General Motors Company (GM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Credit Suisse fireside chat with General Motors Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference to your speaker today, Dan Levy from Credit Suisse. Mr. Levy, you may begin.

Great. Thank you very much. Good afternoon, everyone, and thank you for joining. I'm Dan Levy. I lead equity research coverage of the U.S. Auto Sector Credit Suisse and glad you can join for our virtual fireside chat with General Motors. Very pleased to have with me on the line, Mary Barra, GM's Chairman and CEO; and Dhivya Suryadevara, GM's CFO. Promise this to be a very timely topic of discussion. We're going to focus on the current state of the reramp and the recovery as well as GM's efforts in the realms of EV and AV. We hold an outperform reading on a $33 target price on GM. And we'd argue that the silver lining to today's disruption is that GM can validate. It does, in fact, have a healthier business model today than it had in the past, making it well positioned for the future, and this supports the case, we think, for better investor appreciation of the stock. Please be advised we have investment disclosures for today's discussion. Please reach out if you'd like a copy. And with that, Mary and Dhivya, thank you so much for taking the time to join us.

Why don't we -- thank you. Why don't we dive right in? And I think the question that's on the mind of most people is the current state of the North America production restart. Mary, maybe you could just walk us through the current status. What are we seeing with the supply chain, Mexico, any imported supply from outside North America? And more broadly, is there a particular constrained factor that you'd cite as the most critical in returning to broad rate production?

Sure. Well, thanks. Well, we did restart operations. There were operations running throughout the whole down period. Our warehouse is supplying dealers and also our ventilator and our mass production. So that, along with the lessons learned from Korea and China and other places around the world, we have a very extensive playbook as it relates to working safely. And so the factories in North America, including Mexico, restarted under these very extensive safety measures. I think the restart has gone fairly smoothly. I've been to 6 plants in the last 2 weeks and talking to the workforce. We trained everyone, so they understood the whys behind the safety protocols, and I would say there's good receptivity, and it's going well. We also shared our safety playbook with all of our supply base, and they've done a nice job of implementing the protocols as well, and that's [indiscernible] as we go forward to make sure we don't have another situation that causes production in the supply base or in the -- in General Motors to have to shut down. And so we started up on one shift. This past week, we added -- we're adding second shifts, and in plants that we need to add 3, we will be doing that as well. I would say, overall, the supply base, we've been working with them since the moment we shut down and understanding their challenges and issues. I think things are going well. Clearly, as has been reported, there's been some challenges in Mexico, as everyone is facing because in North America, virtually everyone has a portion of their supply base located in Mexico. And it's mainly due to the COVID situation, which is at a different point in the curve than it is in the United States. And so we've done a lot of work working to communicate with the different governments and the federal government to make sure they understand the safety protocols that we're using that -- they have been used through different points in the curve. And many of our suppliers have received the approvals they need from the different government agencies in Mexico to allow them to resume operations. And we are working the time line of all of those supply base. So we are cautiously optimistic, and that was the decision that we made. Obviously, starting and adding a second shift is key. I would say, overall for the supply base, we have a very robust supplier financial management process in place that helps us work with suppliers to get in front of any issues. So that is underway and continues all the time as well. So although the situation is fluid, we have a purchasing and supply chain group that deals with many things that affect the supply chain, be it weather, tornadoes, hurricanes, et cetera. And so they stand ready to jump in and I think cautiously optimistic as we restart that we'll continue and keep not only adding second shifts where appropriate but third shifts.

Great. Let's -- on this topic, just pivot to cash burn for a second. And Dhivya, you provided a really helpful framework on the 1Q call for how to understand cash burn. I think you highlighted that in an environment of $8 million to $10 million SAAR, your cash burn could be $79 billion. Second quarter SAAR, I think, is shaping up nicely above that environment, maybe $11 million range. But at the same time, production has been slow to reramp. How do we think of cash flowing in such a framework? Is it possible you could see higher burn if you're doing further unwind of dealer allowances? So how to maybe sensitize that framework you provided given the shift in the environment?

Yes, sure, Dan. So first of all, it is a scenario that we painted, to your point, to give everyone a sense of what the levers are that do impact cash burn. And the 2 biggest factors, as you pointed out, would be the level of industry as well as production levels and production timing as well, I would say, that impact the level of cash burn we're going to have. And if you think about the drivers that I've mentioned on the earnings call, if you look at cash costs that we're incurring now or the CapEx levels that we alluded to, those appear stable. So those are, I would say, good levels to assume for Q2. The part that's harder to forecast is going to be what is the ramp as it relates to the rest of the quarter as well as what's the level of SAAR. Typically, production levels will impact the -- both accounts payable as well as the other key working capital like AR-type items. And the SAAR levels will determine the sales allowance unwind. So as we look through the rest of the quarter, it is a fluid situation. But when you model it, if the retail comes in stronger, that means sales allowance unwind will be higher. If the production levels are lower or if they happen later in the quarter that will impact the AR and AP. So clearly, a fluid situation, but I think it's important, to your earlier point, to step back and look at the underlying business more holistically and the cash flow breakeven that we alluded to and the fundamentals of the business, which we believe remain strong.

Great. And on the current dynamics, Dhivya, a lot of this is focused on inventory. And I think the dealer base has done a good job of managing tight inventories, especially in trucks, but could -- we could see a scenario in which your large pickup inventory is below 40 days supply by the end of June. Is there a day supply or gross back level that starts to become more of a concern for you? And should we expect further pullback on incentives as stock gets tighter?

Yes. So inventory is definitely on the tighter side, especially as it relates to trucks. And the way to mitigate it, I would highlight 2 points. As Mary mentioned, as they're ramping back the different facilities, the prioritization will be on the full-size truck and SUV plans and getting the vehicles as quickly as possible to the dealer lots. So that remains the priority. But also from an efficiency standpoint, we had mentioned during the earnings call that the dealers are doing a very nice job of selling deep into the inventory. And just to give you a few examples, we are working on prioritizing faster turning models, the options, the TRIM mixes and colors that are -- that tend to turn faster. Another example is for model year '21 as a reference point. There are orders that we are flagging for dealer review if we think this is not a configuration that might end up getting ordered or it would end up being a faster turning model. So the way to think about all of that is we are -- even within the level of inventory that we have today, we're becoming more efficient in terms of how to sell them. So building and refilling the pipeline is one line of defense, and then selling it efficiently is a second line of defense. And to your final question on incentive, look, we -- we're going to continue to stay disciplined. You're going to see month-to-month, we will need to maintain our competitiveness. And we will be very thoughtful on the level of inventory we have and the overall go-to-market tactics. But we have said that we're going to remain disciplined, and we will do that while staying competitive.

Great. And then just on trucks as a whole, Mary, you mentioned, obviously, you're at 3 shifts right now. Just how easily should we think about your ability to transfer resources from other plants to your truck plants to make sure that that level of 3 shifts is sustainable? How much faster do you think trucks can reach run rate production versus other products?

So Dan, just to clarify, we added the second shift this week, and so we'll be looking to add the third shift as we go forward. So we're running at 2 shifts right now. We've been working for weeks to make sure the plants are ready to restart with trucks in priority order because of where we're at from an inventory perspective and because of the -- just the demand for trucks and the importance of trucks from a franchise perspective. So if we've had to shift people back and forth, that work was already done. But frankly, people are coming back, and we've seen very low -- a number of people who aren't able, for any reason, to come back. So we don't really have any issues from that perspective. So then you look at supply. And clearly, making sure every single supplier can support 3 shifts is what we're very much focused on, with an increased focus on Mexico, as I mentioned before. But -- and if there's an issue as it relates to components that go in multiple plants, clearly, we'll prioritize trucks over some of the other plants. We're not at that point yet, but the team knows all the levers to pull to prioritize trucks as it relates to supply base-type issues that we're hoping not to have, but we stand ready to pull those -- make those priority changes if necessary.

Great. Let's just pivot for a second to China here. And we've seen very strong data coming out of China in April and especially in May. Dhivya, under what conditions would you expect to return to the $200 million quarterly run rate of equity income you've cited in the past?

Yes. So when you look at the China market, clearly, the virus situation, when it hit, it impacted an already weak industry. And you saw the impact on our Q1 equity income, which was clearly challenged. Since then, as you know, production has resumed, and we're following all the safety protocols that we've put in place, and the dealers are starting to see more traffic as well. So February was clearly the peak of the crisis there. And to your point, industry is starting to pick back up in March and recovering in April and May, but it is early days, right? So we need to see how much of this is pent-up demand versus more of a stable recovery. So that's something we're going to watch. And when there is a sustained recovery, what we'll benefit from is the launches we have talked about together with the cost reduction measures we've put in place and the continued growth of adjacent revenue streams that we had talked about during Capital Markets Day. Those factors would come into play. And when the situation resolves itself, we're expecting the return to the $200 million quarterly run rate for equity income, but it is something that we want to wait and watch.

Great. Let's pivot to recovery beyond the sort of very near-term items. And I want to go back -- Dhivya, you commented on cash. Assuming no more shutdowns going forward, how should we think about timing and magnitude of working capital rebuild? First of all, what would you -- have we passed what was arguably the trough of cash burn or the worse of cash burn? And when might we see full rebuild of the $3 billion to $4 billion in working capital, the $2 billion to $3 billion of dealer allowances, however that sensitizes the current environment that you cited in your framework?

Yes. So the 2 factors that we talked about, production level and timing and the sell down or rebuild of the dealer inventory is basically what's going to impact those numbers, Dan. And as I mentioned earlier, if the production is weaker in Q2 due to a slower ramp, what will basically happen is it shifts the working capital rewind to later. And therefore, the net unwind that's happening in Q2 would be higher if there's a weaker production. And the way to think about the ultimate rewind even looking beyond Q2 into Q3 and Q4 is as production starts to normalize to pre-crisis level, you could almost expect working capital to rewind on a pro rata basis, everything else equal. And sales allowance, again, pro rata based on level of dealer inventory and the demand -- the sell-down that you're seeing there. And depending on the timing within the quarter as well, you're going to see quarter-to-quarter noise and volatility there as well. But the way to think about the rewind is associated with the level of activity and the specific timing within the quarter.

Great. Let's talk about mix and margins for a second. And Dhivya, I think the $10 million to $11 million breakeven analysis, SAAR breakeven analysis that you cited, there are some mix assumptions. We appreciate it's probably too early to tell what the normalized mix will be. But it's interesting that incentives as a percent of ATP, mix is much stronger. The incentives, while elevated today, are much lower today than they were in '08, '09. And I think that supports the case for richer mix going forward and better margin. Does this provide any hope for an improved SAAR breakeven level? Or that a 10% margin could be achieved in a lower SAAR environment than what we saw in recent years?

Yes. So we've talked about our North American EBIT breakeven for a number of years, be in the $10 million to $11 million range. And clearly, as you will know, every downturn is different. And within our modeling for our downturn, we had looked at what happens if there is a mix shift away from trucks or more profitable vehicles or what if there is a more heightened incentive environment or pricing pressures. And depending on what the specific downturn looks like -- and you're seeing already proof points that this particular crisis is different from many other crises. And so depending on how those -- the specific downturn pans out, each downturn will be different, and each variable will impact the breakeven. And as you said, it's early days on figuring out whether there's a more permanent shift from a truck standpoint or if incentives remain disciplined. Net-net, obviously, if those factors were to stay, it is better from a breakeven analysis standpoint. And it's just too early to tell. But I think the way to think about it is we will remain disciplined, as I said, from an incentive perspective. And we are continuously looking at our breakeven to see what are the cost elements, how can we get more efficient and continue to keep an eye on maintaining or improving the breakeven at all times.

Great. Let's just talk about GMF for a second. Dhivya, you mentioned a target in the past of fully dividending GMF's net income to the AutoCo sometime over the coming years. How does coronavirus or the disruption we've seen to GMF impact those plans? Is that still intact?

Yes. I'd say it's very much intact. If you -- as an example, if you saw what happened in 2018, when we instituted a dividend and had a $400 million dividend to the parent approximately, we said this year -- earlier in the year that we were expecting to at least double that. And we're on track now to achieve that level in 2020. And in simple terms, the way to think about GMF is we have been growing the book to get to full captive levels and achieve the penetrations that are appropriate for a full captive over a number of years. And during that time period, what you need to do is to obviously hold on to the equity at the FinCo level to support that level of growth. And now as the metrics are starting to mature and the FinCo is starting to like stabilize and the book gets closer and closer to an optimal level, that's the factor that ends up determining how much dividend gets sent back up to the parent. And that trajectory remains. And if anything, the crisis has proven the benefit of the FinCo and how important it is to our customers and to our dealers during times like this. And you'll see the FinCo continuing to grow their book. And you'll see us, once we get there -- and it's starting to inch up the dividend to achieve 100% net income to dividend conversion. And so that goal remains unchanged.

Great. Let's just talk for a second about the risk potentially of a second wave of the shutdowns. In the event there is a second wave of production shutdowns, Mary, to what extent would that play out differently for you than what we saw over the past few months? So there's less inefficiencies in a potential second wave of shutdowns as you've you already lived through the experience over the past few months.

Well, yes, I think there are several things that are going to be a driver if there's a second wave or not. And it's really -- the next several weeks are going to be critical for us to watch in the United States to see what happens, and then in other regions as the curve starts to go down and how people resume some type of activity. We do -- and I had this conversation within several regions. I think the hospitals are much more prepared. They have the right productive -- personal productive -- personal protective equipment, the right number of beds, the right number of ventilators. And so I believe the hospital systems are ready if there is a slight rise. I'm hoping the mindset of the U.S. is also that people will keep social distancing, wear masks as appropriate because we've all learned that, that's very, very important as we learn more and more about this virus. So those are all things we're watching. From a cost perspective, we were quickly able to take out significant costs, and we're being very conservative as we start to ramp back up of what costs we turn back on to make sure that we have a lower cost structure through this year. And then I believe we'll come out of this with a lower cost structure that is permanent with everything we've learned at how we can do things better, faster and with less cost. I would also say through the period, the learnings from China, the learnings from Korea, and what we've been doing in the United States, we have not had a facility-spread case. So we believe very strongly that the environment that we're creating in our operations, people can come and be safe. In fact, I've had several employees tell me they feel safer at work than they do going to a grocery store. And so we think we have the right protocols in place. And so that is something that -- and that's why we've worked so hard to make sure our entire supply base is following those same protocols because I think that will be a different than kind of the hammer that fell on everyone to shut down that if there's an issue, it can be much more surgical, be addressed, and then people can come in and go back to work. So we're watching many things, but I think that the key message is, with the amount of cost we took out, we're not going to immediately turn that back on. We're going to stay very conservative, and we're also working a number of scenarios to be ready if things are -- if we do get into a second wave that is more serious, but also not precluding from this, there's opportunity as well. So we're trying to make sure we're ready for a wide range of outcomes.

And you mentioned potentially lower costs going forward. What are the types of things that -- beyond a restart that are more permanently out of the cost structure that you'll just be more vigilant on?

Well, I think there's a number of things as we look at how we can eliminate complexity. We want to make sure we go to market with what customers want to buy, but we think there's still significant work we can do from a complexity-reduction perspective, from the number of architectures we have to the complexity within a platform. Dhivya mentioned earlier that making sure we have the right configured vehicles and don't create those vehicles that are less desirable, there's been a lot of work going on there. I would also say just a lot of our processes, we found things -- when you go through something as severe as this and transition work to home, it really causes you to look at every single thing you're doing and is it really adding to the company, every line item. And so that work -- again, we have found things that we don't need to do. We have found things that we can do more efficiently. And then the core, taking cost out through the whole value change by having the right level of complexity, I think, will be very, very important. So this also supports our dealers, supports our suppliers, allows them to be more efficient and simplified and streamlined, which I think is going to be beneficial. And then the other thing I would add is, I think there -- we've seen customers become very -- demand and comfortable with doing most of the vehicle purchase online, having contactless delivery or clean delivery, as we call it. And so I think we're going to see permanent changes there, some of which will allow us to take cost out between ourselves and our dealers to better support the customer.

Great. Let's talk about aftersales for a second. And this is the piece of the business that I would argue is overlooked by investors. I believe this business is largely the legacy ACDelco and GM Performance Parts businesses. But Mary, can you maybe give us -- give a brief overview of the business for folks who may be less familiar, because I think everyone knows the trucks and everyone knows the different pieces, but this one gets maybe overlooked a little bit by investors.

Sure. So our -- we call it General Motors Customer Care & Aftersales, and it's a division of General Motors, it's global that supplies replacement parts for GM vehicle brands and other non-GM vehicles through GM's extensive network of dealers and independent aftermarket partners in over 100 countries around the world. The group -- CCA supports GM vehicle brands from cradle to grave with advanced serviceability that -- they're involved in the vehicle design phase, the development of the diagnostics and the repair procedures and the ongoing vehicle support to ensure GM vehicles are repaired properly during maintenance, during repair or a collision event. And we also provide an extensive portfolio of performance and functional and appearance accessory for all GM vehicle brands worldwide. So this is a very important business. It's a business that we have been growing. When you look at our opportunity in China as the car park matures, that's an opportunity. Clearly, with what we're doing with performance and functional and appearance accessories. Some of that business was being done by others. We've successfully, for instance, with floor mats, brought that back in successfully. So it's a different margin business as well. So this is very critical. We see it has a growth opportunity to it as well.

Okay. To help frame, I guess, the size or the financial impact of that business, Dhivya, I think we've heard in the past that Customer Care & Aftersales generates a profit in the billions of dollars. Is that still the case today?

Yes. It is a very important part of our profitability, and it is cash-generative as well. And it's been consistent. And we expect it to be consistent going forward, especially as the car park is aging and it's expanding. There's a few elements of this that are particularly noteworthy. This business tends to be somewhat less cyclical than the rest of the business as well. So there's a nice kind of natural hedge that it provides. And secondly, you alluded to trucks, the service business for the trucks side of our portfolio, it's particularly attractive, and it's almost 2x that of the passenger car. So you take a strong truck business and then you layer on top of that the Aftersales business, it makes for a very strong and consistent profitability as well. And then finally, to Mary's point, it does allow us to keep the customer within the overall GM family. And from a retention standpoint, from a core vehicle business perspective, it is an important element as well. So we're not specifically going to comment on profitability, but I think your general direction that it is a significant contributor, is fair.

Great. Let's pivot to the longer-term strategy of the business, AV/EV. And Dhivya, I want to start with the question on investment. And I think the message on your recent earnings calls that AV/EV spend is on track. Post this crisis, is there anything that prevents you from accelerating spend as you've articulated in the past? Or has the crisis just forced you to dig deeper on efficiencies in the core business to make sure that, that AV/EV spend is intact. So how to think of that spend going forward?

Sure. I think the way to think about it is the application of our capital allocation framework that we talk about normally. And the first pillar of that is what you're alluding to, which is reinvesting in the business at an appropriate level, at an appropriate rate of return. And if you think about the comments that we've made on the earnings call that the AV and EV spend remain on track, that's absolutely consistent with our capital allocation program. We designed it to protect our future investments and making sure that we're investing in all the right places. And we deliberately protected the EV program, the new LTM battery as well as the new launches that we have coming up on the EV side, and ensuring we had no impact from a time line perspective in terms of launch of those vehicles. And prospectively, as we look at our future investments as well. We're going to make sure we make the right kind of investments in EV/AV as well as the core business. And from a Cruise standpoint, you did allude to AVs. Cruise is well capitalized with its own funds that are separate from GM, and they're going full speed ahead on their mission. So I would say that we're well positioned between EV/AV and the core business as we think about future programs.

Great. Let's talk about AV specifically. Mary, does the crisis cause Cruise to expand partnership beyond Honda? And from an industry perspective, do you think the crisis might drive more consolidation or partnerships in the landscape, in the AV landscape?

Well, as we've seen, we do -- and Dan mentioned this at Capital Markets Day, we do expect to see field to narrow in the autonomous vehicle space. We think Cruise is very well positioned as that happens. We already have an excellent relationship with Honda in many areas and AV being a very important piece of it. I think with the leading position that we're in from an AV perspective, there's many opportunities with partners, potentially additional OEMs, but also with other companies to leverage the technologies and gains because I think people are recognizing that AV does require significant investment, and that's why we're seeing the narrowing. So I think we're well positioned. We're looking at opportunities right now and evaluating many. I don't have anything to announce today. But our commitment to Cruise remains very strong, and obviously, getting the technology to a point where you're safer than a human driver and can take the driver out of the car is what we're 100% focused on and will continue to be.

Great. Just pivoting to EV. Dhivya, could you maybe provide us with some of the financial parameters of the EV-sharing -- platform-sharing agreement with Honda? And more broadly, is it fair to say that partnership, whether it be with Honda or LG, is a central aspect in allowing you to drive EV cost down and providing you with flexibility in your own budgeting?

Sure. As we've spoken about at our EV day, one of the key elements of going to be scale in driving down the cost of the battery and overall cost of EVs and the partnership with Honda is going to contribute from a scale standpoint. And it's a validation on the overall approach with our LTM battery. And we are very pleased with the partnership, and it's something that we have evolved over years, working with them on fuel cells and then on the Cruise aspect of it and as well as EV now. And I can't share the specifics on the financial, but a way to think about it is some of the payments are upfront and some are in the form of royalty in the future. But I think the key element is that it is a win-win opportunity, and there's a lot of mutual respect between the teams, and it's something we're very happy about.

Great. On capacity expansion -- more broadly on capacity expansion and expanding in EV. Mary, it sounds like the construction preparation has started on the joint battery facility with LG. I think that's supposed to have 30-gigawatt hours of capacity initially. If you make some basic assumptions on average battery pack, that -- arguably that capacity only accounts for maybe 40% to 50% of your stated target of 1 million EVs by mid-decade. It probably says that you probably have to do some further capacity expansion in the U.S. So how should we think of capacity expansion? Is expansion of the Lordstown Ultium battery plant sufficient? Or would you have aspirations to create further facilities. Should we be watching our Twitter accounts on this?

Well, first off, we do have room to expand at Lordstown. So I think that's very important. We can get the synergies and scale there. So we feel confident that we're going to be able to quickly install capacity and scale as customer demand increases and be slightly in front of that to be efficient with the capital. That said, we are also always evaluating other opportunities to increase the supply of cells, and we are evaluating several different options. I don't have anything specifically to announce today. More will come in the future, but we've thought through what we need because we want to have a leadership position in EVs with a wide-type portfolio. And so clearly, having the right cell capacity is going to be an important part of that.

Great. Before we -- I want to just wrap up with one final question before we go to just some of the audience questions that I've gotten. And I want to just ask more broadly on the topic of validating the improvements in GM's business model. Mary, I think for the last 10 years, GM, you've really made considerable efforts to demonstrate that you're a better company today. We can go down the line between purchase balance sheet and your exit from Europe and North America sedans and doubling down on AV/EV. All of this, I think, adds up to a GM that's structurally a much better company today than it was 10 years or even 5 years ago. So coming out of this crisis, what actions have you identified to make sure you are an even healthier business in the future? And for investors, like what are the one -- key one or 2 accomplishments you'd like the investment community to focus on amid your bid to show that you're really a better company today that people could maybe better appreciate in the future?

Well, I appreciate your comments, and I do believe we entered this crisis better positioned financially because of the many business transformation actions we've taken over the past several years to improve our cost position and to improve our competitiveness. And as we suspended operations, we also moved very quickly to preserve our liquidity and protect the business. I think it's too early to forecast exactly where things will be. But we are going to continue to keep a laser-like focus on our cost structure. We're going to be going through the process of zero-based costing environment as we go forward. And that whole mindset has been very healthy. So you'll see us continuing to have that cross focus and to be very cash conscious and be able to seize opportunities when we go forward. And we're also moving quickly to really achieve the zero crashes, zero emission, zero congestion vision that we've established for ourselves. And we're going to continue to innovate, to deliver safe vehicles, to be efficient from a connectivity perspective, services is an opportunity, and really be focused on how do we exceed customer expectations, again, across a full range of vehicle segments and brands. And I think as we deliver on these commitments with our products, as we continue to invest in AV and EV, our goal is to really lead the future of transportation by the transformation that we're making. So our focus has been over the last couple of years and will continue to be doing things that create shareholder value, continuing to drive for strong performance, and in areas that we need to address, we're going to continue to do that. So I think when you look at our scale between China, North America, the opportunities that we have to grow in services and our -- as you talked about earlier in our Customer Care & Aftersales, I think we are well positioned to seize those opportunities and be in an even stronger position as we come out of COVID and get to a post-COVID world.

Great. I want to wrap up with a few minutes of questions from investors. Let's start with balance sheet. Dhivya, what are some of the signposts you need to see before you start to repay revolvers. And given what we just saw in terms of revolver draw and debt raise, would you, in the future, carry additional cash so that there is -- that your liquidity is even stronger in the future beyond the liquidity targets that you've highlighted in the past, I believe, $35 billion?

Yes. To your first question, I would say, the current situation has validated the importance of a strong investment-grade balance sheet, so we remain absolutely committed to that. And as we start to see the recoveries here and the production ramp-up and the rewind of working capital and just the normalization of operations here, you can start to see the cash starting to get generated. And we will build back our cash balance and repay the revolver within that construct, that remains the goal. And from a cash balance and the levels of liquidity that we have, a lot of the planning that we had done in developing the right amount of cash to hold as well as the right amount of revolver to have and the debt to have, we believe that we saw those factors get validated as well. So there's no change to the cash balance as such. We will continue to run it with discipline. And from a liquidity standpoint, look to reinstate the levels back to where we were prior to the crisis.

Great. On fleet and rental, could you talk to what type of magnitude of decline are we seeing in fleet sales between rental, government and commercial? And post the bankruptcy announcement of Hertz, how much of risk are you expecting for residual values from fleet disposals in the market?

Dhivya, do you want to take that one?

Sure. I would say that the fleet business, clearly, in March, April and May has been more significantly impacted. Some of the stats we're talking about from a recovery standpoint, pertain to retail side of things. So there is an impact from a fleet perspective, but the guidance we spoke about from a residual value standpoint of 7% to 10% decline in residual values that we've baked into for 2020, that is factoring in the current dynamics that we're seeing in the used vehicle market. I would say, though, from the time we announced earnings and we talked about the 7% to 10%, the data points that we've seen since then are alluding to a strength in the used vehicle pricing market. Obviously, again, early days, but we're seeing some strength there as well. So I'd say, the 7% to 10% is something we are closely watching. And based on how the dynamics are going to pan out over the next several weeks and months, we will revise that as appropriate.

Great. And then just to wrap up one on Cruise. How does COVID modify the launch strategy? I believe you said that, that's largely intact. And given the pullback by some players in the AV space, do you think this is a competitive advantage? Do you think there's an opportunity to acquire additional engineering talent in the market? Although we know we've been making some cuts, so how to think about the competitive environment in Cruise launch strategy.

Yes. So one, there was a period of time where we didn't have vehicles on the road. We had a limited fleet in Arizona. We do now have vehicles on the road in San Francisco, actually working in partnership with the community to deliver food to those less fortunate. And so -- and also, we were able to shift quite quickly to be doing our development with people working remotely. So our plan, I would say, is largely on track. And to your point, with others making decisions to delay or focus less, that does give us an opportunity, especially to continue to add those critical technical resources to the company. And Cruise is actively adding -- they -- I think they run a new employee orientation every other week. So we are definitely continuing to add through this period, and now are in a position to be able to test as well.

Great. And with that -- many more questions, but I think we're out of time. Mary, Dhivya, thank you very much for your time and for your transparency. Much appreciated.

Thanks for the opportunity. Appreciate it.

Thanks for having us, Dan.

Great, thank you. Okay. Operator, you can now disconnect. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.