General Motors Company (GM) Earnings Call Transcript & Summary

Okay. We are nearing the tail end of the Eighth Annual CS Global Industrials Conference. We now have a very exciting speaker to close out the autos track. GM and specifically, Duncan Aldred, who's the Vice President for Global Buick and GMC, Sales Service and Marketing. I think this is going to be a very interesting opportunity. Duncan is going to share some slides, but a lot of interesting things going on at the GMC side, especially incorporating a lot of, I think, the key strengths of GM on the large pickup front, the large SUV side, and, of course, on the EV front with Hummer. So Duncan is going to go through some slides. And then we'll have a few minutes for questions at the end. If you have any questions you'd like to address, please e-mail me [email protected], and I'll do my best to address them. But with that, Duncan, thank you so much for joining.

Yes. Thank you very much. Great to be here again. And I'll just say, what we want to do today is talk about GMC. It's an amazing story, I think, in terms of the power that we've generated with GMC, not only in volume, but in terms of average transaction price, and obviously what that means is it's a very powerful business unit, and that's why we want to just talk you through that today. Obviously, really exciting addition to GMC has been the HUMMER EV, and I'll also give you a quick update on that. So I'm going to share my screen now, and then we'll start walking through. Okay. So first things first, what is GMC, what makes it special? Well, we position it as the only premium truck and SUV brand in the industry. There's a lot of brands out there, obviously, now selling SUVs. The trend has gone that way. There's far less that sell trucks as well. But really, when you put them together, there's only one that sells trucks and SUVs and really does it in this premium space, and that's really what makes us unique. Our brand is really epitomized on 3 key pillars. It's bold. Everything about it is bold. It's capable. It's inherent in a 100-year history of building trucks, but also it's precisely crafted. And again, it's that combination of those 3 key pillars, which really give us this unique positioning in the marketplace. So how has the year gone so far? And obviously, you'll be aware, this isn't a 1-year success story by any means. In fact, we've grown pretty much each and every year for the last 6 years in terms of our retail market share. But this year has been an extremely powerful year for us. Obviously, in the most unique of circumstances, we have seen the industry tip a little bit more towards pickup trucks. Utilities are running very strong by semi full size utilities, such as the new Yukon. As a segment, they're running very strong. And obviously, this has worked very well for GMC. So where are we at the year? Well, we've grown our retail share yet again. So again, growing our share in this industry. But we've also done it with a mix of sales that, again, the richest that we've ever seen. We've achieved the highest average transaction price on record through quarter 3, it was very powerful indeed. We're actually through the $50,000 barrier now as a brand at retail, which again, is right up there. And really, you may not think of GMC traditionally as a luxury player. But when you're into those kind of price points on average, then it's very much up there, for example, with the likes of Audi, and that's as an overall brand. When you compare GMC ATPs versus an industry average, you can see it's hugely higher than that industry average, 33% higher, and it's actually growing quicker than the industry as well. A lot of the reasons why that's happening is that we put focus on our sub-brands and the sub-brands of the Denali line available across the range and AT4, which is well on its way to being available across the range. Denali is the ultimate expression of luxury within the GMC lineup, the top of the line vehicle. The AT4 is very similar, but it actually does it in a premium off-road way. So it takes off-road, has more capability, but also maintains a lot of the luxury type features in terms of interior quality materials that you might see with Denali. So again, still very high priced. And between them, they are now accounting for about 40% plus of all GMC retail sales. And again, that's really what's contributing to the richness of this mix and these very high average transaction price. Now a core part of our business and our success has been the pickup trucks, both light-duty, and heavies. We're the fastest turning trucks in this segment, so we're operating with the lowest inventory. On average, we're actually turning a vehicle every 24 days. If you were to speak to dealers now, they'd basically say everything was presold before it even arrived. So we're operating with very fast stock turns, very low amounts of inventory. But we're also the fastest-growing pickup trucks in the industry as well within the segments. And we were the fastest-growing last year. We're the fastest-growing again this year. And again, it just continues the momentum that we're building. And of course, we just introduced our all-new Yukon. And again, this is proving to be really, really successful. A big step-up in terms of average transaction price between the outgoing model and the new one, and you can see this is a vehicle that's selling well into the mid-70s and beyond there, $70,000 and beyond. So some quick snapshot of some highlights this year. Now I didn't think it was worth just really underpinning where we've taken the brand since sort of 2013, '14, in particular, where we did a little bit of a reset, and we really did begin to build the sub-brand, the Denali sub-brand and really started focusing more on the richness of the mix, the quality of the mix of sales that we've got. So on the left-hand side there, you can see the average transaction prices. And we're showing those against some of the luxury brands. Again, you wouldn't necessarily think of us -- comparing us by there. But you can see we made a step change from 2013 to '14, and then we've continually gone up and up and up. And then through this year because it does -- if you just look at the scale there at the bottom, it does move from an annual scale to the quarters of this year. And you can see really what's happened this year. And I mentioned there before that we're right up there with Audi now as in terms of an average transaction price. The interesting thing about that is a lot of these luxury brands are doing 150,000 retail, maybe 180,000, 190,000 in a more normalized year. GMC is typically doing more like 500,000 at these kind of prices. So really, really good progress there. And then on the right-hand side of the chart, what we've shown again, going back to calendar year '13 and then into '19, this is the gap between the industry average and GMC. And you can see that we've massively grown the gap between the average transaction price to the industry and ourselves and pretty much doubled it actually since that 2013 period through to where we are now. So again, just some data points there, which really, I think, exemplify the richness of the mix that we've managed to create with GMC. I mentioned about the sub-brands being a huge part of this. Denali, I think is well understood, less so is the AT4. But again, this is the pioneer of premium off-road. And again, really selling at the high end. Again, a few statistics on Denali. First of all, it's about 28%, gets as high as 30% of all GMC retail sales. So very powerful, [ over 1 in 4. ] And again, when you just take that subsegment of Denali, and say, okay, well, how does that price out? It's really getting up there to about that $60,000 price point level. So when you consider about 140,000 Denali sold each and every year, an average price of nearly $60,000, then it really is performing very much like a luxury brand. And in terms of price paid, it's actually higher than the brands we see there. AT4 is a similar -- we really saw a change in the market and an increase in the demand out there and the trends out there for more rugged-looking vehicles and also more capable vehicles. But where we felt we could be really unique on GMC was also offering this premium element. And that's where the phrase there, the pioneer of premium off-road came from. We introduced it on the light-duty Sierra, and now it's available pretty much across the range. It will come in on the terrain compact SUV mid next year. And already, it's proven to be very successful, fastest turning trim we've got, it's conquesting more business from other brands than the other trims. Again, a very, very high ATP as well. So again, this is really following in the footsteps of Denali and being a very, very powerful sub-brand for GMC. Okay. So Sierra is obviously a big, big part of the success. So a few quick touch points here to exemplify that again. Highest ATP in this segment pushing $50,000. We've actually broke through that now on light-duty, and we're the first and still the only brand to have done that. Fastest-growing and fastest-turning vehicle in the segment, operating with the lowest inventory turning it faster, really just showing the underlying demand that's out there for this vehicle. And we are growing our segment share, as we've said there. Still plenty of room to grow from my point of view. On the heavy-duty side, a remarkable story here, again, fastest-growing truck in the segment, highest ATP in the segment, over $66,000. Way above the segment average there and our segment share, again, growing very quickly and still a lot of upside from our point of view. The wonderful thing about this from our point of view is that, again, the mix of sales on heavy-duty is really, really high. So you can see 72% of all heavy-duty retail sales are Denali and AT4, which are right at the top of the price points that we offer. Okay. Quick checking on the new Yukon. We launched this just about 3 months ago. And obviously, we've enjoyed great success in the past with this vehicle. And the early signs, the first 3 months or so as we've been ramping up production are really not only continuing that, but I'd say almost creating a step-change in terms of performance. So off to a really outstanding start. We sold -- getting onto 10,000 vehicles, again, a really rich mix. 63% Denali's. A lot of them are AT4's as well that those are the price points. And you can see there in terms of those average transaction prices, mid 70,000 really in terms of what we are achieving when you combine the, what we call the Yukon, the short wheelbase and the XL there. So off to a really great start. The other thing that I'm really pleased about is the segment share and the segment is growing. It's actually December. It will be a great acid test because it's always seasonally, it's the biggest month of the year for this segment. But so far, in the ramp-up phase, we're in the low 20% segment share, but we're really on pace to get closer to about 30%. So again, it really just shows, not only GMC's performance in this segment, but we all know as well, Chevrolet do very well. And we absolutely dominate what is a very lucrative segment of the industry. So again, early signs on Yukon, really, really powerful. So a lot of exciting stuff there. But if we're honest, probably the most exciting thing this year is being the HUMMER EV and the introduction of that. And of course, we were delighted to introduce that this year as part of the GMC range in our first foray into EVs. In terms of what we managed to achieve on the launch, again, with COVID -- and not just with COVID, but we really would step back and said, how do we do this in just an amazingly impactful way. And of course, you may remember, in February, we did a teaser spot within the Super Bowl, but the real reveal was a film, which was put out on social and on our web platforms in October. And the results were quite spectacular. It's a 6-minute film, which not only showed the vehicle, but told you a lot about the vehicle and then gave you the ability to reserve one. And it was basically the most-watched auto reveal in automotive history. 1.3 billion impressions, 370 million views, double what we got at the Super Bowl, beat any of the competitive benchmarks that we compared it against. And it created the highest website traffic of any GM model, any GM brand in GM's history. We offered an Edition 1, it's sold out in 10 minutes in terms of reservations. We were trending on Google and Twitter and a lot of the other key platforms there. And just all told, it was a really powerful launch and it really brought what is a great story to an awful lot of people. This just shows that it wasn't just the one-and-done on the day of the reveal. This is now website traffic that GMC gets. The norm line is the dotted red line. You can see when we reveal this, the day of and the day after, a huge increase in the number of visits to the site. But that really carried on for some considerable time afterwards into November. So again, not only was it generating a lot of interest in HUMMER EV, but it was also bringing a lot of people to the GMC site as well. Media really caught on to it. It was huge media interest, huge amount of articles written, the sentiment was very positive. The share price reacted positively. So again, on any measure, we were really pleased with how this went across. It wasn't just a U.S. phenomenon either. It did reach out globally. We were pleased with the pickup in China, in the international markets, and really across the world, something that this magnitude really did get picked up. And of course, that was part of our plan. We wanted to get GM known for being an EV provider and what better way to do that than with something as exciting as the Hummer, which really has got worldwide awareness. Connected with all audiences. So of course, pickup trucks typically is a male-dominated purchase vehicle. I think 90% plus of sales are to males. But nevertheless, with this messaging you can see here, we've got males and females on the left and the right, respectively, the various age ranges, and it really resonated well with all audience types. So again, we were very pleased that this message not only reached a lot of people, but everyone was very receptive and positive about it. Okay. So where are we with Hummer? I just mentioned there, I was going up to the manufacturing site straight after these sessions here, which I'm excited about. And our whole validation testing program is basically just getting underway. So it's going to go through obviously, the normal grueling winter testing schedule. We'll be doing that around Michigan and Northern Michigan. And again, I know we've got a really great strategy to really share that with everybody, all the constituents, whether it be the people who've reserve one or the people who just want to know about one. We've got a lot of people who've raised their hand if you like, please keep us informed, and of course, the investors and the media. So it's really exciting stuff. This thing is running very quickly. Okay. So that's a quick summary of where we are. Again, in summary, we've got this really powerful story with GMC. The core business is performing excellently. We're growing our market share year after year. We're also growing the quality of the sales, the sub-brands Denali and AT4 are performing exceptionally well. And of course, we've now brought in our first electric vehicle in the shape of the HUMMER EV, which has got off to a great start. So I'll pause there and happy to take any questions that you may have.

Great. Thank you so much, Duncan. So I'm going to run through some questions. I know we only have a few minutes left, but anyone who has questions, please e-mail me, I'll do my best to address what I can. So Duncan, why don't we just start with the product that you currently have in the market right now and specifically on the large trucks, Sierra and for Yukon. Obviously, we've heard about some challenges to the supply chain for North America. Can you just give us a sense of where you stand on the inventory side, how tight that is? And what the ability is to rebuild? How long should we expect tight inventories to last for you?

Yes. It's a great question. And obviously, we were impacted, first of all, by the strike that we had. Seems a long time ago now, and it's somewhat paled in significance given COVID and the challenges. But obviously, that reduced the amount of inventory that we had out there. And then it was compounded not that much later by the shutdowns that we experienced because of COVID. Supply chain manufacturing has done an outstanding job since they've gone back to work, they kept everything working despite flare-ups in COVID, again, really kept a very safe environment. But of course, what we've also seen is a shift geographically within the country to areas which generally sell more trucks, such as the South Central area, maybe less impacted by lockdowns than some of the other areas of the country. And that's also stimulated. But I also think in its own right, the pickup truck segment as a percentage of the industry has continued to grow. I mean it's topping 15% of the retail industry now, which is pretty much the highest it's ever been. Now within that, we've done very well as well. I mentioned there that we're growing faster than any other pickup truck brand out there. We're doing it this year. We did it last year. So as good as our supply chain and manufacturing are being, I think the sales operation is maybe one step ahead of them. So it does mean that the inventory is very low. As I said, we're turning the trucks in the low 20 days on average, but actually, it feels like a lot quicker than that. And to be honest, even though we're going to make gains in terms of production and capability in line rate and things, I think we're going to -- this is going to be a normal -- a new normal, really as we go through next year. The dealers and with the dealers, we're getting better at selling deeper into the pipeline of build as well. Just things like as soon as the vehicle is given to a transport and now the logistics company is now going to go straight on to a dealer's website is available for sale. Historically, it would only go on the dealer's website when it reached the dealer showroom. So we're actually now marketing vehicles further back in the cycle, and we think there's more improvements we can do there. So it's a nice challenge. We're doing very well at it. I think stocks are going to remain very low, but it means -- but we still believe we can continue growing our volume and our segment share.

Good. And on the large SUV specifically and you gave some pretty elevated ATP numbers for Yukon. I assume right now, it's the typical strategy of you launch a vehicle, you start with the richest mix, so a lot of Denali, a lot of AT4. But then as time lapses post-launch, you start to normalize the mix. So maybe give us a sense on how this starts to look, call it, 6 to 12 months from now as the mix normalizes. I guess more broadly, we know that your large SUVs across the GM lineup and I think Yukon is a good snapshot of this are some of the highest variable profit units across the lineup. How much of this is sticky maybe versus how much normalizes? How -- what's the profitability of this now versus the old K2XX truck? Are we seeing structurally higher variable profits today in your large SUVs versus the prior K2XX?

I think it's fair to say just on the last point, there's more material cost gone in, there's a lot of new equipment that's gone in which has driven some of that material cost. But the average transaction prices have also gone up. So I think it's fair to say that they're very comparable in terms of variable profit. In terms of the mix, GMC really created somewhat of an anomalous cycle there. I think how you explained it is a very normal way of doing things. It launches rich and then it evens over time. But if I tell you that the Yukon, the outgoing model over its whole life cycle sold at about 60%, 6-0 percent Denali top of the line. That shows you that, yes, we started strong now, more like 65% Denali, but it really does stay about that level. I mean, most people who want Yukon tends to want the higher ones. So really a steady-state for us. I think it's going to be in the 60% Denali's, probably in the 10% to 20% AT4's as well which will be priced just below. So it is going to be a very sustained, very high rich mix. AT4 as is tended to happen has probably been received a little bit better than we even predicted. It happened on pickup trucks and then it seems to be happening on utilities as well. So I'm very optimistic that we're going to maintain these price points. Certainly, the mix of sales is very high. Whether we start just feathering in incentives over the life cycle, that's probably what will happen. But I think we will and expect we will get a very rich mix of sales really over the life cycle.

Good. Let's ask about AT4. And you've given us some helpful numbers there. Is it possible for AT4 to be expanded to other brands? And I guess I'd ask more broadly, look, I think we're seeing a resurgence or we're seeing elevated interest in off-road, given some of the product actions by your competitors. I guess I'm wondering, how does the off-road story for GM compared to Wrangler or Bronco. Do you think that AT4 is your solution? Can you get to the levels or to the volume or to have the same type of off-road franchise as what we see with Wrangler and what Ford is building with Bronco?

I think we can. And this has been a long time in the making, the AT4. Again, we recognize the trend in the marketplace, but also it's very distinct that we're going to do it the GMC way. We are going to do it our own way. And what is that? Well, it's not just off-road, it's premium off-road. So it's maintaining a lot of the premium features, such as interior quality materials, such as technology, camera views, head-up displays, things like -- the things that really you would typically expect or see on luxury vehicles or Denali, perhaps. We're putting those into the AT4, which does differentiates us from some of these, let's call them, pure off-road brands. But as you'd expect with GMC, we do have the capability as well. And so it's this real beautiful combination of premium and capability, and that's really what AT4 is. We think there's a lot of mileage in this sub-brand. As I said, it's invariably exceeded our expectations. We introduced on the light-duty. It represents about 1/4 of all the light-duty sales now. Heavy duty, it continues to do very, very well. It's available now on the midsized truck, the Canyon. It represents about 35% of the sales since we introduced it. So again, a very high proportion. We've got it on the Acadia, which is the 3 row midsize SUV and we'll complete the lineup next year with the Terrain compact. And really, when we get to steady-state, again, I think AT4s combined will be probably pushing 100,000-plus in terms of vehicle sales. So when you compare that to the brands that you've just mentioned, I think it is significant. It is material. That is a lot of volume. And again, it's going to be all at a premium price. So it is different. I think it's tapping into some of the similar customer desires, but we're really pleased with how we've differentiated ourselves and how it's resonating with our customers.

Good. Let's wrap up with a few questions on Hummer because I think that's really the top of de jure. And maybe -- I don't know if you can give us an update or a sense, first of all, on where we've seen obviously very -- a lot of Hummer traffic, how has that translated into reservations? Is there a reservation figure you can give us? And I believe the reservation amount is $100 per vehicle. So an update on reservations, if at all.

Yes. We went with $100. It was pretty industry standard by the time we went out there. We did have a lot of conversations about it, but we went with the general industry standards. We're not really sharing the number reservations we've got other than we're very, very pleased with the number we've got in terms of that first edition, that's sold out in no time at all. And most of the other reservations that we've got, we actually gave them the opportunity and said, well, if you get a chance to get a first edition if someone drops out, would you want to be on that waiting list. And again, thousands and thousands of people said, yes, please. And I think that's a combination that, a, people want the best one; and b, they want the first one. So -- and obviously, those first editions are going to be right up there. We've also got what we call hand raises. So people who've given us the details that please keep me informed, some of them have made reservations as well, and that's tracking well over 100,000 hand raises as well. So again, just clarify, that's hand raises, that's not reservations. But again, we're delighted with the interest that we've got, we're delighted with the reservations we've got, and we're delighted with the whole progress of HUMMER EV, not in terms of -- not just in terms of the story we've told, but in every aspect of it, whether it be vehicle development, reservations, interest, and what it's doing for the brand, really good start.

And I think that Hummer is a great first vehicle for GM to start on the BEV3 platform. But I think we know you're ultimately playing for higher volume if your aim is to get to the million units of EV by mid-decade. So -- plus, I believe, is your updated number. So help us understand what's the -- what parts of Hummer should we expect to be scaled to your lower price points as you raise it on? And we know about Ultium, we know BEV3. But what other aspects of Hummer get pushed out to the lower price points as well as you begin to roll out your GM BEV3 platform?

Yes. I think you've hit on the big ones there. Obviously, the battery technology is really the heart of the EV strategy. And again, the cost of that are going to come down, the scale is going to go up. We're going to get economies of scale, and that's definitely going to enable us to spread that technology into much lower and more affordable vehicles. But we're not just looking at the technology. We're also looking at the customer experience. We're looking at how we go to market. And I think it's fair to say that whilst we're working very closely with our dealers, and that's still very much in development, that there will be a lot of shared elements to that customer experience across our entire EV lineup. Clearly, again, there's going to be unique elements to GMC versus a Buick versus a Cadillac or a Chevrolet, but there will also be some common elements. So we're not only looking at trying to reinvent the vehicle here. We are also looking at that customer experience, that way of doing business. And we're really working lockstep with our dealers in developing that. So more to come on that one as well.

And let's maybe wrap up, that's probably a good final question. You're talking about working with the dealers. Can you clarify -- have you mentioned plans also to sell the HUMMER EV online as well in parallel? And just broader, I think you've commented on this before. There's obviously the question of distribution in an EV world. And I think we've seen Cadillac, you have to -- the dealers need to pay a premium to prepare the dealership for electrification product. Help us understand the dynamic with distribution and with the dealership. Can you continue to have in parallel of sales through dealers and sales directly to the customers? And what the uptake has been from dealers so far because not every dealer will opt-in, obviously.

Yes. So there's a few questions there. So we put in a participation agreement on EV. Again, similar to Cadillac and anyone who wants to sell any electric vehicle, you're going to have various elements of tooling and training and things like that. So there is a cost of entry to that. About 50% of the GMC network have elected to sign up and sell the HUMMER EV. We absolutely are going to sell HUMMER EV and electric vehicles through our dealer network. We see them as a real competitive advantage in this versus some of these new EV competitors. We know what they can do, not only from geographical coverage, but we also know what they can do from a customer care and an after-sales and a maintenance point of view. So really, we can take and work with the dealers to create, we believe, an industry-leading experience, one that has got the real convenience in there. But also, we can move into experiences for the customer again and remove any what might be considered traditional pain point. So I think we've got a great partnership with the dealers. We'll absolutely be going to market through them, and we'll be using them as a competitive advantage versus, let's say, some of the newer EV only brands that we're seeing out there. But I think from a customer point of view, the things that we can see that customers are beginning to like some of the convenience elements, removing some of the what people might call hassle from an experience, they are the things that we're going to try and remove whilst really working through and with our dealers to create a real best industry experience.

Great. And I think we're out of time. We're actually over time. So Duncan, you don't see them, but Mike and Diane, the rest of the GMIR team, thank you so much. Very, very timely, very good update, and we look forward to learning more and getting into the vehicle itself.

Great stuff. Thank you very much. Enjoyed it.

Thank you, everyone. Okay. Thank you. Open Exchange, you can now close the session.