General Motors Company (GM)

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General Motors Co. (GM)

Q3 2011 Earnings Call

November 9, 2011 9:00 a.m. ET

Executives

Daniel Akerson - Chairman, Chief Executive Officer and Chairman

Randy Arickx - Director of Investor Relations

Daniel Ammann - Chief Financial Officer and Senior Vice President

Nicholas Cyprus - Vice President, Chief Accounting Officer, Controller

Chuck Stevens - Chief Financial Officer of North America

James Davlin - Vice President, Finance, Treasurer

Analysts

Adam Jonas - Morgan Stanley

Himanshu Patel - JPMorgan

Rod Lache - Deutsche Bank Securities

John Murphy - Bank of America Merrill Lynch

Christopher Ceraso - Credit Suisse

Brian Johnson - Barclays Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the General Motors Company Third Quarter 2011 Earnings Conference Call. During the presentation all participants will be in a listen-only mode, after which we will conduct the question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Wednesday, November 9, 2011.

I would now like to turn the conference over to Randy Arickx, Executive Director of Communications and Investor Relations. You may proceed, sir.

Randy Arickx

Thanks, operator. Good morning, everyone. Thank you for joining us as we review our third quarter 2011 results. As you know our press release was issued earlier this morning and the conference call materials are available on the investor relations website. I’d also like to highlight that GM is broadcasting this call live via the internet.

Before we begin, I would like to direct your attention to the legend regarding forward-looking statements on the first page of the chart set. As always, the content of our call will be governed by this language.

This morning, Dan Akerson, General Motors' Chairman and CEO, will provide opening remarks; followed by a more detailed review by Dan Ammann, Senior Vice President and CFO. Dan Akerson will then conclude the remarks portion of our call with some closing remarks.

After the presentation portion of the call, we'll open up the lines for questions from security analysts. I would also like to mention that today we have Nick Cyprus, Vice President, Controller and Chief Accounting Officer; Chuck Stevens, CFO of North America; and Jim Davlin, Vice President, Finance, and Treasurer, here to assist in answering your questions.

With that, I'll turn the call over to Dan Akerson.

Daniel Akerson

Thanks, Randy. Good morning, everyone and thank you for joining us. In summary, we produced a solid quarter. Generating our best results in North America and China, the world’s most important markets where GM is a market leader. Today's results are an affirmation that we continue to make steady progress on our long-term goal, sustained financial performance. Having said that, it’s also clear, we have a lot more work to do. Especially in Europe, which is being hurt by challenging economic conditions and in South America.

Turning to slide two, our global deliveries and net revenue were both up nicely year-over-year, reflecting the benefits of our broad global footprint and the value consumers see in our vehicles. Our deliveries were up 9% to 2.2 million units and net revenue was up 8% to $36.7 billion. It’s always nice to outpace the market which we were able to do with our global share increasing to 12%, including gains in North America and China.

We delivered $2.2 billion in EBIT adjusted, down $100 million versus the prior year. We saw higher volume and better pricing, but that was offset by increased cost which were mostly engineering and marketing expenses, as well as unfavorable vehicle mix. We continue to be encouraged by the strong performance of GM North America, which improved its EBIT adjusted to $2.2 billion, largely on the strength of a strong sales of fuel-efficient vehicles across the portfolio. Despite a $300 million improvement versus a year ago, GM Europe lost $300 million in the quarter, reflecting the weakened vehicle market there, which itself is a manifestation of Europe’s economic morass.

GMIO reported EBIT adjusted of $400 million, down $100 million from a year ago levels, mainly due to increased engineering expenses at our fully consolidated units. And GM South America reported breakeven EBIT adjusted, down $200 million from the third quarter in 2010, largely due to increased cost. During the third quarter we continued to make good progress, strengthening our fortress balance sheet. Yesterday we announced the establishment of the Canadian Healthcare Trust reducing our OPEB liabilities by $3 billion.

In the third quarter we generated $1.8 billion at automotive cash flow from operating activities, and $300 million in automotive free cash flow. We ended the quarter with available automotive liquidity of approximately $39 billion. All in all, a solid quarter in which we continued to generate profits and cash despite the uneven global economy. But we have opportunities within our control and challenges outside of our control to work through as we pursue sustained profitable growth around the globe.

Away from the numbers, we had a very busy third quarter indeed, accomplishing a number of things that bode well for the company's future. First and foremost among them, of course, was completing a four-year labor agreement UAW partners. The new contract is a landmark deal for all involved and is very important to us because it allows us to maintain our low breakeven level and protect our balance sheet. It also gives our employees an even more direct stake in the company's performance, and very importantly it creates jobs.

In other news since I last spoke to you, GM has seen some very important corporate credit rating upgrades. Thanks to continued solid operating performance, our fortress balance sheet, and a new labor agreement, both S&P and Moody’s now have us just one notch below investment grade. We signed a new agreement with SAIC for electric vehicle development. We intend to lead the way, we intend to lead the industry in advanced technology and this is just another step in that direction.

We also signed an agreement with LG Group, to jointly design and engineer future electric vehicles. This will help us expand the number and types of electric vehicles we can offer by leveraging LG’s proven expertise in batteries and other systems. We also announced a number of new important products. The Cadillac ELR, the world’s first extended range luxury electric vehicle, the Chevrolet Colorado mid-size pickup, the Chevrolet Spark mini-electric vehicle, the Chevrolet TrailBlazer, mid-size SUV for global markets. And of course we marked Chevrolet centennial by producing the best sales so far in the company's 100-year history.

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