historically, we have taken recall campaigns to EBIT adjusted. In the first half of this year, we certainly talked about whether we should think about this as a special item or not. Ultimately, it boiled down to a responsibility perspective. Operating management, the management, the senior leadership of this organization, were responsible for those charges, and we wanted to make sure that it was reflected appropriately in EBIT adjusted, for a number of reasons. I think that the go-forward approach to this, as you've seen, as we've got more data and the special non-cash charge that we took in the second quarter, we're going to accrue recall campaigns on a prospective basis as sold, which will more closely align with the competition, and eliminate some of the volatility that we've seen, on a go-forward basis. Okay. Can I just ask, is the incentive structure, are there any adjustments to the management incentive structure, though, to adjust for that so that you're not, let's say, rewarded for just non-repeat of recall costs? I'm not sure I completely understand your question, Adam, but- I'm sorry, Mary. Just to clarify, my understanding is that a significant proportion of variable compensation is tied to delta of adjusted EBIT of the company. That's the heart of what I'm asking about. Well, look, I think that the key is it wasn't treated as a special item. We don't broadly comment on executive compensation other than what we disclose on an annual basis. But I would say, I think, we're responsible. The basic need to do a recall is when something's wrong with the vehicle from a customer perspective, and that's the core of the business, and that's how we treated all of the recalls. I appreciate that. Just last as a follow-up, and I know you won't be able to pinpoint it, but the recall itself has obviously been a very important stimulus for showroom traffic at dealers. I was wondering if when you analyze that and in discussion with your dealers, do you think that the recall activity has been a net positive to your volume, and the chance to kind of reengage and rebuild trust and maybe offer a good deal to that extra traffic? Or has it been more neutral or net negative in terms of volume, just isolating volume? Thank you. Yeah. One specific data point on the program that we offered to the ignition switch recall population, 2.6 million vehicles. To date, we've sold about 6,600 vehicles under that program. So clearly, that's been a benefit for us to be able to reengage with some of these customers that had very old products. I would say our dealers are doing an outstanding job dealing with all of these customers that are coming in, trying to get their vehicles fixed. We are working with the dealers to use that as an opportunity to demonstrate that our current products are much improved versus some of these older, expired architecture vehicles that are being recalled. I think it's too soon to tell. We need to continue to build that relationship, and we're early in the process. But so far, our sales have been resilient. Our loyalty rates seem to be reasonably resilient. We need to continue to focus on putting the customer at the center and taking care of all these customers that come in to have to have their vehicles repaired. Yeah, just let me add to that. It really is one interaction at a time. I have to reinforce what Chuck Stevens said, that the dealers are doing an outstanding job. When you think that, as we talked to you at the end of first quarter, we really did redouble our efforts, and really went back deep into the late 1990s, specifically as it related to some of the safety systems related to ignition switches to make sure we were doing the right thing. Our dealers have truly responded. We do see this, I've talked to dealers, Alan is clearly talking to dealers, to make sure that we see this as an opportunity to demonstrate the strength of the products that we have available today, and the way that we're focused on the customer and the way that we want to make sure their experience goes well as they go through this process. It's a partnership, but it's one at a time, and we still have a lot to go as we look to the second half of the year. That will be a huge focus. Thanks for that, Mary. Thanks, Chuck. Thanks a lot, Adam. Thank- Thank you. Mary Barra, I'll turn the presentation back to you for your closing remarks. Thank you. Thank you, operator. I want to start off by saying I really do appreciate the opportunity for both Chuck and I to answer your questions. As we go forward here, I think we started the conversation by talking about the fact that General Motors, I think we've demonstrated resiliency as we've gone through this. I think we'd all agree it's an important quality in today's business environment. I want to make it clear that we and the senior leadership and the team at General Motors, we understand that we have a lot more work to do, and we're focused on it. We are working hard to be one of the very best companies in this industry, and we feel and are committed to treating the customer right and making sure they stay at the center of everything we do, because that's a long-term objective that happens, as I said, one interaction at a time, but we believe it's key to winning in this business. It isn't a new strategy for us. We rolled out a couple of years ago our core values and the customer being the first and the importance of relationships and then excellence. We've been consistent as we've dealt with the issues that we faced in the first half of this year of staying true to those core values. I think it's that sense of purpose that has helped us be able to stay on plan and drive our operating performance during these first two quarters. I would also say it underpins everything we're doing as it relates to product design, the way we engineer our vehicles and our powertrains, supplier quality, our manufacturing operations, and sales and service. To demonstrate that, I think if you look at the work that's being led out of the product integrity organization or the way Jeff Boyer is leading the global safety team, the work that Alicia is driving in the global quality and the customer experience, those are all concrete examples of us demonstrating our commitment there. Everyone is aligned, and I believe we still have a lot that we can do to really unleash the full power of GM, and what we can do to make sure we're putting the customer in the center of everything we do. As we move forward, we're going to keep this discipline, and focus as we repair all the recalled vehicles and also execute a number of other initiatives in the second half of the year. If you look, and we just kind of quickly go around the globe here. In China, for example, we have launches of the new Chevrolet Cruze, the Buick Envision, which will be Buick's third SUV. In Europe, we've talked about the strength of the product there, and we're going to be launching the second generation of the Opel Vivaro van and the fifth generation Opel Corsa. That vehicle has gotten, I think, very strong reviews. These are among what we've talked about, the 27 new Opel models coming between 2014 and 2018. In North America, I am very excited because I think there's a huge opportunity with the Chevrolet Colorado and the GMC Canyon. These trucks make us the only OEM that does have a full line with mid-size, light-duty, and heavy-duty pickups. We believe this is a huge opportunity to help us grow and conquest, specifically in California, which is the largest market in the U.S. for mid-size trucks. We also will have another market share opportunity in the U.S. when we launch the Chevy Trax early next year. I think the Trax is a great example of the way we're leveraging our global products and global scale to grow in key markets, including the United States, Brazil, and China. Where it's already on sale, the Trax is proving to be a hit and is doing very well. In China, it's already the vehicle is number 1 in the market and it has only been on sale there for three months, and year-to-date deliveries have passed 11,500 units in June. Those are just a few of the products that kind of reinforce the conversation that we've been having throughout this call that are in our pipeline. I think it's important to end the call to talk about product because that truly is the lifeblood of the company, and I think it's one of the strengths that we've clearly over the last few years demonstrated that we know how to do great products that are award-winning and received well by our customers around the globe. That's what we're here to do. We're here to build great vehicles and to make sure we're doing it in a way that not only satisfies our customers, but really creates a unique experience, and exceeds their expectations. It's also our goal to do that, to make sure, and we understand the importance of exceeding customer expectations, but more importantly, exceeding our owners' expectations as well. That's the commitment coming from me, and I'll say it's on behalf of our entire leadership team, and we look forward to continuing to demonstrate that as we move forward. I appreciate the opportunity, and I know we'll have an opportunity to talk soon. Thank you, operator. Thank you, sir and ma'am. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect. Thank you once again. Have a wonderful day.