General Motors Company (GM) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Wolfe Research Autos Corporate Week. This is the General Motors fireside chat hosted by Wolfe's Managing Director covering autos, Rod Lache. [Operator Instructions] And now I hand the call over to Rod.

Thanks, Tatiana. And I want to thank everybody for joining us on our Wolfe Autos Corporate Access Week. I know that all of you find these kinds of corporate access events to be very valuable, especially when we've had the privilege of hearing from a company like GM. Just before I begin, I wanted to mention that these webinars are always the most interesting when we get audience participation. So if you do have questions, type them in on the lower right of your screen. Your questions only appear on my screen. They're not visible to anyone else, and I'll try to weave them in to the fireside chat. So just to kick things off, we're really happy to have the opportunity today to talk to two of the most highly respected executives in the auto industry. GM's CEO, Mary Barra; and CFO, Dhivya Suryadevara. Mary and Dhivya, thanks so much for joining us.

Thanks, Rod. Thanks for the opportunity.

So I wanted to just maybe kick things off with a couple of questions, high level, about the current environment. Maybe first, just talking about the U.S. At this point, just given what demand has done and what inventories have done, it seems like production as opposed to underlying demand may actually be the limiting factor with regard to the auto recovery. So Mary, I was hoping maybe we could just start off with just a little bit of an update on what the return to production looks like from your perspective, whether there's any surprises and where some of the biggest challenges are right now.

Sure. Well, I think we are coming back in -- across all of North America following returning to work in China and pretty much continuing operations in Korea through most of -- when they had the peak issues related to COVID-19. But in the United States, Canada and Mexico, we are starting -- and the restart has gone well. I've been in about 6 plants in the U.S. over the last 2 weeks talking to our team members, understanding how they view the safety protocol. As we bring people back, we're putting them through a training and taking the time to make sure we understand what their issues are, addressing their concerns. We have a lot of experience with not only the learnings from China, Korea and then also the mass production and ventilator production that we were doing that we are able to provide a safe environment. But it's so important not only to know we're providing a safe environment, but to address anybody's issues so they feel comfortable and have confidence in the safety protocols. And so that work is well underway with first shift starting up, second shift starting up, and now we're beginning to bring in third shifts in the plants that run 3 shifts. So that work is going well. But I'm not declaring victory. I mean, this is something we need to continue to do. But I have to say the engagement of all of our team members in understanding what they need to do to stay safe to work together as a team and also improving the -- bringing ideas forward to even improve, because you can imagine adapting the safety protocols in all of our different manufacturing environments takes a lot of work. So that, I believe, is very much on track and is going well. Specific to Mexico, I know most are aware that all of the autos have significant supply base in Mexico. And because Mexico is at a different point on the curve, the -- we need to factor that into the supply-based capabilities. And we're working with all the stakeholders to develop a responsible plan, making sure both at the federal and at the local governments, they understand the rigor of our safety protocols. And so we're seeing progress there as well. This week, we'll continue to add additional shifts in our North America plants, and we think that we'll be close to normal capacity by the end of June and sooner, if possible. So that -- and to your point, I have to give our dealers a lot of credit. They have really been very talented at selling deep into inventory. But it's important now, especially with trucks, that we are getting vehicles back online, and there's very strong demand from our dealers for more vehicles, especially trucks. And as you know, we're launching the full-sized SUVs as well. So that, I think, is a huge opportunity, and we're just going to continue to stay very deliberate and committed to safety because we think that is the right thing to do and will allow us to sustain production as we move forward.

Wow, that's pretty impressive to get back up to normal. And just -- maybe just to -- just clarify what you mean by that. Just to put this in the context, the most important thing, as you know, that we tend to focus on is the truck production, just given how important that is for the franchise overall. Normal, when we think about normal production for trucks, it's like 1.2 million to 1.3 million on an annualized rate. Is that a kind of a number that you think is a reasonable run rate for that time frame for the back half of the year?

Well, I think we will -- those plants are all plants that run 3 shifts, and we'll evaluate when we need to bring on additional overtime. We will have time between shifts to do the proper cleaning and sanitizing. But we think that already, there's been great work to do that very efficiently. So I don't want to put a specific number on it because we also have to look as we get to the second half of the year of what will the demand be. But in the near term, I think there is strong demand for the trucks. I'm confident there'll be strong demand for the full-size SUVS. And we'll be disciplined and continue to work and rebuild the inventories to the right level. So I don't want to give you a specific number, but that's our intent. And obviously, we'll be guided by demand as well.

Yes. Well, it seems like there's an inventory building opportunity here. We just saw the end of May data on truck inventory at 86,000 units, which is only 35 days supply. Obviously, it's quite low relative to what it normally is. On the sales side, it seems like the overall market is converging already at $12 million or $13 million SAAR truck. The equivalent SAAR for trucks would be corresponding with a higher level of demand. But are you surprised by the resilience of the U.S. market just considering the breadth of what's happening in the U.S. economy? And any thoughts on the sustainability of what we're seeing right now?

It has come back faster than I expected. And on one hand, if we look -- one hand, we have low interest rates. Sorry, just took a sip and I didn't take it well.

Take your time.

Yes. Sorry about that. But on one hand, if you think about it, we have low interest rates, and there is some amount of pent-up demand. And as people get back to work, as the employment situation gets better, and then you look at fuel prices that are also favorable, you add that all up, and there's many reasons why demand could improve. As I said, the drop in demand had been lower than expected in this situation and has come back more quickly than expected. So we're really encouraged by what we see in the market and the creativity and ingenuity of our dealers to sell online and adopt clean delivery practices. So we're cautiously optimistic. And as you mentioned, we're also encouraged by the strong truck demand, and we have a big opportunity, as you mentioned, to rebuild inventory. So I think that's very positive as well.

Yes. That's great to hear. And the truck market, in particular, has really surprised us. Just from a historical context, pickup trucks, cyclically, they kind of peak at maybe 15% of the market and they trough at 10% or so of the market. And maybe there's some regional aberrations that are causing demand to be above that 15% right now. But we certainly not -- it doesn't seem like we're seeing the same kind of cyclicality that we normally see here. I was wondering if you -- just given your knowledge of GM truck buyers and insights there, are you seeing some unusual phenomena here? Are there mix shifts that are occurring that are being underestimated? Or is there something more here that we should be thinking about as we're seeing demand for pickup trucks remaining relatively strong?

Sure, Rod. I can take that. To your point, prior to the current crisis, we were running at about 13% to 14% of the industry from a full-size pickup perspective. And during the crisis, we saw a stronger PIN happen in March and April. May has moderated somewhat, but it's still stronger than historical averages. We said during the earnings call there could be a geographical element to it. This segment is stronger in geographies that were initially at least less impacted by the crisis. So -- but within that concept as well, our trucks, which is our new portfolio, has been performing well and gaining share. And just stepping back to your question and thinking about it from a longer-term perspective, we have experienced a more secular shift towards pickup trucks over the past several years. And whether it's the use cases or the features that are being added, we actually see customers trading in other types of vehicles to go into trucks. And we had talked about that a little bit more during Capital Markets Day. That trend continues, and we do think there's a pent-up demand for trucks given the age of the car park that's out there as well. So you could see a tailwind from a demand standpoint for the next few years. And within the segment itself, we're also seeing people going more upscale towards trims like AT4 or Trail Boss, which actually benefits us really well. And especially from a GMC Sierra perspective, which is the more premium truck brand, we've seen pretty good penetration of these more profitable models. So it's a trend that we're watching to see how it evolves. And certainly, from a technology standpoint, when we start adding features, as an example, the MultiPro Tailgate that we've talked about, which gives you easy access to the bed of the truck, all these features improve functionality. And again, it's something that customers are demanding and it's a differentiator. It could actually be a reason to buy the truck. So we do think that it's a different dynamic in trucks, and as you point out, it's a very important franchise for us, and we think we're well positioned to take advantage of all these long-term trends that are happening.

Great. And I want to weave in just a question about the consumer that I just received. Is there anything about the buyer that you're seeing coming in, in terms of demographics, income levels, FICOs and anything different that you're seeing now versus pre crisis?

Not particularly, the trends seem to be pretty consistent. And we're particularly looking at the retail trend. Obviously, we're all aware of what's happening on the fleet side. But from a retail perspective, we're seeing strength across the board. And with the finco that we have and the ability to step in and provide the right kind of financing, that's also helping us keep a balanced profile across all kind of customer base. So no specific trends, just a general strength across the board.

Interesting. Yes. And what's happening to industry pricing? Does it look like -- at least the optics suggested a lot of incentive activity. We actually didn't see that, really, the negative pricing in the earnings bridge that you showed in Q1. Maybe this is the strength in new trucks pricing that's kind of obscuring the incentives. But how should we be thinking about pricing and mix in this market, especially as inventories are starting to get very tight?

Sure. So from a new vehicle pricing standpoint, you can look at the ATPs and you write the transaction prices in Q1, as an example. They were pretty close to $37,000, and they're way above industry averages. And part of that is the mix, given the strength in the pickup truck market as well as, within that, the trim mixes that I mentioned and some of the high-feature vehicles that we've been selling as well. So what we're trying to do is -- look, you know this really well, Rod, it's a month-to-month kind of play. And we have to be present in the market. We have to remain competitive. So we take a look at what our inventory levels are, what the competitive action is and position ourselves in a way that we are competitive but still disciplined, and that's the play we've been running. And if you actually look at the proof points, from an ATP perspective, it's the stat that I mentioned before, together with the share that we have actually grown. So year-over-year through May, we gained about 6 percentage points of share. So you can see the results of the strategy. It's something that the team -- North American team has done an excellent job of blocking and tackling that. And as we go through this inventory situation and rebuilding, we will stay disciplined. And it's that trade-off between the appropriate level of discipline and staying competitive.

Yes. Is it fair, Dhivya, to say that just with tighter inventories, we should feel relatively better, just looking at that about just the pressure on the company to discount? Or I know you guys have always said that you're going to maintain discipline. But is that a positive sign vis-à-vis pricing?

I would say so. But again, it doesn't operate on a vacuum either. We just want to be responsive to the realities of the marketplace. But all else equal, I would say, yes, keeping an eye on what others are doing as well.

Yes, of course. And just pivoting to the China market, which is also very important for GM. I was hoping you can maybe talk a little bit about how you're thinking about GM's relative performance within that market. Earlier this year, you actually acknowledged that there might have been a few missteps. You talked about this at your Investor Day. There was a 3-cylinder engine that was introduced that hadn't been as accepted, and it sounded like you were going to correct that. But how should we be thinking about GM's performance in that market?

Sure. Well, clearly, when you look at China, the virus situation was impacting an already weak industry. And our equity income in China was challenged. You saw this in Q1. Since then, production has resumed in China with, again, the safety protocols I referenced earlier being strictly adhered to, and dealers are starting to see improved retail traffic. So the peak crisis was in February, and we've seen the industry start to pick back up in March and recover even further in April and May. And as the market continues to recover, we're going to benefit from the fact that we have recent launches and we have some upcoming launches. And together with the cost reduction measures that we put in place during this period, we think that's going to allow our equity income to stabilize. And then once the situation fully resolves itself from a virus standpoint, we're expecting about $200 million of a quarterly run rate for our equity income. From a segment standpoint, we also see continued strength in the luxury side, and Cadillac is well positioned. We've had retail sales up low double digits in April year-over-year, and we now have a full portfolio of vehicles and we expect to see continued growth in Cadillac in China as well. So Buick and Wuling are performing in line with the market, and with Chevrolet and Baojun, we have opportunities. But we have recent and upcoming launches that we think will continue to strengthen our sales with those 2 brands. This year, our launch profile is going to be quite different, especially regarding propulsion. And you mentioned the challenge in the marketplace from it with 3-cylinder engines. We'll provide a wide range of propulsion solutions, ranging from internal combustion engines to EV and from 3-cylinder to 4-cylinder engines. And I think by having the 4-cylinder available, I think that's going to bring the customers in and really allow us to see improvements as we move forward. So our launches this year will focus also on luxury vehicles as well as mid to large SUVs, MPVs, and you've already seen these represent the segments with the strongest growth from a consumer demand perspective. So I think we're largely past or will be shortly with the propulsion launches we're doing and be well positioned as the market continues to recover.

And when you talk about returning to $200 million per quarter once the virus situation kind of abates, I mean, we're -- at least at a very high macro level, we're sort of seeing demand approaching pre-COVID levels for that market. So does that -- should I listen to that and hear that you're likely to be returning to a -- that kind of a run rate relatively soon?

Well, again, it's still, I believe, early days in seeing what was pent-up demand versus what is going to be continued strong demand. So we're cautiously optimistic and watching carefully, and we're well positioned. But I think we need a little bit more time to really see what the true demand is going to be.

Okay. And I also wanted to ask you about the international operations ex-China. So there's some progress that you're making. Australia and Thailand, I think that was expected to generate something like $400 million of earnings improvement by next year out of the restructuring there. But South America really is the biggest drag, and it's been a real drag on the company for years. How should we be thinking about the path to actually getting that to acceptable returns from here? Obviously, it's a tough macro situation. But what actions are you thinking about for that region?

Sure. Well, as you mentioned, we took the steps in Thailand, Australia and New Zealand, and they were very important to returning the region to profitability. And we also continue to be on track with the restructuring that we did in Korea just a couple of years ago. So market by market, we're addressing the challenges we have in GMI to return to a strong operation. As you mentioned, South America is the focus now, and the FX environment has gotten even more challenging. And if you step back and look at where General Motors is and the strength of the Chevrolet brand in South America, the strong dealer channel that we have, and we are well positioned. And it's just, I think, by many, been surprised with how there's been year after year even more challenging situation from a macro perspective, especially from an FX. So we have continued through this period of time, and even before then, have continued to look at how do we strengthen the business, take cost out, find synergies. And one important thing we're doing now is we're pricing for FX, especially in Brazil, which is quite a change from where we were in prior seasons. So just as an example, in May, we implemented a significant price increases of 4%, and we'll continue to take incremental actions on that front. So we're tracking -- attacking this on the revenue side as well as the cost side, and we're going to just continue to work that business until it generates the returns that we expect from it because it is such a strong business. And so we think that what we're doing demonstrates all the steps we're taking to get us closer to breakeven and then get to the right level of profitability, as I mentioned, for that region and for GMI as a segment.

You still see the path to getting to breakeven in that region. I know you had talked about that. I believe it was in the next year or so. Maybe that's been thrown off track a bit by what's happening in FX and demand. But is that still something that you've got line of sight towards?

We have line of sight. Obviously, in every region, we're running multiple scenarios based on how well the country manages COVID and then recovers and what the economy looks like post-COVID or as the curve flattens. So we -- but that is still our goal, and we're going to work to achieve it as soon as possible. But with some of the scenarios that we have right now for the most likely outcome for the markets in South America, we think there's a path.

Okay. Great. That's good to hear. Maybe just taking a step back and asking a question. It's sort of a bigger picture question. A lot of austerity measures being taken by the company and all companies in the industry right now. Do you see any negative consequences competitively or more broadly as a result of the pullback in spending that you've been implementing?

Yes. Rod, as the crisis hit, the obvious focus was on protecting employees, protecting the overall business. And we -- what we did was, as a part of that, we said, "Let's see how we can conserve cash and preserve liquidity," and do that really on a zero-based basis, start over from scratch and say, "What spend items need to work their way in given the current crisis?" So we're -- as we started to do that, we said to ourselves, we're going to do it without sacrificing some of the key investments that we're making in product programs and technologies that are going to lead us into the future. And whether that is a full-sized truck or a full-sized SUV or EV and AV, important investments we're making on that front, as we've talked about, we wanted to continue doing those without impacting, in a meaningful way, their launch dates and the progress we're making there. So as we take a look at the CapEx spending in this kind of an environment, it's going to be product by product, and we're going to look at what is actually going to drive customer value. And is it some refreshers that might end up getting delayed? Or could we rescope something a bit more? And we're looking at it program by program and going through the process. So overall, as we -- to step back and think about the future investments we're making in our capital allocation, we're comfortable that we're making all the right investments that will make the company stronger in the future.

And in terms of the cost structure, you've taken -- a lot of the measures that you've taken, things like 20% to 30% pay cuts for salaried employees. Obviously, those are temporary. But it sounds like there's been a lot of sort of digging into the costs even deeper. And I think you described it as a 0 cost perspective. I'm not sure the terminology that you used, Mary, earlier. But can you just describe for us, maybe as we're looking at all the measures that you're taking, what is the -- what are the longer-term implications here? Could there be additional cost reduction that's going to be coming out or costs that are coming out that are not going to necessarily come back in, in addition to the $1 billion or so of costs that you had been articulating as part of your longer-term restructuring?

Sure. So on a cost basis, the term we used before was the zero-based budgeting, which is basically start with the clean sheet of paper and everything needs to work its way in as opposed to doing the opposite, start with what we have and then cut from there. So what we've done, and Rod, to your point, there's some expense items that are more like deferrals. So to the -- whether it's a salaried employee's, let's say, pay deferral, which will be paid back later, and there's some expense items that we've just delayed, so those items will come back at a later point in time. There's some expense items, which are -- where the savings are -- it's not going to just get deferred. It was actual savings. So for example, we had discretionary spending or travel or certain kinds of advertising or some employee furloughs that we had, those are savings as opposed to just the deferrals. And as we come back here and the activity starts to pick back up production and demand, you will see normalization and the spend levels to normalize above where we are at today. But I think more of a permanent standpoint, as Mary mentioned as well, I would say that we have a lot of learnings from this zero-based process. And it's allowed us to take a harder look at our spending across the board. Can we do things more efficiently? Do we take some of the actions that we were already taking and actually accelerate them because of the current crisis? And so we do expect some of the efficiencies to stick on a more permanent basis. But it's just too soon to put a dollar amount on it.

Okay. Yes. So it's not quantified at this point. But there's likely something incremental on top of what you talked about before. I was hoping you can also maybe just talk a little bit about the comments you made on your first quarter call about the cash breakeven. So you talked about -- I think the comment was North America cash breakeven was $11 million to $12 million SAAR, and global cash breakeven would be if you achieve -- if you had a $13 million SAAR. Just with the sales kind of approaching that level already and inventory to make up, and I think as you pointed out, more normal levels of production by the end of June, is it plausible to expect something approaching cash breakeven as we get into the second half, obviously, excluding the inflow of working capital?

Yes. I think, excluding working capital, it's fair to say that at a 13-ish level is when we would cash flow breakeven. Obviously, we're taking a global business and we are assigning that to just a U.S. metric, and I'm sure you're aware of that. But there's just the U.S. SAAR, and it's a global free cash flow number. But at that level, I think it's fair to say, and obviously, replenishing dealer inventory and getting up to a certain level is certainly going to help as well. And our expectation is with that, you'll also see the rewind of working capital, which will help offset some of the outflows we're going to have in the first half of the year or we had in the first half of the year. So I think that's a fair way of characterizing that, Rod.

Okay. Great. And switching gears, again, I'd like to just ask you about Cruise. So Mary, earlier this year, Dan Ammann mentioned to us that he thought Cruise was progressing on a pretty strong path and would be in a position to deploy the self-driving platform on the Chevy Bolt, actually, ahead of the launch of the Cruise Origin. Any update from you on the development time line? Mary? You might be muted.

Sorry about that. Yes. So I don't have a specific update on the commercialization timing. But what I can tell you is I'm extremely pleased with the progress Cruise is making. They continue to be on track, hitting their milestones from a technical perspective with all of the safety standards and requirements that we've set for ourselves. During this period of time, they were doing a lot from a simulation perspective. And for several weeks now, we've had vehicles on the road actually serving the San Francisco community from a food delivery perspective for those in need. So I think they're -- we're well positioned and we're going to continue on that path. And again, I don't have anything specific to add, but I'm very pleased.

And has this pandemic changed your view at all on how mobility on demand is going to evolve? What the prospects are for that business?

No. No. Not at all. And when you look at the fact that when we deploy Cruise, especially with the Cruise Origin, the way that's been designed, the ability, from a cleansing sanitation perspective, the fact that there isn't a driver, there's many attributes that I think are going to be very, very positive from a customer perspective as well as from taking one of the most expensive elements out of a ridesharing type of transportation. We're moving full speed ahead. And as you know, the Origin is also electric. So it really fits in well and continues to be, I think, right on track and will help us achieve our goal of 0 crashes, 0 emissions and 0 congestion.

So you view that, it sounds like, as this is the overwhelming secular trend. On the GM again, you guys had made a pretty thoughtful or put forth a pretty thoughtful argument on the level of cash that GM needed to operate with. It was $18 billion of cash, $30 billion of total liquidity. Obviously, that was sort of for a normal recession. Nobody anticipated a zombie apocalypse or anything crazy like what we're seeing right now. But I'm wondering if just having seen that now, do you really have to rethink what GM needs to carry? Does the company need to kind of carry a war chest that is even larger just to be able to withstand things that are even greater? Or are you comfortable still with those parameters? And obviously, your ability to see through to the other side of this speaks to the fact that it was already -- you already had the right preparations?

Yes. I would say, Rod, that we had, to your point, done a lot of work on what is the level of cash balance that is minimum to run the business and then a build-up from there on what the overall right target is to have, and then we sized the revolver on top of that to sort of account for situations other than a normal type of a downturn where you might have to have access to more like higher levels of liquidity. And I think what we saw in this crisis is all those factors getting validated and really a continued commitment to a strong investment-grade balance sheet. It's absolutely essential for a business like ours to have the strong investment-grade balance sheet to weather unforeseen circumstances. So from that perspective, I'd say it's validated the capital allocation framework. It's validated the level of cash balance and the overall liquidity levels that we look to have. So as we come out of this and start to build cash back up again, we would look to return to the levels that we saw before the crisis. And overall, I would say we are looking at lessons learned from the crisis and what, if any, improvements we can make to improve the volatility of cash flows and including looking at the levels of working capital. But nothing concrete to share at this point. So as we put the crisis behind us, that's when we're going to have to look at those and say, "Okay, what do we want to do about the lesson learned from that?"

Okay. So the speculation that people have had that, well, maybe the company would say that the future is going to be a lot more volatile than the past and maybe $20 billion, $25 billion or more of cash would be required. I mean, that's obviously been speculation from the investment community. It sounds like you don't really think that, that is the right takeaway from what we're seeing right now that what you had before was appropriate. It is appropriate. Do you look to get back to something like that? Am I hearing that correctly?

Yes. I think it's -- the current situation has proved that what we had was, in fact, appropriate. And it should also be tied with the other question that you asked earlier about the cash flow breakeven as well. And as we're making the business stronger and stronger and allowing our cash flow breakeven point to actually decline and flexing it such that we're able to take expense items out quickly, that also has a bearing on what we end up targeting. And we feel that the actions that we've taken, including the actions we took in 2018, has actually positioned us really well from a cash flow breakeven perspective. So I kind of think you got to look at the two in tandem with each other. And we're happy with the cash levels and the revolver levels, and we'll look to take that breakeven point down and we do want to take a look at working capital, as I mentioned before.

That's really interesting. Now does the -- when we think about GM and what you guys were targeting pre-COVID, $6 billion to $7.5 billion of free cash flow, and post-COVID in this downturn, a breakeven point of something like a $13 million SAAR. Obviously, in that kind of a framework, GM's valuation looks pretty low. And I'm wondering if that also extends to the strategy for Cruise because that asset would seem to have quite a lot of value. It's been valued at a pretty high level. Maybe that would even be an attractive source of funds if it was partially floated. Does the valuation that you're sort of just empirically seeing with GM have any bearing on strategy for Cruise? Or do you not really think about it that way?

The way I look at it is Cruise is incredibly important because it represents a huge portion of how people and goods will be moved in the future. So our commitment to Cruise is unwavering. And as I mentioned before, we are making very good progress toward our goal of what Kyle likes to call superhuman driving performance. And we're going to stay committed to that because of the business opportunity that we see. And the benefit that we bring in this space, because we do have the technology development, the vehicle development that's working together frictionless, along with the ability to manufacture the vehicles, so we think we've got the right formula and we're on a very strong path as one of the leaders in this space, and we're going to continue full speed.

Great. And do you -- just on that -- those free cash flow numbers that I mentioned, having targeted the $6 billion to $7.5 billion, I think that was at maybe a 16.5 million or 16.8 million U.S. market. Do you think that there are measures you could take to get you anywhere close to that level at any point soon? Or is this something that you'd expect to get to only if we got back to that level of demand?

Yes. I think from a -- obviously, volume is a big driver, Rod, and it's SAAR dependent and restocking dealer inventory. But in addition to volume, I'd probably point out a few factors. Firstly, from a mix perspective, we are in the midst of launching our new full-sized SUVs. And as Mary talked about, we're continuing to make improvements in GMI. So there's certain factors from a tailwind standpoint that should help strengthen the quality of earnings beyond just the SAAR or the volume. And there's -- on the other side, there's headwinds as well, and whether that's the China situation as we've talked about earlier, given the challenges that, that market faced or FX challenges, we're just going to have to watch. But there's -- apart from the level of SAAR, there's underlying things that are happening with the quality of earnings that we're trying to improve as well. And a few other things I'd point out. Adjacencies, that is a business. Whether it's OnStar or the after sales, that is something that we're trying to grow. And we will continue to do that, and that's positive from a cash flow perspective, typically. And finally, GMF dividend, as they start dividending closer to their net income levels, as I've talked about before, that used to be a driver of the gap between net income and free cash flow, and that should help close some of that gap as well. So there's puts and takes overall, but we're definitely going to pull all levers possible to target the free cash flow levels that you've talked about and continuing to improve it given a level of SAAR.

That's encouraging. And on the GM financial, you're already starting to get back up to -- or a higher level of cash disbursement. I think you had targeted $800 million of cash from that. You also mentioned in your last release that there was $2 billion of excess capital there. Were you sort of suggesting that, that's something that could potentially be released as well to help rebuild the balance sheet? Or were you just sort of intimating that, hey, we have a lot of capacity to grow that business with the capital base or overcapitalized business that we have there today?

Yes. The intent of sharing the $2 billion was to really understand what kind of a residual and loss statistics can the business withstand before requiring any capital infusion, and the idea there was pretty onerous levels the business can operate without a capital infusion. So that was the idea of the $2 billion. And if you look forward, in terms of why do you keep an excess capital at the finco, we've shared that we intend to grow that to full captive levels, and we think that it brings with it several -- a host of advantages beyond just the earnings power of the finco. It has a lot of advantages from the auto company side as well, whether it's loyalty, customer retention and so on. So as we look at the future here, they will grow their balance sheet to the levels that I intimated during the Capital Markets Day on -- back in February. And once we get there, that's when you start thinking about the dividend potential as their normal steady state earnings from a net income standpoint. You would no longer need to retain the capital in order to grow the balance sheet of the finco, and you would start getting that dividend on a 100% basis back to the parent.

Interesting. And I was hoping -- maybe just 2 last questions for me. One is just on -- just not capital allocation outside the company. But within the company, at this point, do you view that as being optimized? And what are the biggest debates that you have within the company and where the company should be investing more or pulling back?

Well, as you know, we are very committed to the capital allocation framework that we rolled out in 2015. And that first pillar is to reinvest in the business to generate appropriate returns of greater than 20% of our invested capital. And we're going to continue to do that as we transform the business and look for the best opportunities. I'm really excited about what we have coming. I think there are huge growth opportunities for us as well, especially when you look at EV and AV. We shared a little bit about that with -- in our EV Day back in March, which seems like a long, long time ago. But I really see growth opportunities there. So I'm very excited about the future. But -- and because of the discipline we've run the company, and as Dhivya talked before, we'll look program by program. But I think we're well positioned for the most important programs as we move forward.

Great. And another incoming question I've gotten is, if you can maybe just describe what metrics you're going to look at that will drive your decision to pay a dividend in the future, what's your level of commitment to bring it back? What level of SAAR? What are other metrics are you -- should we be thinking about before that starts to come back?

Well, I think, first of all, recognize that's a Board decision. And obviously, management will have a significant input into that. I think we want to make sure that we follow our capital allocation framework and that we're investing in growth opportunities because we think that will give us the opportunity to create significant shareholder value as well as make sure that our balance sheet is investment grade. As we do those 2 things, I think that puts us in a position then to evaluate what is the best way to manage the third pillar, which is to return to shareholders. So that's the path that we'll follow.

Okay. And just lastly, so you've laid out, I think, many times before, how strong you feel GM's positioning is with the trucks today and tomorrow with EVs and AV technology. But GM is not one of the most highly valued companies in the market today. So I was hoping you can maybe just share some thoughts on the extent to which that's an active discussion internally amongst the management or at the Board level. And if it is the subject of debate, what are the types of factors that you discuss that you think might change this?

Well, rest assured, it is a very important conversation with management and at every Board meeting that we have because we know we serve and our goal is to create long-term shareholder value as well as also do the right thing for all of our other stakeholders. And so we're always exploring opportunities to do just that. One of the areas, and we've mentioned it -- that we are -- I think, at the last earnings call that we see an opportunity to move even slightly more quickly in our EV rollout and get to the future that we envision from a safer, more efficient, connected and also EV expectation, and we think that positions us well from a customer expectation, building on all the safety features, the opportunities and leading positions we have in technology like Super Cruise. We think we have a huge opportunity with connected vehicles with the base that we have with OnStar and the services that we're now introducing and have much more to do there. And then we do have some very strong franchises. You've mentioned trucks. I just mentioned the connectivity. China is a huge opportunity for us as well because we still think that's a very important source of growth. And then EV, because I think we believe EVs will be important and first start in the coast, and that's an area where we're not as strong, so that becomes additive for us as well. So I would say, probably to summarize, there is -- accelerating the transformation, we think, is one of the ways we can effectively get the right valuation and recognition for what General Motors will create in the future. And we have open and often dialogues because nothing is really off the table, but we think that is probably the biggest opportunity that we have.

Great. I think that's a great way to finish the fireside. Unfortunately, that's all the time we have. I know that there are 10 or 12 more questions in the queue that we didn't get to. But hopefully, I got to most of your questions as you've been sending them in. I want to thank everybody for joining. And I especially want to thank Mary and Dhivya for taking the time. I know they're super busy. There's a lot going on, and to take this time out and talk to us, I know is very much appreciated by the investment community. So thanks again, guys.

Well, thank you, Rod. Thanks for the opportunity. We appreciate the opportunity to speak to the investment community. So I hope everybody continues to stay safe.

Thanks, Rod.

Stay safe. Take care.