Earnings Call: Q4 2013

Feb 6, 2014

Summary

FY revenue rose 2.1% to $155 billion and adjusted EBIT increased $700 million to $8.6 billion, while net income fell amid taxes and special items. FY 2014 adjusted EBIT was expected to improve modestly, with over $1 billion of restructuring costs and elevated South American risk.

Ladies and gentlemen, thank you for standing by. Welcome to the General Motors Company fourth quarter 2013 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Thursday, February 6, 2014. I would now like 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 2013 calendar year. Our press release was issued this morning, and the conference call materials are available on the investor relations website. We are also broadcasting this call live on the web. 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 Vice President and CFO. Mary Barra will then conclude the remark portions of our call with some closing comments. After the presentation portion of the call, we will open the line for questions from the analyst community. In the room today, we also have Tom Timko, Vice President, Controller, and Chief Accounting Officer, and Jim Davlin, Vice President of Finance and Treasurer, to assist in answering your questions. Now, I will turn the call over to Mary Barra. Thank you, Randy, and thanks to everyone for joining the call today. Through a lot of hard work, the GM team has made the business stronger than it was just one short year ago. You've all read the headlines, so I don't need to repeat them here. But suffice to say, during the last 12 months, we received a flurry of great news from Moody's, J.D. Power, Consumer Reports, the Automotive Lease Guide, the media, and more. All of this momentum helped pave the way for GM to rejoin the S&P 500, achieve an investment-grade rating, declare a common stock dividend, and report record earnings in North America. These are all important milestones, but they are just that, milestones. We have more work to do, and our sense of urgency will not let up one bit. Our plan remains the same. We need to operate profitably everywhere we compete, deliver compelling designs, excellent quality, and a great ownership experience, strengthen and grow our brands, further strengthen our fortress balance sheet, and generate the kinds of financial returns that earn the confidence of our long-term investors. All right. Let's turn to slide 2 and take a closer look at our 2013 financial results. To start, we delivered a record 9.7 million vehicles, which is up 4.5% from 2012. Deliveries in the United States and China combined increased by more than half a million units, although this was partially offset by declines in other markets, including Europe, parts of South America, and in our consolidated international operations. Our global market share was even with 2012, and net revenue increased by more than $3 billion to just over $155 billion. Net income to common stockholders was $3.8 billion. That's down from 2012, largely due to incremental tax expense and special items. Our automotive business, meanwhile, generated $11 billion in net cash from operating activities. That's a 14% increase from 2012. Turning to EBIT-adjusted, we earned $8.6 billion, which is a $700 million increase. We now have delivered EBIT-adjusted totaling almost $32 billion over 16 consecutive profitable quarters. As I indicated before, we are not where we want to be in terms of profitability, but our solid and consistent profitability, combined with our fortress balance sheet, has allowed us to level set our capital budget at roughly $8 billion annually. It's been a long time since our product and plant teams have been able to work in such a stable funding environment, and believe me, it's a very welcome change. Ending churn in and of itself has made us more efficient, and it has helped us deliver more award-winning products with higher quality. Digging into our EBIT-adjusted results, you can see on the slide that we were up in North America, Europe reduced its losses, and our international operations in South America were both down. North America, in particular, is riding a wave of new products, with our Cadillac and truck launches helping to drive higher earnings. The transition to our all-new light-duty pickups was well executed, especially the very orderly and profitable sell down of the old model. The CTS from Cadillac was the smoothest launch in my GM career. Rounding things out, GM Financial increased its earnings before tax in addition to helping us sell more cars and trucks. Finally, our adjusted automotive free cash flow was $3.7 billion, which means we end the year with just over $38 billion of liquidity. If you turn to the next slide, I'll review some additional highlights to provide more context. Let's start with Cadillac. We have a long journey ahead of us with Cadillac to increase favorable opinion and purchase consideration, but the early results of our global growth strategy are encouraging. Last year, Cadillac leveraged the all-new XTS and the ATS, which was the 2013 North America Car of the Year, to become the fastest-growing full-line luxury brand. Now we are launching the CTS, the ELR, the ATS coupe, and the Escalade. These vehicles represent some of the finest design and engineering work that General Motors has done. At Buick, our dealers in China and North America delivered more than 1 million cars and crossovers for the best year in the brand's 110-year history. Chevrolet delivered nearly 5 million vehicles, which was enough for the brand's third consecutive year of record sales. Market share was up in Brazil and Mexico, and the retail market share was up in the U.S. Some of the key drivers in the U.S. were the Impala, which was named Consumer Reports' best sedan, the Corvette Stingray, which was the 2014 North American Car of the Year, and the Silverado, which was the 2014 North American Truck of the year. This year, GM is launching 15 new products in the U.S., and four of them are high-volume Chevrolet trucks and SUVs. In China, we have announced plans for four new or redesigned Chevrolets in 2014, including a new compact SUV for that fast-growing segment. Finally, Opel Vauxhall delivered more than 1 million vehicles and ended 2013 with its first European market share increase in 14 years, thanks to the Mokka and the Adam. I'll share just a few more highlights so you can see how these milestones really drove our business results last year. To start, Chevrolet, Buick, Cadillac, and GMC all increased their retail market share in the U.S., and we earned record transaction prices. That drove an EBIT-adjusted margin in North America of 7.8%. That's up from 7.2% in 2012, so we made good progress on profitability, especially in the second half of the year, as we expected. In the third and fourth quarter, our margin was 8.4%, which is up a bit more than two full percentage points from the same period a year ago. In South America, we had another profitable year. We are getting traction on both the cost and the revenue sides of the equation in South America. For example, we ended the year with higher market share in Brazil, and we were able to reduce our material and logistics costs through localization. We also reduced our capacity in high-cost parts of the country and launched new products with higher margins. Heading into 2014, about 75% of our sales in Brazil will be from new or redesigned products like the Chevrolet Onix and Prisma, up from about 25% in 2011. Sales in China set a new record with more than 3 million deliveries. That's up 11.4% from a year ago. One of the highlights was the Chevrolet Malibu, whose sales nearly doubled. In Europe, we reported a year-over-year revenue increase in the second half, and this shows that Karl-Thomas Neumann and his team are making tremendous progress. As I mentioned earlier, we achieved an investment-grade rating from Moody's rating agency. That's a lot of momentum, which we will build on in a number of ways this year. In North America, for example, our entire pickup and full-size SUV lineup will be all-new designs. Our 2015 model year Chevrolet and GMC full-size SUVs are on their way to dealers, and our 2015 heavy-duty pickups launched this quarter. Finally, our new midsize pickups launch in the fall. Later today, we'll unveil the new Chevrolet City Express small cargo van at the Chicago Auto Show. It will also be on sale this fall. Across Europe and South America, meanwhile, GM Financial will start to contribute to growth as it consolidates the consumer lending businesses we bought from Ally. In China, we are expecting higher sales in 2014 and a richer mix over time, growing in part from Cadillac's growth. All right, let's move to the next part of the call. Chuck, I'd like to turn the floor over to you for a detailed walk through the year and the quarter. I'll return at the end for some closing comments. Thanks, Mary. On slide 4, we provide a summary of our 2013 calendar year GAAP and non-GAAP results. Net revenue for the year was $155 billion, up 2.1% from the prior year. Excluding the impact of FX translation, revenue was up 3.6% for the year. Our GAAP operating income was $5.1 billion, up from a large loss in the prior period, due entirely to special items. Net income to common stockholders was $3.8 billion, and diluted earnings per share came in at $2.38. As Mary indicated, the decline from the prior year was largely due to increased tax expense and unfavorable special items. Our automotive net cash from operating activities was $11 billion, a $1.4 billion increase from 2012. For our non-GAAP measures, EBIT-adjusted was $8.6 billion in 2013, and the EBIT-adjusted margin was 5.5%, as improved core operating performance across most of the business was partially offset by challenging environment in consolidated international operations. Finally, our adjusted automotive free cash flow was $3.7 billion for the year, a $600 million decrease from 2012, largely due to the timing of sales allowances. On slide 5, we provide the EBIT-adjusted by region for 2012 and 2013. GMNA's EBIT-adjusted improved significantly to $7.5 billion, driven by new products. GME had an EBIT-adjusted loss of $800 million, an improvement of more than $1 billion from 2012, driven by lower depreciation and amortization and material and logistics savings. GMIO had EBIT-adjusted of $1.2 billion, down significantly from the prior year as the challenging environment in consolidated operations more than offset improved performance in China. GMSA's EBIT-adjusted was down slightly to $300 million for 2013 due to FX headwinds. GM Financial had record earnings before taxes of $900 million, and corporate and eliminations was a $500 million expense. This totals to an EBIT-adjusted of $8.6 billion, an increase of $700 million from 2012. On slide 6, we provide an explanation of the $700 million increase in year-over-year EBIT-adjusted. Our EBIT-adjusted was $7.9 billion for 2012. Volume was $100 million increase as the impact of increased wholesale volumes in GM North America were partially offset by declines in GMIO and GM Europe. Mix was unfavorable $400 million, primarily due to unfavorable country mix in GMIO and unfavorable vehicle mix in GME, partially offset by favorable vehicle mix in GMSA. Price was $2.4 billion favorable for the year due to the strength of our new vehicle introductions in GMNA and price actions to offset FX impacts in GMSA. Total costs were flat as lower fixed costs in Europe were offset with higher material costs in North America associated with recently launched products. Other was $1.4 billion unfavorable, primarily due to FX challenges in South America associated with the Venezuelan bolivar, Argentinian peso, and Brazilian real. Slide seven identifies special items for the fourth quarter and calendar year that had an impact on our earnings per share. I'm not going to go through the entire list, but the items in 2013 primarily relate to strategic actions we announced in GMIO, the wage litigation in Korea, as well as the sale of certain non-core assets. At the top of the slide, our net income to common stockholders in the fourth quarter of 2013 was $900 million, and our fully diluted earnings per share was $0.57. The special items listed had a net $200 million unfavorable impact to net income to common stockholders and a $0.10 unfavorable impact on earnings per share. For the 2013 calendar year, our net income to common stockholders was $3.8 billion, and our fully diluted earnings per share was $2.38. Special items had an unfavorable impact on net income to common stockholders of $1.3 billion and an $0.80 unfavorable impact on earnings per share. Moving on to the results for the fourth quarter on Slide 8. Our net revenue was $40.5 billion, a $1.2 billion or 3% increase from the prior year. Excluding the effect of FX translation, fourth quarter revenues increased approximately 4.8%. Our Q4 2013 GAAP operating income included $1.4 billion of unfavorable special items as detailed on Chart 7. The prior year GAAP operating income performance also included significant unfavorable special items in the quarter. Net income to common stockholders was $900 million, flat compared to the prior year period. Earnings per share for the quarter were $0.57 on a diluted basis, compared to $0.54 for the same period in the prior year. Our automotive net cash from operating activities improved significantly to $2.8 billion, primarily due to the absence of the pension settlement contribution made in the prior year. Our EBIT-adjusted was $1.9 billion for the fourth quarter, including $200 million in restructuring costs. Overall, a $700 million improvement from the prior year. The EBIT-adjusted margin was 4.7%, up 1.5 percentage points from Q4 2012. Our adjusted automotive free cash flow was $1.1 billion, flat compared with the prior year period. On Slide nine, we provide the EBIT-adjusted by region for the fourth quarters of 2012 and 2013. GMNA's EBIT-adjusted was $1.9 billion. GME had an EBIT-adjusted loss of $300 million. GMIO had EBIT-adjusted of $200 million, and GMSA's EBIT-adjusted was at breakeven for the quarter. GM Financial earnings before taxes was $200 million, double the prior year period. Corporate and eliminations was $100 million expense. This totals to an EBIT-adjusted of $1.9 billion for the fourth quarter of 2013, up $700 million from the same period in 2012. Slide 10 shows our consolidated EBIT-adjusted for the last five quarters. At the bottom of the slide, we again show the revenue and margins for the quarter. Our consolidated wholesale vehicle sales were 1.7 million vehicles in the fourth quarter, essentially flat compared to the prior year, and our global market share decreased 0.2 of a percentage point to 11.4%. On slide 11, we provide an explanation of the $700 million increase in year-over-year consolidated EBIT-adjusted for the fourth quarter. In Q4 2012, our EBIT-adjusted was $1.2 billion. Volume was flat as wholesale volume increases in GM North America were offset by decreases in GMIO and GM South America. Mix was $300 million unfavorable, primarily due to country mix and increased wholesales of passenger cars in GM North America and unfavorable country mix in GMIO, partially offset by favorable mix in GM South America. Price was $1.4 billion favorable for the quarter due to the strength of our recently launched cars and trucks in GM North America and actions we've taken to offset FX in GM South America. Total costs were flat as lower fixed costs in Europe were offset by higher material costs in North America associated with our recently introduced cars and trucks. Other was $500 million unfavorable, primarily due to FX challenges in GM South America associated with the Venezuelan bolivar, Argentinian peso, and the Brazilian real. This totals $1.9 billion for the fourth quarter. We now move on to our segment results with the key performance indicators for GM North America on slide 12. For the fourth quarter of 2013, our total U.S. market share was 17.2%, and our retail share was 15.9%. Retail share increased 0.2 of a percentage point from the prior year as our fleet market share decreased due to the repositioning of the Chevrolet Impala and generally lower fleet sales. Our incentives for the quarter were 10.6% of average transaction price, which put us at 107% of the industry average. On slide 13, we show GMNA's EBIT-adjusted for the last five quarters. At the bottom of the slide, revenue was $25.1 billion in the fourth quarter, up $2.3 billion from the same quarter in 2012. GMNA's EBIT-adjusted margin was 7.5% for the fourth quarter and 8.4% for the second half of 2013, an improvement of over 200 basis points compared to the second half of 2012. This is a clear inflection point and demonstrates strong progress toward our mid-decade goal of 10% margins. Our U.S. dealer inventory was 748,000 units at the end of the fourth quarter. The increase from the prior year was due to industry growth and the continued launch of our all-new Chevrolet Silverado and GMC Sierra. We are closely watching U.S. industry and our own inventory levels, and we will maintain our disciplined approach to balancing supply and demand. GMNA wholesale vehicle sales were 863,000 units for the quarter, a 37,000 vehicle increase from the prior period. Turning to slide 14, we provide the explanation of the increase in GMNA's EBIT-adjusted, which rounds to 700. North America's EBIT-adjusted was $1.1 billion for the fourth quarter of 2012. Volume was $300 million favorable, associated with the 37,000 unit vehicle increase in wholesales. Mix was $300 million unfavorable, primarily due to country mix and increased wholesales of passenger cars. Price was $1.2 billion favorable, driven by our recently launched vehicles. Costs were $500 million unfavorable, which can be more than explained by increased material costs associated with recently launched vehicles. Other was $100 million favorable due to FX. This nets to an EBIT-adjusted of $1.9 billion. On slide 15, GM Europe reported an EBIT-adjusted loss of $300 million for the fourth quarter, a $400 million improvement from the prior year. Revenue was $5.3 billion for the quarter, up $100 million from the prior year, and the second consecutive quarter of year-over-year quarterly revenue growth. The EBIT-adjusted margin in the region was a negative 6.5%. Europe's wholesale vehicle sales for the quarter stayed constant at 269,000 units, and market share in the fourth quarter was 7.9%, a 0.4 percentage point decline from 2012, driven by lower sales of Chevrolets. On slide 16, we provide the major components of Europe's $400 million year-over-year increase in EBIT-adjusted on a rounded basis. Volume was flat with the prior year. Mix was $100 million favorable, driven by increased sales of the Mokka and Insignia. This is an encouraging sign, as this is the first favorable European mix in several quarters. Price was $100 million unfavorable due to competitive pressure in the region. Cost was $500 million favorable, primarily due to $200 million lower depreciation and amortization, $100 million in favorable material performance, and $100 million in savings in fixed costs. Other was $100 million unfavorable, primarily due to FX. This totals to GME's EBIT-adjusted loss of $300 million for the fourth quarter of 2013. On slide 17, we show GMIO's EBIT-adjusted for the most recent periods. In the fourth quarter, EBIT-adjusted was $200 million, including equity income from our joint ventures of $400 million, partially offset by a loss of $200 million in consolidated international operations. At the bottom of the slide, GMIO's revenue from our consolidated operations was $4.9 billion, down $1.4 billion from the prior year. GMIO's EBIT-adjusted margin from consolidated operations was a negative 2.2%, a significant decline from the prior year as we continue to encounter challenging dynamics across consolidated international operations. On average, net income margin for our China joint ventures was 7.6%, a 1.5 percentage point decrease from the prior year, primarily driven by higher competitive pricing pressures and increased manufacturing costs associated with two new plants coming online in the near future. GMIO had wholesale vehicle sales of 259,000 for its consolidated operations and 865,000 for the China JVs. GM market share in the Asia Pacific region remained constant compared to the prior year due to the continued growth of China market, offset with declines in the balance of the region. Turning to slide 18, we provide the major components of GMIO's $500 million decrease in EBIT-adjusted. The impact of volume was $200 million unfavorable, primarily due to decreased wholesale units in the Middle East and ASEAN countries. Mix was $200 million unfavorable due to country mix, and price was $100 million unfavorable due to pricing pressure in the Middle East. Cost was $100 million favorable because of material and logistics savings. Other was $100 million unfavorable due to foreign exchange and a slight decline in equity income from our China JVs. This totals to GMIO's fourth quarter of 2013 EBIT-adjusted of $200 million. On slide 19, we move on to GMSA region and look at EBIT-adjusted for the last five quarters. At the bottom of the slide, revenue was $4.1 billion in the fourth quarter, a $300 million decrease from 2012. The EBIT-adjusted margin in the region was 0.7%, a significant decrease from the prior year period. South America's wholesale vehicles sales were 260,000 units, down 20,000 units compared to the fourth quarter of 2012. Although our market share in the quarter rose to 17.8% on the strength of our sales in Brazil and Argentina. On slide 20, we look at the components of the $100 million year-over-year decrease in South American operations. Volume was $100 million unfavorable due to the decline in wholesales. Mix was $100 million favorable, primarily due to increased sales of our successful new products in Brazil, such as the Onix, Prisma, and S10. Price was $300 million favorable due to actions we have taken to offset unfavorable foreign exchange and the sustained strength of pricing on our new products launched in Brazil. Cost was $100 million unfavorable due to charges related to the decision to terminate production of a legacy product. Other was $300 million unfavorable due to the Venezuelan bolivar, Argentinian peso, and the Brazilian real currencies. Slide 21 provides our walk of adjusted automotive free cash flow for the fourth quarter. From our net income to common stockholders of $900 million, we add back the impact of non-controlling interests, preferred dividends, and the undistributed earnings allocated to Series B, and then deduct GM Financial earnings to arrive at an automotive income of $900 million for the fourth quarter of 2013. We had $200 million in non-cash special items, and our depreciation and amortization was a $1.5 billion expense. Working capital was a $200 million source of cash. The $1.3 billion decline from the prior year was due to a decline in payables as we experienced more payment cycles in the fourth quarter of 2013. U.S. pension and OPEB cash payments exceeded expenses by $300 million in the quarter. The prior year period included the $2.3 billion contribution to settle and annuitize our salary pension plan. Other was a $200 million source of cash, a $700 million improvement from the prior year, largely due to an increase in deferred taxes and an increase in dividends from our China joint ventures. This totals down to automotive net cash provided by operating activities of $2.8 billion. We had $1.8 billion of capital expenditures in the quarter. In addition, we exclude the interest associated with the prepayment of the Canadian healthcare trust debt. This totals to our adjusted automotive free cash flow of $1.1 billion, flat compared to the prior year. The positive cash flow helped improve our liquidity position on slide 22 to $38.3 billion, including $27.9 billion in cash and marketable securities. Debt increased to $7.1 billion compared to the prior year-end due to our recent $4.5 billion refinancing transactions. $3.2 billion of the proceeds from the new debt was used to redeem Series A preferred shares that had a book value of $2.4 billion. The remaining $1.2 billion was used in the fourth quarter to retire the Canadian healthcare trust notes. Series A preferred stock is $3.1 billion after the most recent redemption. Our total U.S. qualified and non-qualified pension plans are underfunded by $7.3 billion, a significant improvement versus a year ago, which we will further discuss in a moment. Our non-U.S. pensions are underfunded by $12.4 billion at the end of the fourth quarter, and our global unfunded OPEB liability is $6.3 billion. On slide 23, we take a look at the funded status of our global and U.S. pension plans for the past four years. At the end of 2013, we had a global pension benefit obligation of $99 billion, the first time our global PBO was under $100 billion since 2002. Our global pension underfunded position improved $7.9 billion to $19.9 billion from 2012 to 2013. The first time our global underfunded position has been under $20 billion since 2007. As it relates to our U.S. pension plans, our underfunded status at the end of 2013 improved to $7.3 billion, nearly half the underfunded amount in 2012. The combined effects of rising discount rates, asset returns, and other items, partially offset by interest and service cost, resulted in a $6.7 billion improvement to the funded status in our U.S. plans. Slide 24 provides a summary of our auto financing activities. GM Financial reported their results this morning and will be holding an earnings conference call at noon. Our U.S. subprime penetration in the fourth quarter remained constant with the prior year at 7.2%. Our U.S. lease penetration is 20.8% in Q4, up 6.1 percentage points from the prior year as we continue to approach the industry average. Lease penetration in Canada is at 20.4%, an increase of 14.3 percentage points. GM new vehicles as a percentage of GM Financial originations grew significantly as our financing subsidiary continues to grow its leasing and subprime footprint. GM Financial's percentage of GM's U.S. consumer subprime financing and leasing remained fairly constant at 19% in the quarter. GM Financial's annualized net credit losses improved to 2.1%, and their earnings adjusted before tax were $225 million for the fourth quarter. I will now highlight a few items of note for Q1 2014 on slide 25. Back in January in Detroit, we indicated that we do not expect our quarterly earnings cadence to follow typical seasonal trends in 2014. We expect Q1 earnings to be approximately 10%-15% of total 2014 calendar year earnings. Restructuring charges included in Q1, EBIT-adjusted, are expected to be approximately $300 million, primarily related to the Bochum plant closing in Germany and the strategic actions we've announced in GMIO. We expect a weaker GM South America Q1 result given the extremely volatile conditions in Venezuela, reducing production in the quarter. Additionally, given the governmental policy actions and currency fluctuations within the region over the past few weeks, the risk profile has increased. We will also have increased marketing costs associated with supporting our vehicle launches. Additionally, we will have volume and mix headwinds in GMIO as we change over to the launch of the full-size truck and full-size SUVs in the Middle East. On slide 26, we again remind you of the slide we shared at the conference in January. Q1, as we just discussed, will be significantly weaker than seasonal trends. Q2 and Q3, we expect to be similar to trend. However, Q4 will be stronger as restructuring costs are front-loaded in the year, and China will be benefiting from their new vehicle launches. Finally, on slide 27, we remind you of our 2014 calendar year outlook. We plan to take advantage of the strength in North America and China to fund our restructuring efforts around the globe. We expect EBIT-adjusted for 2014 to be modestly improved over 2013, while EBIT-adjusted margins are expected to be similar to last year on a consolidated level. Restructuring charges for the calendar year will be significantly higher than recent historical trends. We expect to incur over $1 billion in restructuring expense and cash payments in 2014, primarily related to the Bochum plant closure in Germany and the strategic actions we announced in GMIO. Here's Mary for her closing remarks. Thanks, Chuck. In summary, we expect a year of modest growth in global industry volumes and solid GM results. More importantly, we are working to accelerate the work underway to improve results on our way to becoming profitable everywhere we do business. As you know, our medium-term objectives include earning 10% EBIT-adjusted margins in North America, achieving break-even results in Europe by mid-decade, delivering mid-single-digit EBIT-adjusted margins in South America, posting higher earnings in China, and turning in improved results in our consolidated international operations. We clearly have a lot of work ahead to make all of our regions solidly and consistently profitable. It's going to be a multi-year journey that will include brand building, significant reductions in material and logistics costs, and overall lower fixed costs. We are working on all of these things simultaneously in a very coordinated and fully aligned way. For example, about 70% of our Chevrolet volume in the United States will be delivered through renovated dealerships by year-end, up from about 50% today. The global business services team is beginning to implement strategies that are designed to significantly reduce our administrative costs. We expect that the scale we achieve through our global product development, purchasing, and brand strategies will improve every year. Rest assured, we are confident that we have the team, the products, and the plans in place to get it done. I know we've covered a lot of ground today, and I'm eager to hear what's on your minds. Let's go now to the Q&A portion of our call. Randy? Okay, operator. We're ready for questions, please. Thank you. Ladies and gentlemen, we will now proceed with the question-and-answer session. Analysts, if you would like to register a question, please press the 1 followed by the 4 on your telephone. 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, please 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. The first question comes from the line of Rod Lache from Deutsche Bank. Please go ahead. Good morning, everybody. Can you hear me? Yeah. Hi, Rod. Hey. A couple things. First, just focusing on North America. In Detroit, I think you suggested that the earnings improvement from 2013 to 2014 would be similar to what we saw from 2012 to 2013. It is around $1 billion. It looks like you get a couple percent volume growth, maybe 3% volume growth. That could be $800 million. You just did $1.2 billion of positive price in the quarter. So I was hoping you could just give us a little bit more color. Are you essentially saying that maybe because market share is not where you would like it to be, pricing will come down, or are you a little bit more cautious on volume or mix? Yeah, Rod, we haven't really changed our outlook from what we shared back in January at the Deutsche Bank conference. When you look at the key drivers year-over-year from a North American perspective, industry we still expect to be in the range of 16 million to 16.5 million, notwithstanding some of the challenges we've had in January associated with weather. We expect mix to be a tailwind year-over-year, really driven by new vehicle launches. Pricing on new product will be up year-over-year, with pricing on carryover being down as we continue to see competitive actions that specifically impact carryover product. We expect costs to be up year-over-year. Engineering D&A will be up, advertising will be up to support brand building and launch, and then the material content on new products. As I indicated back in January, directionally, we would expect another step function improvement year-over-year, really being driven by the improved industry and our new product launches, and some pretty favorable pricing on new products. Okay. Can you talk a little bit about the first quarter in North America? Obviously, you've got these two big launches. How significant a headwind is that? Maybe just thinking longer term into 2015 or beyond, you're talking about getting to 10% margins by mid-decade. Is it reasonable to assume that you see that kind of progressing positively from 2014 to 2015 and then beyond? What are some of the things that we should be thinking about as elements of improvement as we look out to next year? Okay. Yeah. First to the first quarter results or expectations for North America. Clearly, when you shut down full-size SUV and go through a launch along with heavy-duty pickups, that has an impact on overall volumes and mix. On the other side, we're filling out our pipeline with the new CTS and continue to get good traction on trucks. I would say that the big kind of headwinds in North America really related to the launch cadence associated with full-size utilities and heavy-duty trucks, as well as some incremental marketing expense related to the Super Bowl and the Olympics, along with launches. Relative to our journey to 10% EBIT margins, nothing has changed versus the discussions we've had in the past along with that. It is a three to four tranche phased in journey. The first, in 2013, was really driven by new products and improved margins associated with that and the improved retail share we got. In 2014, we expect another step, really driven primarily by product with some cost efficiencies on manufacturing and SG&A starting to filter in through the latter part of the year. Going into 2015, we really start to expect to get some traction on cost, material logistics, as we start to launch new products. The last piece is really business model leverage. That's really all about driving improved retail share, improved loyalty, taking full advantage of global connected customer. That's going to be kind of the last piece of this as we move through the cycle. So nothing's really changed from what we've discussed in the past. Just to clarify, you would think that 2015 would be better than 2014, even though when you look at new products are probably going to be a record as a percentage of the overall portfolio in 2014? Yeah, our expectations are that we are on a continuing upward trend in margins from 2013 through mid-decade. Nothing's changed versus that. Okay, great. Thank you. Thank you. The next question comes from the line of John Murphy with Bank of America. Please go ahead. Good morning. Hi, John. Good morning. Just the first question on slide 26. Chuck, you alluded to in the first quarter there being $300 million of restructuring charges, but given the cadence that you're showing here, it would have appeared that actually much higher in the first quarter. Can you just give us sort of cadence of the restructuring charges through the course of the year? In general terms, we talked about $1.1 billion. We're looking at this on a year-over-year basis. In Q1, I would expect that 30%-35% of those restructuring charges would hit, and then kind of work its way down on the trend line through the rest of the year. The big restructuring items in Q1, number one, there's going to be a fairly significant charge associated with the Bochum closure. We've got ongoing activities that are hitting restructuring in GMIO, primarily related to severance payments as we start to work through Holden employees. And then the impact of the São José dos Campos closure in Brazil and the severance and employee-related costs associated with that. Those are the three big items along with Chevrolet Europe in Q1. Again, as I think about the year, I would say that of the $1.1 billion, more front-end loaded in the first quarter, and then mitigating going through Q2 to Q4, coming down from that. Okay, that's very helpful. Then a second question on slide 17. You kind of had alluded to when you're talking about IO, that there was a lot of competitive pressures on pricing. Are you seeing the Japanese taking advantage of the weaker yen outside of North America in other markets? Is that kind of what you're getting at there? Yeah, we've seen that trend all year starting back in the first quarter of 2013, and it really is market specific. We've really seen a lot of price pressure in Australia, for instance. Japanese pretty strong there, and they primarily import from Japan. We've seen price competitiveness in Southeast Asia. Again, another area where the Japanese dominate, and we've seen price pressure there. It appears to me that they're more overt about taking advantage of the weaker yen in those markets than they have been here in North America or the U.S. specifically. Okay. Then just lastly, Mary, obviously product is a key focus of yours and the company's now, and it sounds like you're making bigger and bigger investments in the product cadence is good here in the short term, and this really seems to be the sweet spot in your product cycle. But as we look out into 2015, 2016, and 2017, once we get through the pickup trucks and the SUVs and the small and mid CUVs that'll launch in the next couple of years, do you think you'll be able to keep this very significant product cadence going forward? Or are we going to see a lull after we get through this surge? Can you guys commit to replacing 15%-20%-25% of your product portfolio, and I'm talking about the U.S., sort of on a consistent basis? Is that something you think you have the product engine to do now? Absolutely. I think as we look at our product cadence, it's really well thought out through the next four or five years. In addition to strong products and looking at what are the opportunities to make significant changes, whether it's a powertrain, whether it's electrification, as we look at the marketplace and what really the customer is looking for in the vehicle. So I feel very confident that we've got a good product cadence, as we go out through the next several years, and specifically with a focus not only on the vehicles but on powertrains. Great. Thank you very much. Thank you. The next question comes from the line of Colin Langan from UBS. Please proceed. Oh, great. Thanks for taking my questions. Any color in China, the margin was down rather significantly. Do you feel confident you could get those margins back to where they were? Because you indicated it was a combination of both pricing, which sounds like something that might be lingering for a while, and also the new plants or anything else. Yeah. For the fourth quarter specifically, the biggest driver of that was the incremental cost associated with bringing two plants on. We have talked about the pricing dynamic in China all year, and that is a pretty competitive market. Looking forward, we expect to see continued margins in China in the 9% range, and the continuing price competitiveness, but our mix is going to improve substantially as we launch a number of SUVs in that market and Cadillac. We are going to triple the sales of Cadillacs in China between 2013 and 2015. So we would expect to continue to see price headwinds, but we are going to offset that with much improved mix, and our expectation is we would hold margin somewhere in the 9% range. Okay. Thinking in GMIO outside of China, it did look like the GMIO consolidated got slightly worse from Q3. I thought Q3 had some higher warranty costs that were a headwind. Why the sequential weakness in the region? One, there was restructuring charges in GMIO in the fourth quarter of roughly $70 million. Two, as we start to prepare for the launch of the full-size SUVs and the trucks in the Middle East, there was a volume downtake there because they are settlement down the GMT 900 inventory that they have. So that was the headwind to a large extent in mix and price from that standpoint. So those were the two big drivers quarter to quarter. I got to say this, the region outside of China, very tough dynamic there. We took very decisive actions with the Chevrolet Europe decision that we made and the Australia decision. The whole purpose of that was to improve the foundation for growth going forward. There is more work to do in a number of other countries. In GM South America, what was the size of the product termination impact? Any more specifics on exactly what product, and will that affect your volume in the region going forward? Yeah, I would like to avoid giving the specific product because we still sell them. So, it was in the ballpark of $60 million to $70 million in Q4 on that product termination. Fundamentally, it is writing off the tooling. This is normal. That is why it is not restructuring and why it is not special. When we end normal production of a vehicle, if there is any unamortized tooling, we write it off. So that was the impact there. Why the decision to terminate the product all of a sudden? As we look at, again, the 2012 plan that we started to execute, four legs to that, rationalize the portfolio and sell new products where we make more money than the products they are replacing. This is just part of the rationalization of reducing our reliance or eliminating legacy products. We do not make very much money on those. Okay. Just one last question. The $600 million GM Korea wage litigation, was that accrued, and how much of that will be cash, and is there any implications from that from your cost structure? Because obviously that is the settlement, but I think the wages there are now kind of changing going forward. Yeah, we accrued a similar liability in 2012 when we got an unfavorable ruling on this specific litigation. We reversed it fundamentally because a very related case had a favorable ruling, and internal and external counsel deemed the probability of exposure there to be low. So we reversed that. One part of the ruling that we are still working through is the go-forward provision. So this was the retroactive piece. As the ruling came down in the Kabua case, the impact on go-forward wages, you would include bonuses, et cetera, in the calculation of ordinary wage. So that could have a headwind on a go-forward basis from a wage perspective, but we are still working through the details on that. Oh, and from the cash perspective, there is no cash outflow from the settlement? Not specific to the special item at all, no. It was a total non-cash transaction, both sides. Okay, great. Thank you very much. Thank you. The next question comes from the line of Brian Johnson with Barclays. Please proceed. Yes, good morning. I want to ask a question really kind of targeted to Mary, using the pickup truck market share as kind of a microcosm of how you might be thinking about pricing and promotion and how that might differ from prior management teams. If you look at it, your trailing 3-month large pickup truck share was around 34%-35%. That's like 300 basis points below the 2012 headline. I certainly remember in the mid-2000s, it would probably be time for employee pricing for everyone. I want to understand, it was actually 33.9%, how you're thinking about that share. Is that your target given the new trucks, at least in the half-ton segment of the market? What needs to change vis-a-vis product and/or your pricing and/or competitor actions to reboot that, or is big share kind of fine where it is? Well, a couple points. First, the truck has gotten great reviews from a multitude of sources externally. It won North American Truck of the Year, so we're very confident in the product. We are still getting all the plants online that build that vehicle. I think if you look at it, our new product, we were very effective in settlement out the old product, and so there's still 13 to 14 out in the marketplace. So I think we still have room to get going. We will maintain our pricing discipline, but we will also look and react to the market to make sure we're competitive within the market. But I'm very confident that we have a solid full-size truck. Also, if you look at, as I mentioned before, we have the heavy-duty trucks coming out in the first quarter. We've got the SUV, and then the third part of our strategy is the mid-size truck that will be coming out in the fall. So I think there's still a lot going forward, and I have a lot of confidence in these products, and we'll still maintain our pricing discipline. On the CUV side, I asked this question a few quarters ago, but maybe you have a different perspective. Seems like we're seeing kind of a global CUV boom. You're talking about some product actions that kind of put you in that, but I guess the question is, why do they seem somewhat late to some of these regions, and is there a lesson learned there, either around cycle time or getting the right balance between global platforms and local market demand, that you're going to try to do differently going forward? I think we've had success with the Chevy Trax and the Buick Encore and the Opel Mokka, and I think that's a very good success story. We have an SUV coming in China. I think this is a segment of the market that continues to grow, and we're going to get in and seize that. In some cases, do I wish we were a little faster in getting the product in the marketplace? Sure, but we have a complete cadence that we're working through, and we have, I think, very good products that we've announced that are out in the market and what we have coming. Again, it's a significant part of the market, and I think we've got the right product cadence as we go forward. Okay, thanks. Thank you. The next question comes from the line of Adam Jonas with Morgan Stanley. Please go ahead. Thanks, everybody. Got a couple questions, two short questions for Chuck and then one for Mary. Chuck, any guidance on the pension expense year-on-year, given how you finished up? We're looking at overall relatively flat year-over-year. This year, we kind of looked at, well, for 2013, a headwind, but as I look into 2014, relatively flat. Nothing material one way or the other. Great. Chuck, what's the Chinese JV dividend now? Meaning on trailing 12 months, how much cash you pull out of the business? It used to be around $1 billion. I'm just curious how much higher or similar it is. Fundamentally, we will end up getting dividends relatively equal to the equity income over time. Over time, but any delay? Because I know it's based on the prior year, and there's a certain payout. I'm just curious, can you quantify how much came out last year? I'll have to get back with you on that, Adam. I think it was slightly below the equity income in 2013, which we expect to catch up this year. $1.7 billion. Great. $1.7 billion was the number in 2013. Slightly below that? No, that was the number that we got, which was slightly below the equity income. Okay. Thank you. Yes. Lastly, Chuck Stevens, GM Financial, you guys are guiding for stable profit this year, but I am curious why, when we are getting all these new consolidated operations coming in. Any kind of one-offs that do not repeat, or is it new headwinds that you are allowing for? Yeah, I think there is incremental costs in building out the platform to help grow in the U.S. to take that business to 20% across all of the different aspects of the business, lease, financing, and also some integration and systems costs in the international business. There is a lot of work to do over there from a systems perspective. So I would call it a non-recurring kind of one-time investment in the business. Great. Mary Barra, just lastly, if you were to isolate the single biggest challenge or threat facing the company, both in your domestic market and then separately in your international markets, love to hear your thoughts and if you kind of were to highlight the biggest threats for us. Well, I guess I will. I'm a glass half empty kind of guy, so sorry. Okay. And I'm a glass half full kind of person. There you go. I would kind of characterize it as opportunities. Clearly, I think we have a strong product cadence. I think we are getting the recognition in the product cadence, but we need to continue to build our brands. I think we all know that that is a multi-year activity. You do not recover in one year or two from a historical perspective when we look within the car park. That is a huge opportunity. The winning product, and my goal is every segment we choose to compete in around the world, we are going to win in those products. As we continue to do that, we have to work on the other three Ps as it relates to making sure we go to the market strong and continue to build the brands. I still think there is tremendous opportunity in China. We have the three brands there. Buick is doing very strong. Cadillac is a huge opportunity, and there is still a lot of room for Chevrolet in China. I see those as great opportunities. Then third, we have to really focus on maintaining our cost structure. I think we have a lot of good activity going on in a very coordinated way to make sure we are not just, I will say, looking at cost here or cost there, but systematically looking at our overall cost structure, whether it is in the fixed cost of the business or I will say the material cost of logistics. I think that is another huge opportunity, and we will keep our focus on each of those. Thank you very much indeed. Thank you. The next question comes from the line of Patrick Archambault from Goldman Sachs. Please go ahead. Yeah, thank you for squeezing me in. A couple questions just on the outlook. I know the Detroit Auto Show wasn't a long ways away, but since then you've had a bit of a currency crisis, which has clearly impacted fourth quarter results, likely to impact fourth quarter, and likely to be a big impact to your point in first. Europe, especially considering you had, I think, was it $100 million of restructuring in the number seems to have come in pretty well. Even though the outlook hasn't changed, would you consider sort of the upside downside regionally to have shifted a little bit? In particular, the question would be for Latin America and Europe. I think that's a reasonably fair characterization. As I indicated in the comments earlier, the risk profile in South America over the past several weeks has increased significantly. We still see, real, no line of sight on a resolution to the business operations in Venezuela. At the same time, Argentina seems to be a bit more forward, significantly more fragile. So I would say the risk profile has increased in South America. I would say emerging market currencies have moved sideways pretty significantly across the world over the past several weeks. We're not just sitting back and watching this happen. We're taking aggressive actions where we can from both a price and a cost perspective to address that. So I would say more downside risk now than we had a month or so ago in South America. I would say on the basis of how we finished and some of the momentum that feels like we're starting to get in Europe, if I was more bullish on an outlook versus three or four weeks ago, I would say Europe feels like there could be some upside there. Thank you. Particularly on the pricing piece of Europe, I think if, I don't have the page in front of me, but it was sort of maybe a slight negative, but how would you characterize the pricing environment? With volume starting to pick up there, is that something that you anticipate is getting better? No. Let me go back and make sure that we understand the reference to the upside in Europe. Let's start with the foundation for 2014, because we need to be clear on that. When we talked about 2014 versus 2013, we said that was going to be a transition year in Europe. Number one, our new key launches in the most critical segments, the B and the C segment, don't happen until the latter part of 2014 and 2015. So, we think that that's going to be a dynamic that we're going to have to manage through. We also said that we expected continued price headwinds in the market, and I think in our case, exacerbated by the age of the portfolio in the B and the C segment. We've got significant year-over-year restructuring charges as a headwind in Europe as well, and Russia. Russia is consolidated and part of European operations now. With the weakness of the ruble, that's created, as I talked about back in January, another year-over-year headwind. So in the context of, hey, you add that all up, and European results are, as I indicated before, are going to be down year-over-year, and margins are going to be down year-over-year, primarily driven by restructuring charges and Russia. I think that my sense is from that foundation, there's probably some upside, but it's still going to be down year-over-year because of restructuring, primarily. Okay. That's very helpful to frame that. Last question for me is just on the North America walk. I guess one thing that I didn't sort of expect was the negative impact of mix. Obviously it was offset by tremendous pricing. But can you just explain that a little bit? I guess you said country mix, which I suppose would be Canada and Mexico, but I was sort of surprised just given the truck production that that would have been negative. Yeah, I would say this, the mix results in the fourth quarter, a bit of anomaly. We had indicated for the year that we were going to be flat to slightly positive on mix in North America. We ended up flat. We indicated for 2014 that mix was going to be a tailwind, and we continue to see that. In the fourth quarter, one, we had, compared to year-over-year, a higher proportion of production allocated to Canada and Mexico, so that had a headwind. Number two, in general, passenger cars versus trucks as a percentage of total sales or total production were up year-over-year. And then the last thing, which really was a significant impact, there was a number of full-size pickups en route from Mexico to the U.S. that didn't get past the pay point or recognition point before the end of the year, and that created another anomaly in the mix. So I would view this as more of an anomaly than a trend. Okay, so those trucks will get recognized in the first quarter then? Yep. Okay. All right. Thank you very much. Yep. Thank you. The next question comes from the line of Emmanuel Rosner with CLSA. Please go ahead. Hi, good morning, and congratulations to you both on the increased responsibilities. Thank you. Thank you. Another question regarding the North American walk-ins. What it means for the 2014 outlook. Your cost headwind on a year-over-year basis worsened a little bit versus the run rate that we had seen in the past couple of quarters at about $500 million or so. You were pointing specifically to it being the materials included in the new products that you've been launching. How should we think about that on the go-forward basis? Is that the sort of run rate to think about cost increases, or was that a little bit more because of the launches? Well, I think it's time to launches and when you recognize the price. Talking specifically about Q4. Pricing on new products, primarily the new trucks, but as well, the Impala, the Corvette, CTS, was favorable over $1 billion in pricing on new products. The material cost that goes along with that, so there's new content, features on the vehicles were $600 million to $700 million. That's a big portion of the cost headwind in Q4. But net net, it was accretive to earnings at $300 million to $400 million or 30%-40% variable margins. That's the kind of dynamic you typically have when you launch a new product. As I talked about 2014 before, similar to 2013, price was going to be up primarily on new and major. Material cost will be up on newly launched products. The net of those two is positive to EBIT, and that trend will continue. Understood. That's very helpful. Then more strategically, maybe for Mary, as you're sort of settling in your new role, what are your strong near-term priorities? Specifically, if you can highlight if there's any sort of directional changes that you would like to implement from the previous management. Sure. Well, there's no right or left turn. I think our real opportunity is to accelerate from a focus perspective, it's keeping a strong customer focus. We've got to continue to make sure we've got the right vehicles out there with the right quality. We have work to do, but we're on it on building strong brands. We need to continue to maintain our fortress balance sheet. Again, one of our key areas of focus is to operate profitably everywhere we operate, and we know we have work to do in that. So we're focused on that. I think one of the opportunities of creating the president position, and I was very involved in putting that role together, I think there are opportunities across our regions that we can seize more quickly to have, I'll say, stronger go-to-market strategies, also to make sure that we're seizing the opportunities in the product portfolio more quickly and really managing it on a global basis. It's really to move forward with the plan. And I think we've got a strong foundation, but we really need to now take advantage of it. Great. Thank you very much. Thank you. The next question comes from the line of Ryan Brinkman with JP Morgan. Please go ahead. Hi, good morning. Thanks for taking my question. I know you don't host monthly sales calls in the U.S. any longer, so I thought to ask in this forum whether you have any comments on the slower SAAR and softer GM sales in January. Are you able to quantify the impact of weather on your sales and shares? I think some of the regions in the U.S. where your share is a bit lower, like California, were maybe less impacted by the winter storms. It looks like you're maintaining your full-year SAAR outlook. Just maybe comment on how much of January's slowdown industry-wide and for GM is related to potentially one-off factors. Yeah, I would say, the impact for us in December and January, and it looks like at least if you're sitting here so far in February, was really primarily weather related. The SAAR in the month of January ran at 15.1 million units. It was actually down year-over-year. We over-indexed to the Northeast, North Central Midwest, and that is where the bad weather was. I would say by and large, that had the impact not only on our sales but also on the SAAR. The good thing is January is the lowest month of sales from an industry perspective. You can have a 15 or a 15.1 million SAAR for the month of January and quickly recover. We would expect to recover most of the sales that we lost in January as we go through the rest of the first quarter, assuming the weather behaves, and into the spring settlement season. We are still holding on our prior view of U.S. industry 16 million to 16.5 million light. Obviously, we are going to continue to monitor our industry and our own inventory levels and make sure that the industry does recover, and if not, as Mary Barra said earlier, we are going to continue to apply our disciplined approach to managing supply and demand. Right now, nothing is really changed based on January results. Okay, thanks. That is helpful. Obviously, you are returning a lot of capital to shareholders with your new dividend, but I am curious what your thoughts are relative to repurchases and, if you were to implement your purchase plan at some point, whether it might make sense to do it sooner rather than later, given a pullback in your shares and your characterization of 2014 as a transition year with much better results to come, suggesting that you may not get another chance to buy your shares so cheaply in the future. Yeah, I think back in January, we laid out a pretty clear plan relative to capital allocation for 2014. One, we are going to continue to support the capital spend that we need to maintain that product pipeline and continue to enhance that going forward. We have got the $1 billion-plus of restructuring that we are going to have to fund in 2014. We have got the rest of the Ally International acquisition to fund for $700 million, the China piece of that business. We have got the rest of the Series A redemption, which will be a call of $3.9 billion of capital and $2.2 billion of dividends, $1.8 billion common and $400 million on Series A. So that is $16 billion of capital allocation, and we think that is a pretty good plan, and the dividend really made a strong statement around how we plan to return our capital to shareholders. With that said, I think we've proven to be opportunistic in the past if situations arise, and we will monitor that as we go through the year. That is fundamentally the plan that we have laid out and that we are executing to this year. Great, thanks. Then just last question, if you could elaborate on the lower costs in Europe. It looks like overall cost there helped EBIT by $500 million, and I think restructuring was a drag year-over-year. Can you just remind us of that so maybe underlying costs improved even more and just sort of bucket it? Where did that come from? Your distribution venture with PSA, salaried personnel reductions, commodities, et cetera. Just trying to, anything that can help us gauge the sustainability of cost improvement in Europe, particularly as can you sort of maintain that as volume returns? Thanks. Yeah. Looking specifically at Europe from a cost perspective, overall in the quarter, $500 million purchasing, so material performance, and some of this would be associated with the GEFCO Logistics alliance that we have, or partnership, was about $100 million in savings. Engineering was $100 million in savings. Other fixed, $100 million, and D&A, $200 million savings, partially offset by the restructuring. This is not like extrapolate on a run rate basis going forward when you look at year-over-year results. Obviously, a lot of the actions that we have taken over the past couple of years reduced our overall fixed cost base. The next big step, once we get past 2014, will be the ongoing savings associated with the closure of Bochum. Call that $200 million to $250 million a year in savings. But I think another thing that may be underappreciated in some of the views on Europe, we had that significant impairment that we took in 2012 that fundamentally wrote down most of the assets and significant savings in D&A. We are investing EUR 4 billion or $5 billion, much of that going into tooling, and that depreciable base is going to start to increase. When you think over the next three or four years, year-over-year, we are going to have increased D&A versus where we were in 2013 as we launch new products. So not all of these are run rate savings. I think we have fundamentally driven the business, at least on a fixed cost perspective, to the right level. We will continue to look to streamline that, but not material changes until we get past the Bochum closure. Beyond that, as we've indicated from the PSA alliance, a lot of material savings will eventuate when we work on the joint programs going forward, which are later over the next 2 or 3 years. Great. Thank you. Thank you. The last question for today comes from the line of Itay Michaeli from Citi. Please go ahead. Okay. Great. Thank you. Good morning. Chuck, a question on the North America margin path to 10%. I think when you outlined it initially, it was the path from 7% to 10% was a third product and then two-thirds cost savings, fixed and material logistics. Just wondering, how far along are you now on the fixed cost and logistics, and perhaps how far along will you be perspectively when we close out 2014? Yeah, think about this in kind of three big tranches. I would suppose roughly 100 basis points of product related, 100 basis points of material and logistics, and 100 basis points kind of a business model leverage over time. I think the way as we refine this from 2011, 2012 to now, the fixed cost efficiencies that we're going to drive in administration, SG&A, and manufacturing fundamentally will offset incremental D&A and incremental marketing costs. The way I think about it, a good outcome for us would be flat fixed costs as we continue to grow the business. I'd say, as we get through 2014, kind of the first tranche of product-related margin expansion will have fundamentally played out. The material and logistics piece will start to kick in with the next generation programs because that's where you really get an opportunity to drive scale and leverage that scale with global architectures and business model leverage, as I talked about earlier, would be the latter piece in the 2015 and 2016 timeframe. That's helpful. Then a question on the 2015 outlook at GMIO consolidated. I think in Detroit, you specifically referred to improvements driven by product launches and restructuring benefits. Hoping you could perhaps quantify the restructuring benefits we should expect there in 2015 as well as perhaps what kind of product refresh rate might you have next year versus this year there? Yeah, I would just say, eliminating the share, we don't talk about specific operations within our regional results, but we lose money on Chevrolet Europe, so that will be one of those benefits once we get past that transition. We're looking to significantly improve our profitability or reduce our losses in Australia. So those are the two benefits of the actions that we've taken that should help improve. When you think about product launch cadence, just think about the Middle East. Full-size SUVs, full-size pickups, full launch of those products in the Middle East. We have significant work to do in the other markets as well from a launch cadence perspective. We've talked about the B-SUVs, the Trax, Encore, and Mokka. There's more of those coming down the pipeline. And fundamentally, an emerging market, B/C type vehicle that's going to be very important for those markets looking forward. I think we talked about 2015 being improved from 2014. We didn't quantify it. Great. And just quickly, lastly, any updated thoughts on the tax rate for 2014? From a book tax perspective, it's going to be in the low 30% range. We made a change in including equity income in the denominator to be similar with Ford and industry practice, which should take that to 30%, 31%, 32% from where we were in 2013. Perfect. Thanks so much. Yep. Thank you, Mr. Erich. With that, I'll turn the call back to you. Please continue with your presentation or closing remarks. Thank you, operator, and thank you, everyone, for your time today. Appreciate it. Thank you, ladies and gentlemen. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.