General Motors Company (GM) Earnings Call Transcript & Summary

I'm Ryan Brinkman, the automotive equity research analyst here at JPMorgan. Thank you for joining us for the 2020 JPMorgan Automotive Conference being held virtually this year. We're going to get going with our next presentation in a minute with General Motors. [Operator Instructions] With that said, we're going to get going. We have -- very excited to have with us here, Steve Carlisle, General Motors Executive Vice President and President of GM North America. Steve, I really appreciate you taking the time and being here with us today virtually. Appreciate it.

Well, thanks, Ryan. I'm looking forward to it, and I appreciate the opportunity.

Absolutely. Maybe one place to start is, I did see the announcement yesterday that Dhivya is leaving the company. Are you able to provide some background or insight into that leadership transition?

Yes, sure. First, let me say that we'll miss Dhivya. I'll miss her personally. She's been a terrific colleague and a friend, and she was well-respected both internally and externally. So she was presented with a position outside of the auto industry that she believes is, both personally and professionally, a growth opportunity for her. And so that's how she took that decision. So our Board and senior management are now going through an extensive, both internal as well as external search, and we're confident that we'll find an exceptionally strong candidate, and we won't miss a beat. And along those lines, in the meantime, we're in great hands with John Stapleton, who's been our North America CFO for the past several years, and who's been a significant contributor to the great execution and the profit picture in North America, which is a very important region. And so we have a lot of confidence in John, and he's another person I've known for many, many years. So that's where we stand there.

That's very helpful background. And maybe just while we're on the subject of leadership transition. I note that you yourself are just about 1 month into your new role here at GM heading North American operations, after earlier having run Cadillac globally. Could you maybe just talk a little bit about what you think that you bring, you and your experience to the new role? Any early thoughts that you might have relative to the opportunities that laid before you in the new role? Or what challenges you're most looking forward to tackling?

Yes, sure. I couldn't be more excited about being in this position at this moment in time. So I'd say I've been around the company for quite a while, a bit over 38 years, I guess. And that's affording me the opportunity to get around the world and around the company. So I started in manufacturing engineering, and I've been through supply chain and product development. I've been a president, managing director in -- Southeast Asia was the first time and then in Canada, and then more recently in Cadillac. So -- and spent a lot of time in -- on the products side of the business, and working on technology and getting behind the thrust that we're now moving forward on, which I think we'll probably talk about. So that's, I guess, the basic part of that. In terms of the opportunity, I think it's just terrific. I mean we've never had a product portfolio like we do right now and the kind of launch cadence that we're on right now, which I think is terrific. We're just in the midst of launching our full-sized SUVs, our Tahoe, Suburban and Yukon, Yukon XL and Escalade and Escalade ESV. So those are just starting to hit showrooms. And that's on the strength of our truck franchise at the same time as we've just finished launching refreshed versions of all our crossovers. So all of that is to say that we have a lot of business ahead of us here and growth opportunity with what we might call the traditional and historical business. But all of that, at the same time as we are starting a strong pivot towards an all-electric future, most recently marked by the reveal that we did at the Cadillac LYRIQ last week. So how I see the opportunity is tremendous opportunity in the present and growing the business and building the brands and getting new technologies out, engaging new customers in new ways. And then this great future of electrification and automated driving to look forward to. So yes, back to how I led in here. I just couldn't be more excited to be at this spot at this moment in time during a decade, which I think will be very pivotal and transformational for the whole industry.

That's great. Appreciate that. I wanted to ask some questions around the LYRIQ review -- debut last week and maybe electric vehicles more generally. Investors seem to have been pretty attuned to that debut. They've been asking around the LYRIQ's battery electric range, its battery size and price. I don't know if you're able to elaborate on any of those areas. But just more broadly, too, taking a step back, maybe just talk about the EV plans for the whole Cadillac brand, which, of course, you recently headed. And beyond Cadillac, too, can we look forward to more volume entries in North America? And what would be like the time frame for that?

Sure. Yes. And I do appreciate the opportunity to talk about LYRIQ. As I might have tipped into here just a minute ago, I'm really excited about the car, and I appreciate the opportunity to clarify certain points. On the range, our going in on that is 300 miles. We view that as kind of a threshold in the time frame that we're talking about and then growing from there. I think it's very clear from a consumer point of view, they're looking for equivalent range in a battery electric vehicle as what they experience today in an internal combustion engine car. So somewhere in that 300 to 400, slightly more than 400 range. So that's where we have our sights set in the longer term. But from a launch perspective, we're very committed to this 300-plus sort of area where we need to be and then up from there. And at the same time, paying close attention to charging. So we'll have up to and including supercharging as well as the convenience of AC home charging at much higher rates than what's on the market today. So all of that is examples of we're putting extraordinary efforts here into creating the conditions for adoption. Every indication is that consumers are getting increasingly ready, so it takes a whole kind of ecosystem approach on those things. On size, you can think of this as a -- today, we would call the segment a midsize lux crossover. So our entry today would be an XT5. So it's generally in that size range. Not just size range, but also to get to the question of price. I've read a lot of speculation about the pricing. We haven't actually announced it, and we won't for a while, but the general strategy that's guiding it is if we want to be able to replace our current business with a future battery electric business, we need to be in the same price zone. So this car will need to be priced the way -- similar to how we price or how the industry prices midsize lux SUVs today. Maybe a slight premium at the outset, but -- so it's a price that -- it won't be high 5 digits. It won't start with a 7. It won't start with a 6. And I guess I'll leave it there. We'll leave some more news for another day on pricing. In terms of broader plans, LYRIQ is the beginning of a complete transformation of the portfolio. We're just finishing up the transformation of our internal combustion portfolio and showroom with the launch of the Escalade, which will be released at commerce here in another week or so, and then begins the transformation to an all-electric showroom. So our intention is, beginning with LYRIQ, that we would have an entry in every segment in which we compete today, in which there's business to be done in luxury in the industry and to complete that transformation in, let's say, the next 5 or 6 years. And then your question about higher volume entries. I just spent a lot of time talking about Cadillac. There are exciting plans around the other brands as well, so we'll be making a lot of news here in the next 12 months on Chevrolet in particular as well as HUMMER that you've also heard about. We released a teaser on that after our earnings call here last week, 2 weeks ago. You can expect more news on HUMMER in the coming months, October, November time frame. So we will be ramping it up across the board here pretty aggressively.

Good to hear. It's exciting that the Super Cruise technology is being rolled out to additional vehicles within the broader lineup. Can you tell us a little bit more about what the plans are there?

Sure. And starting with what you just said, we are going across the range. Every new launch on Cadillac, for sure, will have Super Cruise in it and most other product lines. And so not just getting the functionality as it exists today, but adding what we call use cases to it. So today's Super Cruise is defined by -- it does what we call lane keeping, lane centering and distance keeping. So it will keep you in the center of the lane that you're in, and it will maintain a distance between you and the vehicle that you're following. As we launch Escalade and on CT4 and CT5 that are already in the market, we'll -- we're introducing a capability called Lane Change On Demand. So you can flick the turn indicator in the direction that you want to go, and it will execute the maneuver for you. And then we're adding other use cases like cloverleafs and other maneuvers like that, so that you'll be able to have a hands-free -- the only hands-free experience in the industry with additional use cases. And I would say, over time, our goal is to continue to expand that. So if you think in terms of percentage of maneuvers that you can execute hands-free, our goal would be to get above 90% with Super Cruise. And the idea there is that we can do that relatively more quickly and at lower cost with the driver in the loop versus other technology solutions that don't rely on the driver, which require a lot more development and cost and so on. So super excited about that one. And you'll see -- and the other exciting part that we see about these use cases, that we'll be able to add them to -- in a lot of cases, to existing cars that are on the road via over-the-air updates. So it will be a great example of how your car can get better over time through the life cycle of ownership.

That's helpful. And clearly, online transactions are increasingly important, having taken on a new relevance during the pandemic with your Shop-Click-Drive program. How do you see the future of online transactions in automotive purchasing?

Well, I think Shop-Click-Drive is a great place to start a conversation. So we had a capability called Shop-Click-Drive and have had for some period of time. Not a long time, but some period of time. And we had a -- the first thing that we did was to push for a higher level of adoption with our dealers as we moved into the crisis or into the pandemic. And then on a very accelerated basis, have upgraded it very significantly. So now it's, broadly speaking, an end-to-end integrated literally shopping, buying, owning sort of an experience. And the early indications are people really appreciate that. And of course, that's against the backdrop of -- especially early on, people really wanted to do things more from home where they felt more safe and secure. But I think it's also reflective. It's maybe coming to autos on a different sort of cadence. But there's a lot of online activity and all of that in terms of shopping. That's well-known by everybody. So I think it's here in autos. We're excited about it. You step back from it, what does it do? Number one, it can reduce a lot of cost for both for us as well as our dealer network by putting more activity online, but also a much improved customer experience because it can take something that in the past may have been kind of disjointed, not so well integrated across all the steps that you need to go through. And it can be utterly consistent across the country and throughout the experience, so it's just a much easier thing for a customer to work with. So -- and we have plans beyond what we have today, working with our dealers. Successive releases to continue to build on that capability. So I think it's very much in the future for us. It's one of those things we all agree that we need it, whether you're a customer, you want a better experience or whether you're a dealer, whether you're an OEM and you want to get costs out and reduce complexity.

Great. And I wanted to ask, what impact do you think coronavirus has on technological change within the industry? Does it speed up, slow down or have no effect on preexisting trends, such as electrification and autonomous driving? Is there anything to think about relative to shared mobility, consumers thinking any differently about that? What do you think? Or electrification?

Yes. This is a really interesting one. So I guess the -- in terms of -- it depends a little bit on what you're talking about. But I think on that, it serves to accelerate progress. We just talked about a great example of Shop-Click-Drive. I think tools like that, experiences like that may have evolved more slowly without the impetus of the environment that we all found ourselves in back in the March and April time frame, especially April. So I think it, for sure, speeds up things like that. And then I think when you're going through a situation like this, it causes you to really reflect on where you are and where to invest on a go-forward basis. So we do remain fully committed to an all-electric future, 0 emissions, and that's reflected in the fact that we've maintained our pre-COVID CapEx on EVs in particular so -- whereas we had to make some hard choices so that we could continue to run the business. We did maintain our focus on EVs. And when you look at valuations and other start-up IPOs, it's clear that the capital markets believe in EVs as well. So I think we want to make EV ownership as easy, enjoyable, attainable as owning an internal combustion-powered vehicle. So I think that the COVID has just served to really crystallize that focus from a number of different perspectives. And I'd say also that when we look at some of the other macro factors, lower oil and gas prices, I don't see that hindering our strategy. In fact, in a way it helps support some of our other franchises, like trucks and SUVs in the meantime so that we can keep the whole business moving forward. Kind of along the lines of what I talked about, why do you get excited? Because we have this terrific opportunity to pivot the industry and the company at the same time as the means to do it. So we're really being driven by what we think is the right thing for the future and where the opportunity will be and to get there and to be amongst the leaders. So we have some other interesting things that we're working on that you've heard about, Cruise, being one of those, our full autonomous experience. We haven't seen anything that changes our view that Cruise will play a major role in mobility in the future. Given the potential of all-electric, self-driving vehicles, just what that can do in terms of saving lives and reshaping cities and cutting emissions, there's just so much there. So Cruise's goal remains to launch as soon as possible, with safety always being the gating metric. So -- and Cruise continues to make strong technical progress, and we're expecting some really exciting updates here in the second half of the year. So those are some examples of what we -- how we're assessing the situation sitting here in the middle of August.

Yes. Great. It would be helpful, too, to get an update maybe on your full-size pickup truck franchise just given how important it is to profitability. GMNA margin seems to have benefited since the light-duty lineup was refreshed. Now the heavy duties are making their mark also. It would be great to hear how you intend to hopefully keep the party rolling given new competition from an updated F-150 later this year.

Yes. I think that's a great question. And I talked about the SUV launch here, but -- so for me, it's a good opportunity to take back -- step -- take a step back to the beginning of the launch of the pickups and think about where we are. So back then, we talked about how this business, the pickup business, is structurally different from the rest of the automotive business. It has better underlying growth dynamics -- far better underlying margin dynamics, strong loyalty and competitive moats around the business. So what's not to like? So we set out to increase market share through an increased richness of our product mix. More differentiation, more crew cabs than the prior gen, more trim levels and more bandwidth. So for example, on the Chevy Silverado, expanded the model lineup from 5 to 8 distinct models. We added the Trail Boss, it's a truck I really love, in both the high-value and high-volume areas of the market. And our premium LTZ and High Country trims, those have been just a huge success in the high feature market. So we're -- that success that we set out to achieve on Chevrolet, we're certainly seeing in terms of better mix and better coverage. And on -- when we look into GMC, something I get really excited about is the success of the Denali sub-brand and the AT4 trim. We had Denali sub-brand beforehand, but we've really grown the AT4 trim, so that's been a massive success in the premium truck segment. So we also took the opportunity, as we reindustrialize the footprint of the pickups, to open up constraints in crew cab production. So for example, we increased our mix of crew cabs from 60% to about 80%. So that's been a big enabler here through the life cycle so far. So the result is an increase in our market share from, say, in the 35.6%, the mid-35% ranges in mid-2018 to 38.4% today. Our ATPs have increased around $3,000 over the same time period. So you think about that then from a longer-term perspective, we have experienced -- the industry has a more secular shift towards pickups over the last several years. And whether it's the use cases or features that are being added, we're actually seeing customers trading in other types of vehicles to go into trucks. That trend continues, and we do think there's, on top of that, pent-up demand for trucks given the age of the car parc that's out there as well. So you could see a tailwind from a demand standpoint for a few years on pickups.

Very helpful. Maybe if you could touch a little bit more on the full-size SUVs. The Tahoe and Yukon are arriving at dealerships now. What is the time frame for the Suburban and Yukon XL? The Escalade, I think, comes a bit later. What has the dealer and consumer interest been like? And are you able to dimension the profit potential impact on those vehicles at all?

Yes. Yes. And I started down this path here a few minutes ago. So first of all, the launch in Arlington, Texas is going very well. We were able to take advantage of downtime in May to finish up the retooling. So that's allowed us for a smoother transition and the opportunity to produce through what would have been the traditional July shutdown. So we have redesigned our all-new full-size SUVs. Our goal there is to protect our segment-leading leadership. So we have a lot of new technology, including infotainment, screens, styling. So significant differentiation between the 3 brands. New models. I mentioned AT4, which comes with a factory lift, so responding to customer input on that. Several things we're excited about from a feature standpoint. The all-new interiors provide up to 5 different display screens, 30 safety and vision features and other increased technology for convenience. The Escalade, I mentioned this before, will be the first full-size SUV with Super Cruise. Yukon has an even more upscale Denali. And our first-ever Yukon AT4, so building off of the success from the pickup. They also have our new, what we call, Vehicle Intelligence Platform, which allows smartphone-like, over-the-air software updates and enables adoption of functionality upgrades through the life cycle. So this is like the brain and nervous system of the vehicle we've given a massive upgrade to. And I mentioned before talking about Super Cruise and Escalade, the kind of capability and flexibility that it gives us. So customer, and then more recently, media feedback has been very strong. We're just starting to see reporting from ride and drives that we've conducted on GMC and on Chevrolet. So positives that they're seeing, that we're hearing from media consistently are the powertrain offerings that we have. A good example there is, Chevrolet is the only automaker to offer a full-size diesel SUV in the U.S. So that's something people have wanted for a long time, dramatically improved ride and handling. We have an all-new rear suspension -- independent rear suspension in these trucks. Increased interior space, both for passengers and cargo. I already mentioned technology and infotainment, safety and other driver assistance-type technology. So you add all that up, they're turning very quickly on the dealer lot. The GMC Yukon, for instance, has an average turn of only about 4 days. And the trim mix has been very rich, with over 90% being the Denali trim. So our Chevrolet and GMC dealers are selling every new Tahoe and Yukon that they can get. And buyers are very happy and very generous with their praise of the new design and the outstanding ride quality. So we'll continue to launch new models through the summer, including the Suburban and the Yukon. And as I touched on just before, we've begun building the 2021 Escalade. That's going well. And we are about a week away from releasing Escalade to commerce. So like our pickups, SUVs are commanding high ATPs, and we'll be using similar trim mix and packaging strategies to drive profitability. So yes, that's a look at where we are with the SUVs. So they're -- they've been important. They'll continue to be important. And so far, so good on the launch, and I'm pretty confident we're going to exceed our own expectations.

And my last question is on potential additional areas of profit. One thing I think GM has proven very successful at, in particular since Mary became CEO, is making those hard choices with regard to where to invest and exiting certain geographies, segments, nameplates, et cetera, where the potential for returns is less. So I don't want to second-guess any of that great progress. On the other hand, does it make sense sometimes to take risks with regard to initial investments without assurance of an immediate return? So I'm thinking, for example, Ford with the Bronco, making a run at what must be a very profitable product area for FCA with Wrangler. I think in the past, you had maybe wrestled with whether to do the same with HUMMER but demurred. You did make the investment with Navistar with regard to the heaviest-duty pickups. Maybe you could provide an update there. But with regard to, like, for example, the light commercial vehicles, forgive me, but GM's strategy, at least with the van seems to just be to make a solid financial return with the already amortized, but really pretty aged lineup with the Express and the Savana relative to, say, the Transit where Ford took a risk and invested in bringing that here. Does a part of you want to maybe take the plunge by investing more heavily into areas of the market where competitors are presumably making a lot of money?

Yes, there's a lot in that question. And I think it characterizes the exciting environment that we're in. So I'd do just a bit of a step back on that. We do have valuable franchises that we talked about here that are cash-generative. Those allow us to focus on some of the other investment types that you talked about in growth areas like EV and AV and other areas that, to your point, may not or do not offer immediate returns. So just to back us up a bit, we had a -- and you referred to this earlier, the event that we had back in March in our Design Dome, our EV Day, where we shared our Ultium battery system. So I think that's an example of where we're making considerable investments and dedicating a lot of R&D and product development to set ourselves up for the future. So we showed it in the guise of the LYRIQ, but that will, in fact, power our whole next-generation of EVs and deliver what will be outstanding range at a lower cost using significantly less rare materials like cobalt, which will drive the cost down. So we think the Ultium battery system -- and this fills more directly into your question. The partnership we have with Honda as well as the position that we have in China, we're well positioned to present a full-range lineup of EVs into the marketplace. So you saw that lineup. Many of you would have seen the lineup at the EV Day, and we're started -- excited to start sharing that with the rest of the world starting with LYRIQ last week. So LYRIQ is -- it's a car, it's a great car, but it's also part of the leading edge of a very important story. And then I referred also to HUMMER EV, which you'll be hearing more about here in the coming weeks. So back to LYRIQ. It's a significant vehicle for us. It marks the beginning of a transformation that will shift our entire brand over the next decade. So when I talk about it, I like to say that the decade that we're in, the 20s, we enter it as an ICE brand and we exit it as an electric vehicle brand. So it's the end of the ICE age for Cadillac. So it's very, very significant what we're doing here and very comprehensive. So LYRIQ will be powered by this Ultium battery technology with the range and the charging capability that we talked about and the experience that the buyers are -- have been asking for, and that's just right around the corner for us in 2022. The HUMMER EV, we'll reveal that this fall. The -- it will be terrific if you got some of the highlights from the teaser here a couple of weeks ago, amongst other things, 400 miles of range. And going into production just over a year from now, in the fall of 2021. You asked about Navistar. The significance of that partnership is it allows us to be a full-line manufacturer when you think about commercial fleets. And so it drives or enables what we call -- refer to as adjacent sales. So a lot of our fleet buyers, their preference is to go to one manufacturer and fulfill as much of their portfolio need as they can. So that -- at that end of the range, we had a hole for quite a while. So we're happy to have that range of products now in the portfolio for our customers and our dealers. And I guess, more broadly, a gentleman called Alan Wexler, he's our new Head of Innovation and Growth. He will be joining us here almost momentarily. And his focus will be on executing our current growth opportunities, but also accelerating the exploration of new growth opportunities. So Alan brings a proven track record and decades of experience leading a culture of innovation and customer-driven technology solutions. So he's well positioned to help accelerate our transformation. His role will be to challenge the status quo and disrupt us and our business and execute strategies that will lead to future growth. So I've had the opportunity to talk to Alan a few times now, and I tell you, he's just very excited by the portfolio of what he has to work with and the moment in time that we're in. So -- and that's reflective of our commitment to always be exploring opportunities that are going to create long-term shareholder value. And we can discuss -- we discussed how we can move even faster into the better future that we envision and how to continue to innovate to deliver safe, efficient, connected vehicles and services that lead the industry and exceed our customers' expectation. And candidly, I mean, during this -- we had a lot of these types of conversations. Back to your earlier question of did COVID accelerate or delay or whatever. It really did accelerate thinking about the future and other areas to get into. Because when you're in this kind of environment or that kind of environment, there's really nothing that's off the table when we think about how we create long-term value. So it's one of those things where that whole experience has really cleared our minds to think in an even more focused way about the future and areas that we need to be looking into.

That was a fantastic rundown. Looks like we're out of time. Thanks so much, Steve, for all the great insight that you shared today.

You bet. Ryan, thank you for the opportunity. It was awesome.

You bet. Thank you.